Pound sinks as Mark Carney stifles rate hike talk; Oil plunges into bear market on oversupply concerns

Now is not the time to raise interest rates, says Bank of England's Mark Carney

Now is not the time to raise interest rates, Bank of England governor Mark Carney said this morning, warning of "anaemic" wage growth and a likely hit to incomes as Brexit negotiations begin. 

"Given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment," he said.

His comments come a week after the shock Bank of England split vote on rates. Three policymakers on the MPC voted to raise rates. Carney voted to keep them at a record low of 0.25pc. 

Philip Hammond says Britain is 'weary' of austerity and outlines priorities for Brexit

The Chancellor, Philip Hammond, has said Britain is "weary" of austerity and has made an explicit call for a transitional deal as the UK exits the European Union. 

Mr Hammond said the country was "weary" of austerity "after seven years of hard slog" and signalled that the Government would boost investment in public services and could raise taxes to pay for it.

He noted that higher taxes "slow growth, undermine competitiveness and cost jobs" but failed to rule out increases, adding: "The Government will remain committed to keeping taxes as low as possible."

In a speech to a financial audience in London, which was delayed from last week, the Chancellor said: "We'll almost certainly need an implementation period, outside the (EU's) customs union itself, but with current customs border arrangements remaining in place, until new long-term arrangements are up and running."

Read the full story by Szu Ping Chan here

Other highlights: 

  • Oil plunges into bear market on oversupply concerns
  • Pound sinks to two-month low on Carney's steer on UK rates
  • S&P could cut Britain's rating again before Brexit terms known 

                                                                                                    

Market report: Commodity-related stocks falter after oil enters bear market

Oil plunged into a new bear market, touching its lowest level this year, as rising supplies threatened to undermine attempts by Opec to support the market through reduced output.

Brent crude slumped by as much as 3.1pc to $45.42 a-barrel, striking its lowest level since November last year. Oil prices have now fallen by more than 20pc since they touched a peak of $57.10 in January. Since late May, when Opec and non-Opec producers agreed to extend output cuts until next March, prices have plummeted 15pc.

Oil is back in a bear market after plunging 20pc from January peak Credit: Bloomberg

The fresh leg lower came on signs of rising output from Libya and Nigeria, two countries that are exempt from the Opec production cuts.

Joshua Mahony, of IG, said: “Clearly with crude supply elevated and summer demand not keeping up, there is reason to believe we could be looking at a summer of discontent for oil bulls.”

Pummeled by the sharp slide in oil prices, the FTSE 100 closed down 51.10 points, or 0.68pc, at 7,472.71. Meanwhile, commodity-related stocks tanked. Oil major BP tumbled 12.4p to 460.3p, and Royal Dutch Shell B shares closed 49.5p lower at £21.26.

Antofagasta slumped 37p to 755.5p, BHP Billiton dropped 39p to £11.40, Glencore lost 11.4p to 276.6p, and Rio Tinto finished down 88p at £30p.

Separately, Rio Tinto selected to buy its Coal & Allied division in Australia for $2.45bn, rejecting a higher bid from rival Glencore.  

Meanwhile, investors lost their appetite in Domino’s Pizza after a bearish broker note caused shares to sink to a 16-month low.

Broker Investec began covering Britain’s biggest pizza delivery firm with a “sell” rating and issued a price target of 271p on the mid-cap stock.

Analyst Karl Burns said: “We believe Domino’s Pizza faces a number of challenges with rising competition, increased price discounting, new store cannibalisation and a weak consumer environment likely to continue for some time.” 

Given the tough trading backdrop, Investec believes consensus estimates are “overly optimistic” on Domino’s like-for-like sales growth of around 4pc over the next two years, while franchise profits are likely to come under pressure.

After three-years of double-digit like-for-like growth, the FTSE 250 firm has begun to see a slowdown. In March, Domino’s reported lower-than-expected like-for-like sales in the UK for the first nine weeks of 2017.

Shares in Domino’s closed 20.5p, or 6.5pc, lower at 295p as the cautious note rattled investors.

Shares in Tesco also edged 3p lower to 168.1p after Independent Research cut its price target from 160p to 155p. A computer glitch, which disrupted home deliveries nationwide, also weighed on sentiment.

Its peer Morrisons climbed 3p to 247.5p despite a price target downgrade by HSBC. The bank thinks Amazon might look to the UK for potential targets following its acquisition of Whole Foods. However, analysts said a partnership between Morrisons and Amazon “may not be right”.

Elsewhere, plumbing and heating supplier Wolseley dipped 1p to £48.83, on softer third quarter margins.

Luxury fashion house Burberry was among the risers, up 13p to £17.55, after Berenberg lifted its price target to £19 from £18.40 as it believes the group’s performance is improving month-on-month.

Away from the blue chips, outsourcer Serco climbed 0.5p to 118.5p on the back of a $2bn contract win, while service office provider IWG plunged 26.5p to 333p after its founder and chief executive Mark Dixon offloaded 27.3m shares in the company.

