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Credit rating agencies warn of UK political uncertainty as business optimism plunges - business live Credit rating agencies warn of UK political uncertainty as business optimism plunges - business live
(35 minutes later)
11.57am BST
11:57
Betfair reckon there’s a one-in-three chance that Britain will hold a second general election this year.
Here are the latest odds:
Year of Next General Election
2017 3.0 (2/1 or 33% chance)
2018 4.0 (3/1 or 25% chance)
2019 4.9 (4/1)
2020 8.8 (8/1)
2021 9.4 (17/2)
2022 7.6 (13/2)
They’ve also provided some odds for Theresa May’s likely replacement:
Next Conservative Leader
Boris Johnson 3.4 (12/5)
David Davis 4.7 (7/2)
Amber Rudd 9.0 (8/1)
Ruth Davidson 10.0 (9/1)
Phillip Hammond 17.5 (16/1)
Michael Gove 23.0 (22/1)
11.46am BST
11:46
Speculation that Theresa May might change her Brexit stance is propping up sterling, says Lee Hardman, currency analyst at MUFG.
“The rise of softer Brexit speculation is another reason why the pound has not declined more sharply following the UK general election result”.
More here:
Sterling dips as investors digest election’s Brexit fallout https://t.co/7c3FSJItLH
11.30am BST11.30am BST
11:3011:30
Britain’s unstable political situation means the pound will remain volatile for some times, says investment bank JP Morgan.Britain’s unstable political situation means the pound will remain volatile for some times, says investment bank JP Morgan.
It told its clients that:It told its clients that:
The UK delivered another electoral surprise this week with the Conservative party losing its majority in Parliament. This means the Conservatives would be reliant on the Northern Irish DUP with its 10 seats to establish a thin parliamentary majority. This raises questions about PM May’s ability to deliver a hard Brexit given the desire in Northern Ireland for a frictionless border with the Republic of Ireland.The UK delivered another electoral surprise this week with the Conservative party losing its majority in Parliament. This means the Conservatives would be reliant on the Northern Irish DUP with its 10 seats to establish a thin parliamentary majority. This raises questions about PM May’s ability to deliver a hard Brexit given the desire in Northern Ireland for a frictionless border with the Republic of Ireland.
For sterling rates, this means markets are likely to be caught between the opposing forces of political instability associated with a Conservative minority government, and a potential softening of the Brexit stance.For sterling rates, this means markets are likely to be caught between the opposing forces of political instability associated with a Conservative minority government, and a potential softening of the Brexit stance.
11.13am BST11.13am BST
11:1311:13
Moody’s gloomy report on the UK’s election has knocked the pound, says Neil Wilson of ETX Capital:Moody’s gloomy report on the UK’s election has knocked the pound, says Neil Wilson of ETX Capital:
“Sentiment around the pound took a bit of a dive in morning trading in London. After treading water around $1.274 for the last few days since the election, cable eased back below the $1.27 handle after Moody’s warned that the election result is ‘credit negative’ for the UK.“Sentiment around the pound took a bit of a dive in morning trading in London. After treading water around $1.274 for the last few days since the election, cable eased back below the $1.27 handle after Moody’s warned that the election result is ‘credit negative’ for the UK.
This seems to have woken traders from their slumber and the pound is on the defensive as we start the week. It wouldn’t take much bad news from the UK political scene to force cable to take another leg lower. Still there is plenty of bid to catch on the way down as the dips are being viewed as short-term buying opportunities.This seems to have woken traders from their slumber and the pound is on the defensive as we start the week. It wouldn’t take much bad news from the UK political scene to force cable to take another leg lower. Still there is plenty of bid to catch on the way down as the dips are being viewed as short-term buying opportunities.
Sentiment remains pretty bearish. As Moody’s points out there is a chance of a softer Brexit but we must also think there is a heightened risk of a cliff-edge exit from the EU.”Sentiment remains pretty bearish. As Moody’s points out there is a chance of a softer Brexit but we must also think there is a heightened risk of a cliff-edge exit from the EU.”
11.02am BST11.02am BST
11:0211:02
Sterling is also dropping against the euro, losing 0.6% to €1.1322.Sterling is also dropping against the euro, losing 0.6% to €1.1322.
