UK interest rate debate continues

The Bank of England’s deputy governor for monetary policy has said that it would be “foolish to preannounce” a date for an interest rate increase.

UK interest rate debate continuesYesterday the Bank’s Monetary Policy Committee voted to keep interest rates at their current historic low of 0.5%.

Deputy governor Ben Broadbent said the Committee had no specific time in mind for a rise and comments by governor Mark Carney had been misinterpreted.

The interest rate has remained unchanged for 78 months.

The ultra low interest rate regime has boosted the housing market as homeowners enjoy record low mortgages rates, but penalised savers whose returns have dwindled to almost nothing.

Speaking to Radio 5 live’s Wake up to Money programme, Mr Broadbent said: “We are responding to things that are essentially… unpredictable.  And that means that it would not just be impossible, it would be foolish to pre-announce some fixed date of interest rate changes.”

Mr Broadbent said he saw no “urgency” to increase interest rates at present.

He added: “The economy clearly is recovering, but we had the most almighty financial crisis and there is still a bit of spare capacity left.”

“There is not that much inflationary pressure at the moment, [although] we expect that to build over time.”

The Consumer Prices Index, the most commonly used measure of inflation, fell to 0% in June, while earlier this week, the cost of a barrel of crude oil fell below $50, its lowest point since April.

Despite problems in the wider global economy, caused by the continuing crisis in Greece and fall in Chinese stock prices, Mr Broadbent said the overall outlook for the UK remained steady.

“We’ve seen unemployment come down pretty steeply,” he said, “and some signs of improving productivity growth. We’ve seen a material pick-up in wage growth, not sufficient to give us any big inflationary risk.

“But all of that would naturally lead to the case for some normalisation of interest rates to start building.”

He added that the economic recovery looked “well embedded and solid”, with the Bank expecting “steady growth over the next two years”.

Mr Broadbent was responding to media coverage of remarks made last month by the Bank’s governor, Mark Carney.

In a speech at Lincoln Cathedral on Monday Mr Carney gave what was interpreted as his clearest hint yet that the cost of borrowing would go up before 2016.

He said: “The decision as to when to start such a process of adjustment will probably come into sharper relief around the turn of this year.”

UK economic growth increases to 0.7% in second quarter

UK economic growth increased in the second quarter of the year- helped by a big jump in oil and gas production.

UK economic growth increased in the second quarter of the year- helped by a big jump in oil and gas productionThe UK’s economy grew by an estimated 0.7% in the April to June period, the Office for National Statistics (ONS) said which compared with growth of 0.4% in the first quarter of the year.

Britain’s recovery strengthened, as the official figures suggested growth per head was finally back to pre-crisis levels.

Output in the economy during the second quarter was 2.6% higher than the same period a year earlier, the ONS said.

“After a slowdown in the first quarter of 2015, overall GDP growth has returned to that typical of the previous two years,” said ONS chief economist Joe Grice.

The UK’s economy has now seen 10 quarters of sustained economic growth.

The ONS stressed the first estimate was based on about 40% of the available economic data and is subject to revision.

It said manufacturing output experienced its first fall in two years with output dropping 0.3% in the quarter.

However, a surge in North Sea oil and gas production lifted overall industrial output by 1% – the biggest increase since late 2010.

The “mining and quarrying” component of the industrial output figures, which includes oil and gas extraction, rose by 7.8% in the quarter, the biggest increase since 1989.

The ONS said the increase, which came despite falling oil prices, was driven by tax cuts in March designed to support the sector.

Construction was flat in the period, the ONS said, recovering from a slight fall the previous quarter.

The UK’s dominant services sector recorded growth of 0.7%, following a rise of 0.4% in the previous three months.

Domestic demand is expected to remain strong, as wages rise and with the temporary effects of low inflation boosting consumer spending.

The ONS said there were also signs that businesses were finally increasing investment.

George Osborne, the Chancellor, said the figures showed Britain was “motoring ahead”. He tweeted: “We must stay on road we’ve set out on.”

The economy is now 5.2pc larger than its pre-crisis peak, and ONS said the 0.7pc expansion in the second quarter suggested that gross domestic product (GDP) per head was now “broadly equal to the pre-economic downturn peak” in the first quarter of 2008. This is expected to be confirmed by the ONS next month.

Mark Carney, the Governor of the Bank of England, has said that “sustained growth” of “around 0.6pc per quarter” will be needed for the remaining “spare capacity” in the economy to be eliminated and for rate setters to start tightening policy.

Mr Carney said in a speech this month that the decision to raise rates would come into “sharper relief” by “the turn of this year”.