On Aim, Tlou Energy powered 1.9pc higher after it generated first power from its coal bed methane project in Botswana, while Aminex said confirmed it is debt free after repaying its corporate loan facility in full, sending shares up 5.7pc.

With that, it's time to close for today. I'll be back again tomorrow from 8.30am. 

European shares end lower as weak oil weighs

A sharp slide in oil prices on oversupply concerns weighed heavily on European bourses in afternoon trade, dragging them deep into the red by close. 

By close of play: 

  • FTSE 100: -0.68pc
  • DAX: -0.45pc
  • CAC 40: -0.19pc
  • IBEX: -0.94pc

Oil plunges into bear market 

Oil has plunged into a bear market this afternoon amid heightened concerns about oversupply. 

Brent crude has now fallen by more than 20pc since it touched a peak of $57.10 a-barrel in January. It is now trading 20.18pc lower at $45.58 a-barrel. 

Back in bear market: Oil plunges 20pc since January peak Credit: Bloomberg

Since late May it has surrendered 15pc after Opec and non-Opec members agreed to extend the output cuts until next May. 

 Joshua Mahony, of IG, said: "Crude prices slid into bear market territory today, as the global glut continues to drive prices lower. Today has seen the third circa 3pc drop in two weeks, despite the deal to extend the crude output within OPEC and non-OPEC members. The influence of commodity focused firms has been evident today, with oil and mining majors dragging the index into the red. Clearly with crude supply elevated and summer demand not keeping up, there is reason to believe we could be looking at a summer of discontent for oil bulls." 

Fosun lifts bid for Fabergé owner Gemfields to £256m

Chinese conglomerate Fosun has confirmed a bidding war for Aim-listed Gemfields, tabling an offer that values the ruby and emerald miner at £256m. 

Fosun’s bid of 45p a share is higher than the £224m offer it mooted last week and considerably more than the nil-premium offer made by Gemfields’ majority shareholder Pallinghurst Resources last month, which put the miner’s value at around £211m. 

The Chinese group spies an opportunity to serve growing demand at home for gemstones, as China’s middle class becomes increasingly affluent. Gemfields also owns the upmarket Fabergé brand. 

Wang Qunbin, Fosun’s chief executive, said the company was “a long-term value investor” that had been attracted by Gemfields' “professional management team” and “business potential”. 

Read the full report by Jon Yeomans here

Pound hits new post-election low

The pound fell to a fresh post-election low this afternoon after Bank of England boss Mark Carney said now is not the time to raise interest rates. 

Jasper Lawler, of London Capital Group, said: "The drop has seen Sterling unravel gains made last week after three members of the Bank of England voted to lift interest rates.

"One of the dissenters Kristin Forbes will be replaced by London School of Economics professor Silvana Tenreyro."

He says the question for the direction of UK interest rates is whether other MPC members are emboldened by the three dissenters or fall in line behind the dovish governor.

Mr Lawler added: "We think GBPUSD at sub 1.30 levels assumes a rate cut or more QE, and slowing consumption notwithstanding, that doesn’t look very likely."

US and UK to start trade talks next month to ensure deal soon after Brexit

Trade talks with the US will kick off next month as British officials start to scope out plans for a deal, with the aim of setting up a free trade agreement as soon as possible after Brexit.

Liam Fox, the secretary for international trade, is in Washington to meet US commerce secretary Wilbur Ross and US trade representative Robert Lighthizer, discussing trade and investment between the two countries.

“We’re not allowed to conclude any negotiations as long as we’re part of the EU, but of course we are allowed to scope out the future relationship that we will require as we do leave,” Mr Fox told an audience at the Select USA Investment Summit.

“We have trade working groups already set up to do the preliminary scoping out of that work, and the first meeting will be in July this year.”

Read the full report by Tim Wallace here

Pound hits two-month low

The pound has extended its losses this afternoon and is now trading at its lowest level in two months. 

It has surrendered 0.97pc to trade at $1.2621.

Meanwhile, the trade-weighted sterling index is now down 0.8pc, putting it on track for its biggest daily loss since June 9 (the day of the general election results). 

Credit: Bloomberg

UK to give initial ruling on Fox-Sky takeover by June 29 

The British government will rule on whether Rupert Murdoch's proposed takeover of European pay-TV group Sky  needs a thorough investigation by June 29, the Culture and Media Secretary said on Tuesday.

The government received reports from the independent media regulator Ofcom and the Competition and Markets Authority watchdog on Tuesday, looking into whether the proposed takeover would give Murdoch's Twenty-First Century Fox  too much control of the media in Britain.

Fox has offered to buy the 61pc of the British pay-TV group it does not already own for $14.8bn.

Report from Reuters

US stocks open lower as oil fall weighs

US stocks opened lower this afternoon as energy and mining stocks were hurt by a sharp slide in oil prices. 

Brent crude fell by 2.5pc to seven month lows on oversupply concerns. 

