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| Brexit may already have pushed UK into recession – business live | |
| (32 minutes later) | |
| NIESR reckon sterling would plunge by 10% under a no-deal Brexit scenario, which would sent it down towards $1.10 against the US dollar. | |
| That would be inflationary, driving up the cost of imports. | |
| Dr Garry Young of @NIESRorg says the pound could fall by 10% under no-deal Brexit. Bank rate could be cut to 0.25%. Inflation could rise to 4%. The Bank would then need to raise rates to higher than they are today (0.75%) to tackle rising inflation. | |
| NIESR is painting a dark picture of Britain’s economic prospects, says Bloomberg: | |
| The U.K.’s exit from the European Union may have already pushed the U.K. into a technical recession, according to the National Institute of Economic and Social Research. | |
| In a gloomy set of new forecasts, Niesr predicted that, even assuming a smooth exit in October, the nation will grow 1% in 2019 and 1% in 2020. There’s an around a one-in-four chance that the economy is already shrinking, the think tank said. | |
| The outlook worsens if there a no-deal Brexit, with Niesr seeing the possibility of a “severe” downturn in the event of a disorderly departure. Even if an “orderly” no deal exit is secured, Niesr says the economy will stagnate next year, with inflation accelerating to 4.1% as the pound drops about 10%. | |
| Brexit may have already pushed the UK into a technical recession, Niesr says https://t.co/v8hGUDIymR via @_DavidGoodman @OliviaGKA #tictocnews pic.twitter.com/MrWPmNYeyo | |
| NIESR says there is a significant danger of a UK recession in the next year. | |
| As well as a one-in-four chance that the economy is already shrinking, there’s a 30% danger of a recession in 2020. | |
| Professor Jagjit Chadha, the think tank’s director, says: | |
| “However we look at it, there will not be much economic joy in a no-deal Brexit,” | |
| We discover early next month whether Britain’s economy shrank in the second quarter of 2019, as NIESR fears is possible. | |
| But to be an official recession, the economy would then also have to contract in July-September -- which is possible, if no-deal Brexit fears hurt business investment and consumer spending. | |
| .@NIESRorg warn there is a 30% chance of a recession in the U.K. next year - largely because of no-deal Brexit, but there could still be one with a deal, given the lack of momentum in the economy | |
| NIESR’s director, Jagjit Chadha, is warning that a no-deal Brexit would “throw concrete” into the wheels of the UK economy, knocking around 5% off GDP in the long run. | NIESR’s director, Jagjit Chadha, is warning that a no-deal Brexit would “throw concrete” into the wheels of the UK economy, knocking around 5% off GDP in the long run. |
| In the short term, though, the Bank of England could cut interest rate to prop up growth, he adds. | In the short term, though, the Bank of England could cut interest rate to prop up growth, he adds. |
| No-deal Brexit could “throw concrete” in the wheels of the UK economy @jagjit_chadha warns - saying the long-run impact would be about 5% of GDP every year pic.twitter.com/OBKu4Sk4Hn | No-deal Brexit could “throw concrete” in the wheels of the UK economy @jagjit_chadha warns - saying the long-run impact would be about 5% of GDP every year pic.twitter.com/OBKu4Sk4Hn |
| He says Bank of England and Treasury responses could offset the initial impact, meaning growth could fall to about zero - rather than the immediate recession scenario used by the BOE - but it won’t offset the long run | He says Bank of England and Treasury responses could offset the initial impact, meaning growth could fall to about zero - rather than the immediate recession scenario used by the BOE - but it won’t offset the long run |
| He says the Bank could respond with interest rate cuts, more QE, if demand falls. But - there are benefits of the Treasury running fiscal deficits - ie. higher levels of government borrowing - to reboot the economy, as monetary policy is close to running out of ammo | He says the Bank could respond with interest rate cuts, more QE, if demand falls. But - there are benefits of the Treasury running fiscal deficits - ie. higher levels of government borrowing - to reboot the economy, as monetary policy is close to running out of ammo |
| The title of NIESR’s press conference is “Economic Prospects Deteriorate As New PM Takes Over”, which rather sets the tone for prime minister Johnson (or possibly Hunt). | The title of NIESR’s press conference is “Economic Prospects Deteriorate As New PM Takes Over”, which rather sets the tone for prime minister Johnson (or possibly Hunt). |
| NIESR are outlining their forecasts now... | NIESR are outlining their forecasts now... |