On Friday it hit an eight-month low of €1.1285 before recovering a little.On Friday it hit an eight-month low of €1.1285 before recovering a little.
10.55am BST10.55am BST
10:5510:55
Update: the pound had now dropped below $1.27, towards the eight-week low struck on Friday morning as the election results came in.Update: the pound had now dropped below $1.27, towards the eight-week low struck on Friday morning as the election results came in.
10.37am BST10.37am BST
10:3710:37
Pound edging lower towards $1.27 now. pic.twitter.com/CAbGTAn9Z0Pound edging lower towards $1.27 now. pic.twitter.com/CAbGTAn9Z0
10.36am BST10.36am BST
10:3610:36
The pound is dipping back towards $1.27, down 0.2% today, as investors digest these warnings from Moody’s and S&P and wait for developments in Westminster. The pound is dipping back towards $1.27, down 0.2% today, as investors analyse these warnings from Moody’s and S&P and wait for developments in Westminster.
Joshua Mahony, market analyst at IG, says the drop in business confidence, and the slowdown in household spending, are worrying the City:Joshua Mahony, market analyst at IG, says the drop in business confidence, and the slowdown in household spending, are worrying the City:
This decline in economic indicators may have been a long time coming, yet with a weakened political mandate and Brexit negotiations about to start, it is likely that we will see the UK continue to struggle.This decline in economic indicators may have been a long time coming, yet with a weakened political mandate and Brexit negotiations about to start, it is likely that we will see the UK continue to struggle.
The fallout from the UK election continues and will remain key to expectations for the pound.The fallout from the UK election continues and will remain key to expectations for the pound.
UpdatedUpdated
at 10.37am BST at 11.40am BST
10.17am BST10.17am BST
10:1710:17
Newsflash from the Bank of England: Andy Haldane, the BoE’s chief economist, has been reappointed to the Monetary Policy Committee.Newsflash from the Bank of England: Andy Haldane, the BoE’s chief economist, has been reappointed to the Monetary Policy Committee.
That means Haldane will continue to vote on UK interest rates and the Bank’s stimulus programme until 2020.That means Haldane will continue to vote on UK interest rates and the Bank’s stimulus programme until 2020.
News from @bankofengland : now election is out the way (sort of) reappointment of Andy Haldane to MPC for 3 more Yrs has been confirmedNews from @bankofengland : now election is out the way (sort of) reappointment of Andy Haldane to MPC for 3 more Yrs has been confirmed
It’s not a big surprise, but it is worth noting as Haldane is one of the most dovish members of the committee.It’s not a big surprise, but it is worth noting as Haldane is one of the most dovish members of the committee.
Prospects of more QE in the UK and negative interest-rates nudge a bit higher... #BoE https://t.co/IdAnCrSjN0Prospects of more QE in the UK and negative interest-rates nudge a bit higher... #BoE https://t.co/IdAnCrSjN0
10.04am BST10.04am BST
10:0410:04
Speaking of Brexit delays.....Speaking of Brexit delays.....
#UK #BREXIT MINISTER DAVIS SAYS BREXIT TALKS WILL BEGIN NEXT WEEK BUT MAY NOT BE ON MONDAY 19 JUNE - RTRS#UK #BREXIT MINISTER DAVIS SAYS BREXIT TALKS WILL BEGIN NEXT WEEK BUT MAY NOT BE ON MONDAY 19 JUNE - RTRS
The formal Brexit talks are due to begin on 19 June, the same day as the Queen’s speech....The formal Brexit talks are due to begin on 19 June, the same day as the Queen’s speech....
9.35am BST9.35am BST
09:3509:35
Moody's: Election result is credit negativeMoody's: Election result is credit negative
Rating agency Moody’s has also issued a report on the UK election, and it’s not very cheery reading.Rating agency Moody’s has also issued a report on the UK election, and it’s not very cheery reading.
It is titled:It is titled:
“Election result heightens uncertainty over Brexit negotiations and increases fiscal risks, a credit negative”.“Election result heightens uncertainty over Brexit negotiations and increases fiscal risks, a credit negative”.
And it warns that negotiating to leave the EU will now be a more complicated process.And it warns that negotiating to leave the EU will now be a more complicated process.