UK government borrowing falls in June after record tax haul

UK government borrowing fell to £9.4 billion in June, down £0.8 billion from a year earlier- as income and corporation tax receipts rose to record levels.

UK government borrowing fell to £9.4 billion in June, down £0.8 billion from a year earlierThe Office for National Statistics (ONS) said income tax receipts rose to £11.5 billion, while corporation tax brought in £1.7 billion- both record monthly highs.

It was lowest borrowing figure for June since 2008. However analysts had been expecting it to drop further to £8.5 billion.

In the financial year so date UK Government borrowing has fallen by £6.1 billion to £25.1 billion.

The ONS figures showed government finances received a £117 million boost last month from a fine paid by Lloyds Banking Group over its handling of payment protection insurance (PPI) complaints.

In the summer Budget earlier this month, the Office for Budget Responsibility (OBR) forecast public borrowing would be £69.5 billion this year.

Public sector net debt at the end of June 2015 was £1.513 trillion, or 81.5% of annual UK economic output- up from 80.8% in May.

A Treasury spokesperson said the figures showed the UK government’s deficit reduction plan was working but added “the job is not done”.

The UK government is aiming to eliminate the budget deficit by 2019 and to run a £10 billion surplus in 2020 and in subsequent years.

Chancellor George Osborne announced £37 billion of spending cuts during this parliament in the summer Budget.

In November, the government’s spending review will set out £20 billion worth of departmental budget cuts over the next five years.

Global stock markets slide on Greece debt crisis

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controls.

Stock markets in Britain, Europe and the US have fallen after Greece closed its banks and imposed capital controlsThe moves by the Greek authorities came after the European Central Bank decided not to extend any extra emergency funding.

London’s FTSE 100 index was down 1.47% and Germany’s Dax index fell more than 2%. In the US, the Dow Jones fell nearly 1% early in the session.

Bank stocks are among the hardest hit, with shares of Deutsche Bank and Commerzbank both losing more than 4%.

The Athens Stock Exchange and Greek banks will be closed all week.

On the money markets, the euro lost ground against other major global currencies.

The London FTSE 100 share index was down 98.47 points at 6,655.23 with other European markets seeing even bigger falls. Earlier in Asia, Japan’s Nikkei index fell nearly 3%.

On the currency markets, the euro saw volatile trading in Asia, falling by 2% at one point. However, it has since recovered some ground, with the euro down 0.15% against the dollar at $1.1149.

The euro has weakened against the pound, with one euro now worth £0.7089, while the pound buys €1.4108.

Oil prices are heading lower. Brent crude oil futures fell more than 1.5% to $62.10 a barrel.

Bond yields (an indication of borrowing costs) for Italy, Spain and Portugal – which are considered some of the weaker eurozone economies – rose sharply.

In contrast, German bond yields fell. German bonds are seen as safer investments in times of crisis.

Greece was due to make a €1.6bn payment to the IMF on Tuesday – the same day that its current bailout expires.

Last week, talks between Greece and the eurozone countries over bailout terms ended without an agreement, and Prime Minister Alexis Tsipras then called for a referendum on the issue to be held on 5 July.

At the weekend, the Greek government confirmed that banks would be closed all week, and imposed capital controls, limiting bank withdrawals to €60 (£42) a day.

There is zero chance of the European Central Bank turning Emergency Liquidity Assistance back on – life-saving lending to banks – unless Greeks give an affirmative vote to a bailout proposal from the rest of the eurozone and the IMF, which Juncker sees as a proxy for Greece’s monetary future.

As for Athens, most of the Syriza government detests the bailout offer – for the way it pushes up VAT and cuts pensions.

So we will have the bizarre spectacle of a Prime Minister, Alexis Tsipras, arguing both against the bailout and for remaining inside the eurozone – so goodness only knows how he will vote.

And Greek people will be torn between fear and loathing of bailout proposals that will damage the living standards of many of them, and fear and loathing of abandoning the euro and seeing their banks closed.

UK government borrowing deficit falls in May

UK government borrowing debt fell to £10.13 billion in May, the Office for National Statistics (ONS) said, down from £12.35 billion a year earlier.

UK government borrowing debt fell to £10.13 billion in MayA rise in income tax and VAT receipts helped to cut UK government borrowing in May, official figures have shown.
It was the lowest borrowing figure in May for eight years.

Public sector net debt excluding public sector banks now stands at £1.5 trillion, the ONS said, which is 80.8% of gross domestic product (GDP).

“While the deficit in the financial year ending 2015 has fallen by more than a third since its peak in the financial year ending 2010, public sector net debt has maintained a gradual upward trend,” the ONS said in a statement.