At the opening bell: 

  • Dow Jones: -0.09pc
  • S&P 500: -0.21pc
  • Nasdaq: -0.13pc

Rio Tinto spurns Glencore offer for Australian coal mines in favour of Chinese bid

Shares in Rio Tinto are down 1.4pc this afternoon after it selected Yancoa to buy its Coal & Allied division in Australia for $2.45bn, surprising commodities trading giant Glencore which had put in a higher bid. Jon Yeomans reports: 

Rio Tinto has rejected a bid from FTSE 100 rival Glencore to buy its coal mines in Australia, opting to stick with its initial buyer, Chinese-backed Yancoal. 

The Anglo-Australian group said that Yancoal was the preferred bidder because unlike Glencore it had already achieved regulatory clearances for the deal, meaning it could complete sooner. 

Rio said it had received “additional information and confirmations” about how Yancoal would fund the acquisition, amid speculation that the company had yet to raise financing. Australia-listed Yancoal is majority owned by China’s Yanzhou, which is in turn owned by state-backed entities.  

Yancoal has revised its payment terms so that it will now make one single payment for the Coal & Allied business in New South Wales instead of a number of deferred payments, Rio said. Yancoal also revealed it had financial backing from Yankuang Group, its parent company's biggest shareholder, although this has yet to be approved by Yancoal's independent directors.

Read the full story here

FTSE 100 turns negative as weak oil weighs

The FTSE 100 turned negative this afternoon hurt by a slide in oil prices which hit energy and mining firms. 

Oil prices fell to a seven month low on oversupply concerns. In its wake, the blue chip index tumbled into the red - it is now down 11.90 points, or 0.16pc, at 7,511.91.

US stocks set to open mixed as oil slide weighs

US stocks are set to open mixed this afternoon as oil prices skid to a seven-month low on oversupply concerns, dragging commodity stocks into the red. 

Meanwhile, tech stocks are set to continue their recovery from last week's sharp sell-off. 

Yesterday, the Dow Jones and the S&P 500 both set new record highs after upbeat comments from Fed officials and a rebound in tech stocks. 

Here are the opening calls courtesy of IG: 

Pound extends warning after S&P warns it could downgrade the UK's credit rating before Brexit terms are known

The pound has extended its losses this afternoon after credit ratings agency S&P said it could downgrade the UK's credit rating again before the terms of Brexit are known. 

Speaking to Reuters, its sovereign ratings chief Moritz Kraemer said: "We will review the UK every six months... and if necessary more often...We will be watching the economic implications, the implications for the public finances, the constitutional implications like the whole Scotland situation...and things like the currency and if it will maintain its reserve status."

When asked if it would wait until the end of the Brexit negotiations to take another ratings action on Britain,  Kraemer said: "No, we don't have to wait."

Credit: Bloomberg

The firm stripped Britain of its coveted triple-A rating after the Brexit vote last June, downgrading it by two notches to AA and assigning a negative outlook.

The comments put further pressure on the pound. Earlier today, Mark Carney said now is not the time to raise interest rates, hurting the local currency. 

The pound fell by as much as 0.74pc to $1.2650, marking its lowest level since last week when it touched $1.2638.

John Varley steps down from Rio Tinto board with immediate effect

John Varley has resigned as a non-executive director of Rio Tinto and will step down from the board with immediate effect, the FTSE 100 miner said this afternoon.

Mr Varley joined the Rio Tinto board in September 2011 and was also the chair of the Remuneration Committee.

His resignation comes after the former chief executive of Barclays was charged with conspiracy to commit fraud by false representation in the lender’s dealings with Qatari investors who backed a £4.5bn cash call undertaken in June 2008.

Rio Tinto chairman Jan du Plessis said "I am very grateful for John's outstanding contribution over the five or so years he has been on the board.  The board holds him in the highest regard and will miss his valuable insight.  Personally, I am not only losing a senior independent director, but a close colleague, whose wisdom and support I am going to miss tremendously.  On behalf of the board I wish John the very best for the future".

S&P could cut Britain's rating again before Brexit terms known 

S&P Global may not wait until the terms of Britain's divorce from the European Union are known before it takes action on its rating again, most likely resulting in another cut, its sovereign ratings chief told Reuters on Tuesday.

The firm stripped Britain of its coveted triple-A rating after the Brexit vote last June, downgrading it by two notches to AA and assigning a negative outlook.

Asked if it would wait until the end of the Brexit negotiations to take another ratings action on Britain, Moritz Kraemer said: "No, we don't have to wait."

"We will review the UK every six months... and if necessary more often...We will be watching the economic implications, the implications for the public finances, the constitutional implications like the whole Scotland situation...and things like the currency and if it will maintain its reserve status."

Kraemer, speaking on the sidelines of a Euromoney conference, said the next rating action would most likely be a cut because of the negative outlook.

Report from Reuters

Why does Barclays face criminal charges from the SFO?

Here's a useful explainer by our banking correspondent Ben Martin on why Barclays is facing criminal charges from the SFO: 

Barclays and four of its former directors have become the first bank and individuals to face criminal charges over the actions they took during the financial crisis.

However, while banks have been publicly vilified for the role they played in crippling the economy in 2008, the charges against Barclays are in fact linked to the emergency steps its bosses took to avert the failure of the lender.

What happened in 2008?