Moody’s fears that those talks (which are due to start next week) may be delayed, or may not focus on “substantive issues” for a while as the Conservative Party tries to agree a deal with the Democratic Unionist Party.Moody’s fears that those talks (which are due to start next week) may be delayed, or may not focus on “substantive issues” for a while as the Conservative Party tries to agree a deal with the Democratic Unionist Party.
Moody’s is also worried that Britain’s national debt will keep rising for longer, as the government wrestles with a slowing economy and the public backlash against austerity. That could be bad for Britain’s credit rating, which is currently Aa1 with Moody’s, one notch below AAA.Moody’s is also worried that Britain’s national debt will keep rising for longer, as the government wrestles with a slowing economy and the public backlash against austerity. That could be bad for Britain’s credit rating, which is currently Aa1 with Moody’s, one notch below AAA.
But.... Moody’s also suspects that Theresa May (or her successor) will now steer away from a hard Brexit, which would be good for Britain’s credit rating.But.... Moody’s also suspects that Theresa May (or her successor) will now steer away from a hard Brexit, which would be good for Britain’s credit rating.
Here are the key points from the reportHere are the key points from the report
Inconclusive election outcome will complicate and probably delay Brexit negotiations, a credit negative. The negotiations with the EU were due to begin on 19 June, but we now expect a delay to the start of those negotiations or at least a period during which no substantive issues will be discussed. The time frame for the UK’s withdrawal from the EU in March 2019 remains unchanged, reducing still further the time available to achieve the transition agreement needed to avoid a ‘hard’ Brexit.Inconclusive election outcome will complicate and probably delay Brexit negotiations, a credit negative. The negotiations with the EU were due to begin on 19 June, but we now expect a delay to the start of those negotiations or at least a period during which no substantive issues will be discussed. The time frame for the UK’s withdrawal from the EU in March 2019 remains unchanged, reducing still further the time available to achieve the transition agreement needed to avoid a ‘hard’ Brexit.
We expect fiscal risks to increase because consolidation will have a lower priority, a credit negative. In our view, the budget deficit will increase this year and next, as the government reacts to the economic slowdown under way. The election outcome, with significant gains for the Labour Party which had campaigned for increased public spending, will likely be seen as a “vote against austerity”. The public debt ratio will rise further and for longer than we had expected, placing the UK among the few highly rated European sovereigns whose public debt is still rising.We expect fiscal risks to increase because consolidation will have a lower priority, a credit negative. In our view, the budget deficit will increase this year and next, as the government reacts to the economic slowdown under way. The election outcome, with significant gains for the Labour Party which had campaigned for increased public spending, will likely be seen as a “vote against austerity”. The public debt ratio will rise further and for longer than we had expected, placing the UK among the few highly rated European sovereigns whose public debt is still rising.
However, the election outcome also means that the government may now consider “softer” Brexit options, which could be credit positive. While we still expect Brexit to happen and the “cliff” risk of sudden exit remains, the election result suggests an electoral shift away from the “hard” Brexit that the Prime Minister had ostensibly sought. Hence, a move towards “softer” versions of Brexit – potentially with continued access of some sort to the Single Market – might now be considered.However, the election outcome also means that the government may now consider “softer” Brexit options, which could be credit positive. While we still expect Brexit to happen and the “cliff” risk of sudden exit remains, the election result suggests an electoral shift away from the “hard” Brexit that the Prime Minister had ostensibly sought. Hence, a move towards “softer” versions of Brexit – potentially with continued access of some sort to the Single Market – might now be considered.
And here’s a chart showing why Moody’s is worried about Britain’s national debt:And here’s a chart showing why Moody’s is worried about Britain’s national debt:
9.19am BST
09:19
S&P: Election uncertainty will hurt growth
Britain’s economic growth is likely to be damaged by the current political instability, according to the European chief economist of ratings agency Standard & Poor’s.
Jean-Michel Six told the AJEF association of financial journalists in Paris that:
“For the time being, the outlook remains negative.”
“In terms of the outlook for growth, it’s clear that things are not going in the right direction.