Income tax receipts recorded their highest level for May in four years, rising £0.5 billion, or 5.3%, from a year earlier to £10.8 billion. VAT receipts rose by £0.6 billion, or 5.6%, to £10.7 billion.

The ONS also said that it now estimated total public sector borrowing in the financial year to March 2015 was £89.2 billion, or 4.9% of GDP.

While this figure was slightly higher than the previous estimate, it was still £9.3 billion lower than the previous year’s total.

Analysts said the drop in government borrowing during May was good news for Chancellor George Osborne at the start of the new fiscal year.

Last week, the chancellor said he would attempt to bind future governments to maintaining a budget surplus when the economy is growing.

However experts say that the rise in public sector debt above £1.5 trillion will be troubling for Mr Osborne.

UK inflation rate goes positive

The UK inflation rate- as measured by Consumer Prices Index (CPI) rose to 0.1% in May, up from -0.1% in April.

UK inflation rate goes positiveThe biggest contribution to the rise came from transport, notably air fares, the Office for National Statistics said.

In April, CPI inflation turned negative for the first time since 1960, mainly due to a drop in air and sea fares.

ONS statistician Philip Gooding said: “Last month CPI turned negative, mainly because of falling transport fares due to the timing of Easter. This month, that fall has been reversed.”

He added that the falls in food and fuel costs over the past year “have eased this month, helping to push inflation up”.

While the prices of food and fuel rose in May from the previous month, the prices were still lower than a year earlier.

However, while the overall effect of food and fuel on CPI inflation pulled the rate down by about 0.5 percentage points in May, this was less pronounced than the month before when the prices had a negative effect of 0.7 percentage points.

In May Retail Prices Index (RPI) inflation, a separate measure which includes housing costs, was 1%, up from 0.9% in April.

Bank of England governor Mark Carney has said he expects inflation to remain low in the short term.

The Bank expects near-zero inflation to help the UK economy by boosting the spending power of households.

Chancellor George Osborne said “a powerful mix of low prices and rising wages” was “good news for working people and family budgets”.

Nevertheless, he said: “Of course the job is not done and we will continue to remain vigilant to all risks, particularly when the global economic situation is so uncertain.”

Greek worries wise money markets

European stock markets have fallen sharply as senior EU officials have discussed a possible Greek default for the first time.

European stock markets have fallen sharply as senior EU officials have discussed a possible Greek defaultThe Athens stock exchange closed nearly 6% lower, while Germany’s Dax and France’s Cac 40 closed more than 1% lower.

Stocks in the National Bank of Greece fell by more than 10%, while Piraeus Bank fell more than 11.5%.

According to official sources quoted by news agencies, senior eurozone officials meeting in Bratislava on Thursday held their first formal talks on the possibility that Greece might default on its debt payments.

Also on Thursday, officials from the International Monetary Fund (IMF) pulled out of talks with Greek politicians in Brussels, citing “major differences”.

Greece is seeking to avoid defaulting on a €1.5 billion debt repayment to the IMF by the end of June.

Shares on the Athens Stock Exchange had soared on Thursday amid renewed optimism about Greece’s talks with its creditors.

The index climbed more than 14% – the best performance in several weeks, but the IMF’s withdrawal has dampened investors’ moods.

On Friday, Jeroen Dijsselbloem, president of the Eurogroup of finance ministers, said a deal without the IMF was “unimaginable”.

However, German Chancellor Angela Merkel urged all parties to continue negotiations.

Speaking at a business conference in Berlin, Ms Merkel said: “Where there’s a will there’s a way, but the will has to come from all sides, so it’s important that we keep speaking with each other.”

In London shares continued their downward slide as fears over Greece’s ability to negotiate a settlement with European creditors dented sentiment.

At the close, the benchmark FTSE 100 index was down 61.82 points, or 0.9%, at 6,784.92.

The top riser was Royal Mail, up 2.78%, recouping some of Thursday’s losses.

The postal services company had fallen 4.5% on news that the government had sold 15% of its remaining 30% stake in the company, raising £750m.

The biggest faller on the 100-share index was Johnson Matthey, down 3.1%. On the FTSE 250, platinum producer Lonmin fell 7.1%, compounding earlier losses in the week, after mining and commodity firm Glencore distributed its 23.9% stake in the company to investors.

On the currency markets, the Pound was up 0.41% against the Dollar at $1.5581 and up 0.25% against the euro at €1.3818.

UK trade deficit drops to £1.2 billion in April

The UK trade deficit dropped to £1.2 billion in April from £3.1 billion in March according to the Office for National Statistics.