With the world’s financial system teetering on the brink of collapse and governments stepping in to prop up banks around the world, bosses at Barclays raised almost £12bn from mainly Middle Eastern investors to avoid turning to British taxpayers for a bailout.

In June that year it tapped investors - including Qatar Holding, part of the state’s sovereign wealth fund, and Challenger Universal, the vehicle of former Qatari prime minister Sheikh Hamad bin Jassim bin Jabr al-Thani - for £4.5bn.

It then raised a further £7.3bn in October 2008 from Qatar Holding, Challenger, and Abu Dhabi’s Sheikh Mansour Bin Zayed Al Nahyan.

Those deals meant Barclays avoided a Government rescue, unlike rivals Royal Bank of Scotland and Lloyds Banking Group.

But agreements made around the Barclays cash calls have since drawn significant scrutiny and have resulted in the charges the Serious Fraud Office has brought today.

Read the full explainer here

Oil prices hit seven-month lows on global oversupply 

On commodity markets, oil prices tumbled to a seven-month low today as increases in supply by several producers undermined Opec's supply cut deal. 

Brent crude fell by $1.06 to $45.85 a-barrel, marking its lowest level since November 18. 

Oil prices have plunged 15pc since late May, when Opec and non-Opec producers agreed to extend their output cuts until the end of March 2018. 

Credit: Bloomberg

Opec supplies jumped in May as output recovered in Libya and Nigeria, two countries exempt from the production reduction agreement.

"The increasing August export programme in Nigeria and the jump in Libyan oil output should pressure oil prices further in the short term," said Tamas Varga, senior analyst at London brokerage PVM Oil Associates.

"If we get bearish US oil statistics this week, we could see a test of $45 on Brent," Varga said.

US oil production has been rising quickly this year, feeding the global glut. Data on Friday showed a record 22nd consecutive week of increases in US oil drilling rigs. 

Quote from Reuters

Half-time update: European shares inch higher as tech stocks rebound

European shares inched higher this afternoon, with the German DAX touching a new record high, as tech stocks rebounded following a sharp sell-off. 

Gains on London's FTSE 100 are underpinned by pound weakness which slumped after dovish comments from Bank of England governor Mark Carney. 

Here's the current state of play in Europe: 

  • FTSE 100: +0.03pc
  • DAX: +0.21pc
  • CAC 40: +0.25pc
  • IBEX: -0.35pc
  • Euro Stoxx 600: +0.01pc

 Mike van Dulken, of Accendo Markets, said: "Equity indices are flat-to-positive this morning. Germany's DAX outperforms thanks to EUR/USD weakness derived from hawkish Fed chat boosting USD. Merkel stretching her lead in polling for September's election may also be helping, adding to Eurozone stability. A flat FTSE has retraced early gains as weak Sterling regains composure following BoE Governor Carney's dovish speech." 

Brexit fears continue to weigh on sentiment 

FXTM Research Analyst Lukman Otunugasays it is becoming clear that the rising fears of Brexit negotiations negatively impacting economic growth continues to weigh heavily on sentiment while prolonged periods of uncertainty has ensured Pound weakness remains a recurrent theme.

It follows a sharp move lower in the pound after Carney's dovish comments earlier this morning. 

Mr Otunuga added: "With both consumer spending and business investments dishing out mixed signals, and tepid wage growth still a cause for concern, “now is not yet the time to raise interest rates” according to Mark Carney.

"While last week’s unexpected hawkish rebellion at June’s BoE meeting supported expectations of the central bank taking action, the ongoing Brexit woes coupled with political instability in Westminster should encourage the Bank of England to “stand pat” moving forward. Although raising interest rates may curb inflation, it could end up punishing borrowers, consequently sapping business confidence and hitting consumers further."

Mark Carney says now is not the time to raise interest rates

The Governor of the Bank of England Mark Carney says interest rates should not be raised while wages continue to stagnate and the impact of Brexit on the British economy is unclear.

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Carney's response to BoE policy meeting dampens expectations of a significant policy change in near-future

 Paresh Davdra, CEO and Co-Founder of RationalFX, says for analysts who were awaiting Carney’s response to the BoE policy meeting last week, his Mansion House speech has dampened expectations of a significant policy change in the near future, with the governor citing low wage growth and mixed signals on consumer spending as the reasons for his decision.

He added: "There were some positives for investors from Hammond however, as he proposed arrangements for a transitionary period during the Brexit process and beyond which would see the customs union rules remain in place for the UK until new rules are implemented and other measures agreed that would protect the city and prevent disruption.”

Mark Carney mocks Boris Johnson as he warns Brexit is unlikely to be a 'land of cake' 

Here the take on the Mansion House speeches by our political correspondent Laura Hughes: 

The Governor of the Bank of England has taken an apparent swipe at Boris Johnson and warned that Brexit is unlikely to be "gentle stroll along a smooth path to a land of cake and consumption."

Mark Carney warned that Brexit is likely to lead to "weaker real income growth" as new trading arrangements with the EU come into force. 

In a keynote speech this morning at Mansion House, he said that "since the prospect of Brexit emerged, financial markets, notably sterling, have marked down UK’s economic prospects". 