This latest bit of instability can only weaken the business environment and consumer confidence,”
Thanks to Reuters for the quotes....and this chart, showing how the UK economy has deteriorated recently:
UK economic surprises index - now negative, a 1-year low, and down sharply from (admittedly high levels) just a few months ago. pic.twitter.com/1XpAhs98Di
9.15am BST
09:15
The shock election result has fuelled speculation that Britain may aim for a less ‘hard’ Brexit than Theresa May had planned.
Kalum Pickering of Berenberg Bank explains:
On the continent, most observers have taken the UK election result as a rebuke of Theresa May’s hard Brexit rhetoric of the “no deal is better than a bad deal” kind.
For example, EU Commission Öttinger has expressed hope that the UK may now agree to stay in the Customs Union and the Common Market, possibly by joining EFTA. To remain in the Common Market and thus maintain preferential access to the EU27 market (except for some financial products where regulators will insist that some activities have to be carried out under the direct sway of EU regulators), the UK would have to accept the free movement of labour and continue to pay into the EU budget like EFTA members do.
Whether or not a Tory-led government could agree to that remains a very open question, though, to put it mildly.
Indeed! And in the last few minutes, Brexit secretary David Davis has played down the idea that the government could soften its stance - insisting that leaving the EU meant leaving the single market.
More in our Politics Live blog:
Buzzfeed’s Alberto Nardelli tweets:
A softer Brexit would require a fundamental shift in UK position on issues of substance. No sign of that happening any time soon
Updated
at 9.16am BST
9.03am BST
09:03
Traders will be watching Wall Street nervously when it opens later today, to see if technology stocks keep falling.
Apple fell by 4% on Friday, while Alphabet (Google), Microsoft, Amazon and Facebook all shed 3% - wiping almost $100bn off their market value.
The selloff comes after a long surge in tech stocks, so investors are wondering if the rally is over.
Kathleen Brooks of City Index says other assets could be spooked....
Friday’s sell off in some of the US’s biggest tech names was sharp and severe on Friday. But was this just a bit of profit taking after a note from Goldman Sachs questioned the $600bn increase in some tech firms’ market cap in the past year?
This is an important question that we need answered as tech stock weakness is having an impact on other growth assets today. The MSCI emerging markets index fell on Friday, yet the Aussie dollar, which is correlated with growth assets, was relatively stable on Monday.
8.48am BST
08:48
The BBC has a good take on the IoD’s business confidence survey:
The uncertainty caused by the general election has led business confidence to sink “through the floor”, according to a lobby group.
A snap poll of 700 members of the Institute of Directors found a “dramatic drop” in confidence following the hung parliament.
Members saw no clear way to resolve the political impasse quickly, the IoD said.
However, it found there was “no desire” for another election this year....
More here:
Hung parliament sinks business confidence, IoD finds. https://t.co/EChjs7Fc9o
8.41am BST
08:41
Europe’s stock markets are a sea of red this morning, as investors digest the tumble in UK business confidence in the last couple of days.
Shares are being pulled down by worries over UK politics, and the selloff in the tech sector.
Connor Campbell of SpreadEx says there isn’t much optimism in the City this morning.
Falling around half a percent the UK index found itself back below the 7500 mark, if only just, as the Institute of Directors warned that its members were feeling pretty damn pessimistic about the state of the UK economy in the next 12 months.
The pound, meanwhile, neither continued last week’s decline nor substantially recovered any of those election-losses, opening 0.1% higher against the dollar and flat against the euro.
8.30am BST
08:30
The FTSE 250 index, which is more UK-focused than the FTSE 100, has dropped by 50 points (or 0.25%) in early trading to 19,719.
8.24am BST
08:24
The IoD’s gloomy warning on business confidence is helping to keep a lid on the pound this morning.
Sterling is hovering around $1.274, close to Friday night’s close. It tumbled by over two cents when the election exit polls came out on Thursday night.
Craig Erlam, senior market analyst at OANDA, warns that the pound is vulnerable to political uncertainty, as prime minister May tries to cling onto power.
With Theresa May scrambling to repair the self-inflicted damage suffered as a result of the election, there remains a huge amount of uncertainty around her position and with only a week to go before Brexit talks with the EU begin, I feel there may be a few more twists to come yet.
May has not delivered the strong and stable government she wanted and instead looks weak and vulnerable. I find it hard to see how she recovers from this.