UK trade deficit dropped to £1.2 billion in April from £3.1 billion in March An £8.6 billion deficit on goods was partially offset by an estimated surplus of £7.4 billion on services the ONS said.

The ONS added that in the quarter to April, exports were flat after 0.3% growth in the first quarter, but imports were up 2.1%, the same as in the three months to March.

UK exporters have struggled in the face of weak demand in the eurozone.

Part of the deficit dip was down to a fall in imports of art and furniture, said the ONS. Another factor was less oil being imported.

Last year, companies began stockpiling oil as the price of the commodity collapsed.

The deficit – a description of how much imports exceed exports by value – was less than economists had expected.

“Monthly trade figures are notoriously volatile but today’s significant improvement is nonetheless very welcome, but there is no room for any complacency,” said David Kern, chief economist at the British Chambers of Commerce.

“The longer term trend still shows a worsening in the trade position in recent months. It is clear that we are not making enough, sustained, progress in closing the trade gap.”

The UK’s trade deficit for 2014 widened to £34.8 billion, the biggest gap since 2010.

What these figues continue to point out is the futility of focusing our exports on countries which are struggling economically rather than English speaking countries with growing economies.

Flat month for UK markets

U.K. shares cut their monthly gains in the last minutes of trading at the end of May.

U.K. shares cut their monthly gains in the last minutes of trading at the end of MayIn what was otherwise a volatile day for the markets, the FTSE 100 plunged in afternoon trade to close the month 56.49 points lower at 6,984.43 amid continued uncertainty regarding the Greek debt situation and disappointing first-quarter GDP data from the US.

Greeks say they will pay the IMF their next debt installmenty this week as capital flight hits a new record.

The FTSE 100 Index slid 0.8 percent to 6,984.43 at the close of trading in London. The gauge fell 0.7 percent this week, trimming its monthly gain to 0.3 percent. The volume of shares changing hands was 32 percent greater than the 30-day average.

The broader FTSE All-Share Index dropped 0.7 percent on Friday, while Ireland’s ISEQ Index lost 1.4 percent.

A slew of upgrades sent shares higher. Engineering group Weir advanced 48p, or 2.4pc, to £20.24 after Credit Suisse raised its price target from £19.15 to £22.05.

Ophir Energy also made gains of 4.2p, or 3.3pc, to close at 131.4p as Barclays raised its target price to 225p from 200p owing the upgrade to the company’s ability to “take advantage of declining industry costs”.

Conversely, Ashtead Group tumbled to the bottom of the FTSE 100 for the second consecutive day, falling 41p to £11.20 after its US rival United Rentals had talked down May activity at an industry conference in the US on Thursday.

Joining the laggards, Synergy Health plummeted in afternoon trade, shedding 72p, or 3.8pc, to £18.23 following a move by the US Federal Trade Commission to block its $1.9bn merger with US peer Steris. Both companies said they would fight the lawsuit. Analysts at Canaccord Genuity described it as a “simple transaction” that has become “complex”.

UK government borrowing unexpectedly falls to £6.8 billion in April

UK government borrowing fell unexpectedly to £6.8 billion in April, down from £9.3 billion a year earlier.

UK government borrowing unexpectedly falls to £6.8 billion in AprilIt is the lowest April government borrowing figure since April 2008, when public borrowing stood at £2.5 billion.

The Office for National Statistics (ONS) also revised its previous estimate of borrowing for the full financial year up slightly to £87.7 billion, from £87.3 billion.

But that was still comfortably below the government’s target of £90.3 billion.

As it is the start of the financial year little can be gleaned from the public borrowing figures as yet.

And as the ONS itself warned last week, borrowing figures in the first few months of the financial year are often subject to revisions.

In his March Budget, Chancellor George Osborne forecast public sector net borrowing would amount to £75.3 billion this financial year.

Last month, official figures showed the economy grew by 0.3% in the three months to the end of March, compared with 0.6% in the last three months of the year.

Mr Osborne plans to hold a new Budget on 8 July, when he is expected to outline his strategy to eliminate the deficit by the end of 2017 and achieve a Budget surplus in 2018-19.

It is expected he will outline £30 billion of spending cuts to government departments, including £12 billion of cuts to welfare spending.

It is also possible the chancellor may revise the government’s borrowing targets.

A Treasury spokesman said the borrowing figures showed the government’s deficit reduction plan was working, with borrowing in April £2.5 billion lower than the same month a year ago.

“We have more than halved the deficit, but at just under 5%, it is still one of the highest in the developed world,” the Treasury official said.

“There is no shortcut to fixing the public finances, so we have to continue with the hard work of identifying savings and making reforms necessary to finish the job and build a resilient economy.”