In a thinly veiled attack on the Foreign Secretary, he said: "Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption."

During the referendum campaign Mr Johnson claimed the Britain could "have its cake and eat it" after it leaves the European Union.

It came as Philip Hammond said immigration to Britain will be managed but not "shut down" after a "jobs first" Brexit

Read the full story here

Hitachi Capital welcomes Chancellor's 'more positive approach' towards Brexit

Robert Gordon, Hitachi Capital UK chief executive, has welcomed the change in tone and the more positive approach towards Brexit from the government following the Chancellor’s Mansion House Speech.

He said: "Not only must jobs and prosperity be put first during negotiations with the EU but any deal must look to support key sectors such as manufacturing, financial services and the auto industry which are absolutely vital to the success of our economy."

Research conducted by Hitachi Capital found that nearly half (42pc) of large companies and medium-sized businesses have cancelled or postponed investment plans due to Brexit.

However, Mr Gordon added: "We are now seeing a concerted effort by the government to consider the business interests of those companies. A business friendly Brexit which recognises the importance of skilled global talent and a positive outwards looking approach is the best deal for Britain.”

Chancellor listens to small business Brexit calls 

Mike Cherry, National Chairman at the Federation of Small Businesses (FSB), who was in the audience for the Chancellor’s Mansion House speech this morning, said the speech is "a positive sign" that Chancellor Philip Hammond is listening to the needs of the business community as Brexit negotiations begin. 

He said: "The Chancellor has listened to small business calls for a transition period after Brexit. Any sudden cliff edge preventing small firms from accessing the workers they need or disrupting trade with the EU single market would be hugely damaging for small firms and the wider economy. So, it’s crucial that small businesses are given time and support after the UK leaves the EU to prepare for new arrangements. 

“In the negotiation itself, small businesses are looking to the Government to secure an ambitious free trade agreement with the EU, while still allowing small firms to retain access to the skills and labour they need to grow and prosper." 

Britain's Chancellor of the Exchequer Philip Hammond delivers his re-scheduled speech to the Bankers and Merchants of the City of London Credit: Paul Ellis/AFP

Mr Cherry said FSB members are increasingly concerned about the weakness in the domestic economy.

He added: "We therefore welcome the Chancellor's commitment today to a low tax burden. However, we urge Philip Hammond as soon as possible to rule out a national insurance hike on the 4.8m self-employed, as well as unblocking the £300m funds which should by now have provided relief for those most affected by the recent business rates revaluation."

IG: Mark Carney does his best to talk down the pound

Chris Beauchamp, of IG, weighs in on the slide in the pound following Carney's comments this morning: 

"Mark Carney shattered the calm of the Tuesday session, as he said that now was not the time for rate increases in the UK, adding for good measure that he was still worried about Brexit. It was hardly surprising to hear the governor himself air his well-known dovish views, but coming less than a week after a surprise flapping of wings among the MPC’s policy hawks, it was enough to send the pound lower versus the dollar and the euro.

"His cautious view on Brexit, one reiterated by the chancellor as well, has also ruffled feathers among sterling traders, with reports of the first day of Brexit negotiations not helping matters. Leaks from the talks should be expected from now on, which will mean  the summer is not likely to be a quiet time for those monitoring the pound and its various crosses."

German DAX hits fresh record high

Over in Germany, the DAX has hit a fresh record high. The benchmark index rose by as much as 0.4pc in mid-morning trade to set a new lifetime peak of 12,951.54, surpassing its previous high of 12,921.17 which it touched on June 14.

DAX hits fresh record high Credit: Reuters

Barclays Bank and former boss John Varley charged with conspiracy to commit fraud by SFO

Away from the Mansion House speeches,  Barclays and four former top executives have been criminally charged over undisclosed payments to Qatari investors during a £12bn emergency fundraising in 2008. Our banking correspondent Ben Martin reports: 

Barclays and four former directors including ex-chief executive John Varley have been charged with conspiracy to commit fraud during the £11.8bn emergency fundraises the bank undertook to avert a bailout during the financial crisis.

The Serious Fraud Office said that the bank, Mr Varley, former star banker Roger Jenkins, ex-wealth division head Thomas Kalaris, and former global co-head of finance Richard Boath had been charged with conspiracy to commit fraud by false representation in the lender’s dealings with Qatari investors who backed a £4.5bn cash call undertaken in June 2008.

Former Barclays boss John Varley has been charged by the SFO Credit: Reuters

Barclays, 61-year-old Mr Varley, and Mr Jenkins face the same charges over a £7.3bn fundraise that was undertaken in October that year, as well as charges of unlawful financial assistance. They will appear in Westminster Magistrates’ Court on July 3 at 2pm.

The move by the SFO is hugely significant as they are the first criminal charges brought against either a bank or top executives over events during the 2008 crisis, which brought the banking system to its knees.

“The charges relate to Barclays Plc's capital raising arrangements with Qatar Holding LLC and Challenger Universal Ltd, which took place in June and October 2008, and a $3bn loan facility made available to the State of Qatar acting through the Ministry of Economy and Finance in November 2008,” the SFO said.