Mike van Dulken of Accendo Markets agrees, saying:
Sentiment remains dented by politics following the UK’s hung parliament and shift in the balance of UK political power.
8.14am BST
08:14
European stock markets have opened in the red, with the FTSE 100 losing 27 points (or 0.4%).
Technology stocks are the biggest fallers, following a selloff on Wall Street on Friday night.
European open @BloombergTV pic.twitter.com/1sbIVxHVpF
Updated
at 8.18am BST
8.13am BST
08:13
Manish Singh of CrossBridge Capital, an investment advisory firm, isn’t surprised that business confidence has fallen since the UK election.
He says many business leaders are now pondering the prospect of Jeremy Corbyn becoming prime minister, after he smashed expectations and gained 32 seats.
Speaking on Bloomberg TV, Singh says:
If you are a business, you really need to start thinking ‘what is in the Labour manifesto?’....
It will have some businesses worrying about Mr Corbyn’s policies.
Labour’s manifesto included raising income tax on those earning over £80,00 per year, increasing corporation tax, and renationalising the water companies, as well as free childcare, ending the freeze on welfare benefits and abolishing tuition fees.
Singh says political instability can deter businesses from investing, especially when the Brexit talks are also hanging over them.
But he also agrees that younger voters are right too feel aggrieved, as yound people in Europe will be poorer than previous generations.
7.48am BST
07:48
The agenda: UK business optimism plunges after hung parliament
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
European stock markets are set to fall this morning, as evidence piles up that Britain’s mounting political uncertainty is hurting the economy.
The Institute of Directors have issued a stark warning that business optimism has plunged after Theresa May lost her House of Commons majority last week.
A new survey of IoD members found that 57% are either quite pessimistic or very pessimistic about the UK economy over the next 12 months. Just a fifth described themselves as optimistic -- which gives a ‘net confidence’ score of minus 37.
That’s a serious deterioration compared to the previous month, when 34% were optimistic and 37% pessimistic.
The poll, conducted over the weekend, found that many business leaders are alarmed by the prospect of a hung parliament, just as the Brexit negotiations begin.
Stephen Martin, director general of the Institute of Directors, says British politicians need to urgently refocus on the state of the economy.
“It is hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy.
The needs of business and discussion of the economy were largely absent from the campaign, but this crash in confidence shows how urgently that must change in the new government.
This chart might focus a few minds in Westminster:
The IoD’s survey isn’t the only cause for concern this morning.
Visa have reported that household spending fell last month, for the first time in almost four years.
It highlights how consumers are being squeezed by rising inflation and political uncertainty, and cutting back on non-essential items.
As things stand this morning, May’s grip on Number 10 is looking precarious, with insiders saying she cannot lead the Conservative Party into another election.
Yesterday she was savaged as a “dead woman walking’ by former chancellor George Osborne (who seems to be enjoying his new career in journalism).
But the game isn’t over, yet. Later today May will appeal to her MPs for support, in an attempt to remain as prime minister.
Our political editor Heather Stewart explains:
The prime minister is expected to signal to her parliamentary colleagues that she will run her government in a more collegiate, less controlling way, after sacrificing her two closest advisers, Fiona Hill and Nick Timothy.
With many backbenchers blaming May for the party’s poor performance at the polls, one senior Conservative said she would have to give a “barnstorming” performance at the meeting of the party’s 1922 committee of MPs to hold on to her job.
Spread-betting firm IG expect the main European markets to fall by up to 0.5% this morning.
Our European opening calls:$FTSE 7494 -0.44%$DAX 12769 -0.37%$CAC 5291 -0.17%$IBEX 10917 -0.56%$MIB 21040 -0.39%
While Britain is gripped by May’s crisis-of-her-own-making, France’s Emmanuel Macron is showing us how to lead a country.
The French president’s En Marche party is on track for a landslide win in parliamentary elections, giving him enough muscle to start pushing through economic reforms.
Final results of Sunday's stunning 1st-round French legislative voteEn Marche 32%LR 22%FN 13.5%FI 11%PS 9.5%Huge Macron majority ahead pic.twitter.com/GunW39igqo
There’s very little in the economic calendar today, alas.
Updated
at 8.02am BST