Read the full story here

TheCityUK reacts to Hammond's speech

Following the speech made by Chancellor Phillip Hammond at a Mansion House breakfast today, Miles Celic, Chief Executive Office, TheCityUK, said the chancellor was right to point out that the fragmentation of financial markets, and the financial ecosystem which exist in the UK, would leave everyone poorer.

He added: “With Brexit negotiations underway, it is reassuring to hear the Chancellor reinforce the need for a transitional period. We have consistently called for bridging and adaptation periods to be a critical part of a Brexit deal to ensure continuity of service to customers here in the UK and across the EU and to enable business enough time to adapt to the new relationship. As the Chancellor himself noted, a deal with the EU which continues to support British jobs and business and avoids any sharp cliff edge is paramount.

“The Chancellor was very clear that when we leave the EU, we need a bespoke trade deal which covers goods but also the service industry on which the UK economy overwhelmingly depends. We want such a deal to be based on mutual market access based on mutual recognition and regulatory cooperation.

“We are pleased to hear Philip Hammond recognise the importance of continued access to global talent. Our industry's global competitive advantage is buoyed by our ability to attract and retain the brightest and the best talent from across the world. A deal that includes mutual access to talent will therefore also be key.”

A fine Balance: Key points from Carney's speech 

Here are the key passages from Bank of England governor Mark Carney's delayed Mansion House speech, which he delivered this morning: 

  • Monetary policy can't prevent weaker real income growth. 

Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU. But it can influence how this hit to incomes is distributed between job losses and price rises. And it can support households and businesses as they adjust to such profound change. Indeed, in such exceptional circumstances, the MPC is required to balance any trade-off between the speed with which it returns inflation sustainably to the target and the support that monetary policy provides to jobs and activity.

  • Now is not the time to raise interest rates.

"From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment. In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations." 

  • Splitting Europe's market for clearing euro-denominated derivatives would bump up costs for users and do little to improve financial stability.

Fragmentation is in no one’s economic interest. Nor is it necessary for financial stability. Indeed it can damage it. Fragmenting clearing would lead to smaller liquidity pools in CCPs, reducing the ability to diversify risks and diminishing resilience. And higher costs would reduce the incentives to hedge risks, increasing the amount of risk that the real economy would have to bear.

  • The success of Brexit depends on whether both sides can agree a 'transition' arrangement.

​Depending on whether and when any transition arrangement can be agreed, firms on either side of the channel may soon need to activate contingency plans. Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption. Whatever happens, monetary policy will be set to return inflation sustainably to target while supporting as best it can the necessary adjustments in the economy.

  • Stronger trade is integral to boosting global growth. 

The G20 faces a choice – between levelling down by putting more restrictions on goods trade, or levelling up by liberalising trade in services. Evidence from within countries suggests that there may be substantial scope to increase trade in services if barriers are removed. For example, in Canada – one of the few countries to track trade flows within its borders – services account for around 50pc of all inter-provincial trade compared with only 25pc of Canada’s international exports. If Canada were able to replicate the pattern of trade within its borders with other countries then services exports would triple.

  • Raising barriers to trade will hurt the financial services sector.

One million people across this country work in financial services. The industry contributes 7pc of output and pays taxes that cover almost two thirds of the cost of the NHS. At a time when the UK is running a 5pc current account deficit, financial services runs a 1.5pc trade surplus with Europe alone. The entire service sector runs a 5pc surplus with the world and employs 85pc of UK workers. We could take these realities for granted. And it would be all too easy to give into protectionism. But as we learned in the 1930s, that road leads neither to equity nor prosperity. Raising barriers to trade disproportionately hurts the least well off through higher prices and fewer opportunities.

Reaction to Mark Carney's speech

Amplify Trading: It's not surprising Carney dismissed push for higher rates

Anthony Cheung, of Amplify Trading, explains the immediate spike lower in sterling after Bank of England governor Mark Carney delivered his delayed Mansion House speech this morning. 

Carney said now is not the time to raise interest rates. His comments come a week after a surprisingly hawkish development in the Bank of England's vote split. 

Mr Cheung said: "It's not surprising to hear the governor, who is speaking on balance for the majority at this point, dismissing the push for higher rates."

He added that Carney's wording is "pretty definitive and clear", hence the reason there's been such "an aggressive spike lower". 

Carney cautioned against raising interest rates against a backdrop of weak consumer spending and "anaemic" wage growth as he warned that the "reality of Brexit negotiations" were yet to hit the economy.

Mr Cheung also notes that if sterling hits its post-hung parliament lows it could be "quite critical" for the local currency in the near-term. 

Watch Mr Cheung's morning briefing where he reviews the Bank of England's Mansion House speech and provides an update on the latest Brexit negotiations: 

BOE willing to look through high CPI 

Kathleen Brooks, of City Index, explains why this morning’s comments from Bank of England governor Mark Carney are important.

She said: "They suggest that the Bank of England will look through the period of high inflation, headline CPI is running at 2.9pc, blaming the rise on the sharp drop in sterling last year. This could spell more woe for the UK consumer, if the BOE is not going to take action to bring down prices, this could keep the squeeze on pay packets for some time."

BoE's Carney warns EU against splitting euro clearing market

Splitting Europe's market for clearing euro-denominated derivatives would bump up costs for users and do little to improve financial stability, Bank of England Governor Mark Carney said this morning.

Regulators should instead work with each other to forge a new form of cross-border supervision of clearing houses, Carney said.

"Fragmentation is in no one's economic interest. Nor is it necessary for financial stability. Indeed it can damage it," Carney said in a speech in London's Mansion House.

Last week the European Union's executive European Commission proposed giving itself powers to move euro clearing business away from London after Britain leaves the bloc in 2019.

It said such powers might be needed to maintain financial stability in the EU given that the bulk of euro clearing takes place in London, where it is regulated by the BoE. 

Report from Reuters

Sterling drops to one-week low on Carney’s dovishness

The pound slumped to a one-week low after Bank of England governor Mark Carney said now is not the time to raise interest rates. 

Neil Wilson, of ETX Capital, said: "Quite why anyone was surprised is unclear but the market reacted."

He notes cable fell through the $1.27 handle to touch on $1.267 with investors seeing the tone as indicative of the Bank’s desire to leave rates on hold for as long as it can. 

Mr Wilson reckons Carney's dovishness should "hardly be a surprise, given his given his record of favouring looser monetary policy, but it does reiterate the MPC’s preference for looking through the current high levels of inflation for the time being".

He also points out that the departure of arch-hawk Kristin Forbes leaves those calling for tightening "in a greater minority than before".

He added: "All this matters less for sterling than Brexit negotiations, leaving GBPUSD increasingly range bound until we get a clearer steer on what sort of trading arrangement Britain and the EU is to strike. That could be a long time coming."

Pound slide lifts FTSE 100

The sharp slide in the pound on Carney's comments this morning have lifted blue chip stocks. 

Speaking to London's banking community alongside Chancellor Philip Hammond a day after Brexit talks started, Carney cited weak wage growth, mixed signals on consumer spending and business investment as reasons for not moving to raise interest rates any time soon. 

The exporter-heavy FTSE 100 index climbed  by 0.49pc, or 36.58 points, to 7,560.51.

Hammond calls for smooth Brexit to avoid cliff edge

Chancellor Philip Hammond pressed his case for a smooth Brexit that would avoid a damaging "cliff edge" for businesses as the country heads out of the European Union.

"We'll almost certainly need an implementation period, outside the (EU's) customs union itself, but with current customs border arrangements remaining in place, until new long-term arrangements are up and running," he said in a speech at London's Mansion House this morning.

Hammond also said he wanted Britain to lead a "crusade" for the opening up of services markets around the world as it leaves the European Union and he said the country wanted to remain open to skilled workers.

Report from Reuters

Carney: There is likely to be weaker income growth as Britain leaves the EU

Markets react to Carney's comments: Pound sinks below $1.27 

Mark Carney's dovish steer on UK rates weighed heavily on the pound this morning. 

Sterling tanked by 0.5pc to $1.2680 against the US dollar after the Bank of England governor said now is not the time to raise interest rates. It is now trading at a one-week low. Against the euro, it fell 0.4pc to 87.94p per euro. 

Mark Carney was one of five MPC members to vote against a rate hike last week. However, the vote was split 5-3.

Short sterling interest rate futures climbed by 4-5 ticks after his speech was released. 

Meanwhile, UK gilt futures gained 30 ticks on Carney's comments. 

The 10-year gilt yield fell below 1pc for the first time since June 15.

Pound sinks after Carney's comments Credit: Bloomberg

A land of cake and consumption

Carney welcomes move by EC to steer away from general location requirements

More from economics correspondent Szu Ping Chan: 

Carney, who is also chairman of the global Financial Stability Board, also welcomed the move by the European Commission to steer away from general location requirements in its proposed shake-up of current rules governing the euro-denominated derivatives market.

Brussels said this would only be used as a "last resort" if the euro clearing house was determined to be systemically important.

However, he warned that any move in this direction would risk fragmenting global markets, with even small changes at risk of pushing up costs by billions of pounds a year.

He said: " Any development which prevented EU27 firms from continuing to clear trades in the UK would split liquidity between a less liquid onshore market for EU firms and a more liquid offshore market for everyone else."

He cited industry estimates that showed a single basis point increase in the cost resulting from splitting clearing of interest rate swaps could cost EU firms €22bn per year.

"Those costs would ultimately be passed on to European households and businesses," he said.

Mr Carney used the bulk of his speech to promote the benefits of trade liberalisation in services, which drives the bulk of the UK economy.

He said a focus on services would help to narrow Britain's current account deficit - which includes trade - more effectively than a focus on goods because these industries generate higher output and jobs.

"In this context, Brexit in general and financial services in particular will be key tests of the world’s capacity to build a path to stronger, more sustainable growth," he said.

Mr Carney said a £10bn increase in UK financial services exports would reduce Britain's trade deficit by £9bn, compared with a reduction of £5.5bn for a similar rise in car exports.

He said it was time for the world's most advanced economies to step up their efforts to boost growth.

"It will not be enough for the G20 to 'resist protectionism.' The G20 now needs to make 'trade work for all.' That includes using e-commerce platforms to promote free trade for SMEs across the G20, and it requires an urgent and critical examination of trade in services," he said.

Mark Carney: Now is not the time to raise interest rates

Mark Carney has told London's banking community this morning that now is not the time to raise interest rates. Our economics correspondent Szu Ping Chan has the latest: 

Mark Carney has cautioned against raising interest rates against a backdrop of weak consumer spending and "anaemic" wage growth as he warned that the "reality of Brexit negotiations" were yet to hit the economy.

The Governor of the Bank of England said "mixed signals" on consumer spending and business investment meant it was "not yet the time" to start raising rates from a record low of 0.25pc.

He said it was too early to gauge how these developments would affect price pressures and the ability to steer inflation back to the Bank's 2pc target.

Three Bank policymakers voted to tighten policy at the MPC's latest meeting in June. Officials warned that inflation was likely to peak at a higher than expected rate in the coming months, and could hit 3pc this Autumn.

However, there is mounting evidence that the economy is slowing down, with weaker retail sales last month suggesting that any rebound from the 0.2pc economic expansion seen at the start of this year is likely to be limited.

Inflation, as measured by the consumer prices index (CPI) is currently at a four year high of 2.9pc.

Addressing a City audience at a Mansion House breakfast, Mr Carney said:

"From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment.

"In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations."

He said more businesses across Europe could activate contingency plans as talks progress. A number of financial services businesses in the City of London have already taken action.

"Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption," said Mr Carney.

Echoing the minutes of the latest Monetary Policy Committee (MPC) meeting, he stressed that any tightening of policy would be "limited in scope and gradual in pace".

Hammond: Yesterday was a positive start, but it will get tougher

Yesterday's start to official Brexit talks were "positive", Chancellor Hammond said this morning. 

However, he warned: "It will get tougher". 

Hammond says new UK-EU regulatory process needed after Brexit

A new system is needed for allowing British and European Union banks to do business with each other after Brexit to avoid splitting markets, Britain's finance minister Philip Hammond said on Tuesday.

Britain, the EU's biggest financial market is leaving the bloc in 2019, raising the prospect of an abrupt cut in cross-border links without a new trade deal.

"Fragmentation of financial services would result in poorer quality, higher priced products for everyone concerned," Hammond told a financial audience in London.

At present, banks and insurers in London serve the EU market from a single base, but this "passporting" is set to end after Brexit without new arrangements.

"First, we will need a new process for establishing regulatory requirements for cross-border business between the UK and EU. It must be evidence-based, symmetrical, and transparent. And it must reflect international standards," Hammond said.

"Second, cooperation arrangements must be reciprocal, reliable, and prioritise financial stability. Crucially they must enable timely and coordinated risk management on both sides."

"Third, these arrangements must be permanent and reliable for the businesses regulated under these regimes," Hammond said.

Report from Reuters

European shares inch higher at opening bell

European shares have inched higher this morning after a stellar session yesterday. 

Here's a snapshot of the current state of play in Europe: 

Credit: Reuters

 Mike van Dulken, of Accendo Markets, said: "A positive opening call comes after US bourses closed higher (more Dow and S&P records) thanks to a Tech resurgence suggesting the recent sector sell-off may have been more ‘tech check’ than the ‘tech wreck’ some had forecast. A solid start to Brexit negotiations also calmed political nerves along with latest polling data putting Merkel’s Conservatives 11.5pts ahead of Social Democrat rivals 3-months before German elections that could deliver another anti-populist result." 

Agenda: Mark Carney and Philip Hammond deliver delayed Mansion House speeches

Good morning and welcome to our live markets coverage. 

Overnight, Asian stocks neared a two-year high as technology stocks rebounded following another sharp sell-off. Japan's Nikkei touched its highest level since mid-2015. 

Last night on Wall Street both the S&P 500 and the Dow Jones set new record highs buoyed by a bounce back in technology shares. 

This morning attention shifts to Bank of England governor Mark Carney and Chancellor Philip Hammond will deliver their Mansion House speeches, which were called off last week following the Grenfell Tower tragedy. 

 Investors are waiting to hear from Carney after three other members of the BoE's eight-strong Monetary Policy Committee unexpectedly voted for an interest rate hike this week, while  Chancellor Hammond's speech will be scrutinised for any signs he is ready to push for a softer Brexit while easing up on fiscal austerity.

Also on the agenda: 

Full-year results: Accsys Technologies

Interim results: Wolseley, RWS Holdings

Trading update: Brown (N) Group

AGM: Coca-Cola HBC, 21st Century Technology, Marwyn Value Investors, Faroe Petroleum, Evraz

Economics: Current account (US), Fed monetary policy report (US), PPI m/m (GER), current account (EU), ZEW economic sentiment (EU), Zew economic sentiment (GER)

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