| .@NIESRorg warns no-deal Brexit could trigger a “severe downturn” for the economy. pic.twitter.com/OCIXvcx1E2 | .@NIESRorg warns no-deal Brexit could trigger a “severe downturn” for the economy. pic.twitter.com/OCIXvcx1E2 |
| @NIESRorg warns the UK has a 1 in 4 chance that the economy is already in recession - director @jagjit_chadha outlining the UK economic prospects the new Prime Minister will inherit. pic.twitter.com/REr14ZDjFM | @NIESRorg warns the UK has a 1 in 4 chance that the economy is already in recession - director @jagjit_chadha outlining the UK economic prospects the new Prime Minister will inherit. pic.twitter.com/REr14ZDjFM |
| Even if Britain avoids a no-deal Brexit, the economy will only grow by around 1% per year in 2020 and 2021, NIESR estimates. | Even if Britain avoids a no-deal Brexit, the economy will only grow by around 1% per year in 2020 and 2021, NIESR estimates. |
| Top lines from @NIESRorg’s latest outlook for UK economy- one in four chance UK already in recession- “murky” outlook past October- risk of “severe downturn” in case of disorderly no deal pic.twitter.com/hxXJrQ8brJ | Top lines from @NIESRorg’s latest outlook for UK economy- one in four chance UK already in recession- “murky” outlook past October- risk of “severe downturn” in case of disorderly no deal pic.twitter.com/hxXJrQ8brJ |
| NEWSFLASH: There’s a one-in-four chance that Britain may be falling into a recession, as Brexit uncertainty drags on growth. | NEWSFLASH: There’s a one-in-four chance that Britain may be falling into a recession, as Brexit uncertainty drags on growth. |
| That’s according to the NIESR thinktank, which is publishing its latest assessment of the UK economy. | That’s according to the NIESR thinktank, which is publishing its latest assessment of the UK economy. |
| It warns that the UK would suffer a “severe downturn” in the event of a disorderly Brexit. | It warns that the UK would suffer a “severe downturn” in the event of a disorderly Brexit. |
| But if Britain left in an orderly fashion without a deal, the economy would stagnate in 2020 before returning to growth in 2021, it estimates. | But if Britain left in an orderly fashion without a deal, the economy would stagnate in 2020 before returning to growth in 2021, it estimates. |
| As NIESR puts it: | As NIESR puts it: |
| “The outlook beyond October, when the United Kingdom is due to leave the European Union, is very murky indeed with the possibility of a severe downturn in the event of a disorderly no-deal Brexit. | “The outlook beyond October, when the United Kingdom is due to leave the European Union, is very murky indeed with the possibility of a severe downturn in the event of a disorderly no-deal Brexit. |
| UK’s NIESR sees 25% chance UK economy has already entered a recession and a roughly 40% chance of no deal Brexit vs 60% for deal/delay. | UK’s NIESR sees 25% chance UK economy has already entered a recession and a roughly 40% chance of no deal Brexit vs 60% for deal/delay. |
| More to follow.... | More to follow.... |
| Morgan Stanley have released some new forecasts on how the pound might fare over the next few months. | Morgan Stanley have released some new forecasts on how the pound might fare over the next few months. |
| They warn that sterling could plunge towards parity with the dollar if Britain crashed out of the EU without a deal on 31 October, but could jump back to $1.45 if a deal is agreed, or Article 50 is revoked..... | They warn that sterling could plunge towards parity with the dollar if Britain crashed out of the EU without a deal on 31 October, but could jump back to $1.45 if a deal is agreed, or Article 50 is revoked..... |
| Ahead of Boris Johnson's almost guaranteed victory in the Tory leadership race, MS outline their "potential market ranges/scenarios" for $GBPUSD pic.twitter.com/Tt1Jaxj4rf | Ahead of Boris Johnson's almost guaranteed victory in the Tory leadership race, MS outline their "potential market ranges/scenarios" for $GBPUSD pic.twitter.com/Tt1Jaxj4rf |
| The drop in the pound this morning is providing some support to the London stock market. | The drop in the pound this morning is providing some support to the London stock market. |
| The FTSE 100 has gained around 0.5% this morning, led by exporters whose overseas earnings are more valuable (in sterling terms) when the pound weakens. | The FTSE 100 has gained around 0.5% this morning, led by exporters whose overseas earnings are more valuable (in sterling terms) when the pound weakens. |
| Oil producers such as BP (up 2%) are also among the risers. | Oil producers such as BP (up 2%) are also among the risers. |
| Brent crude oil is continuing to rise, up 2.3% this morning at $63.92 per barrel. | Brent crude oil is continuing to rise, up 2.3% this morning at $63.92 per barrel. |
| That’s a fairly subdued reaction to the escalating tensions in the Gulf, suggesting the markets aren’t expecting the detention of the Stena Impero to prompt a full-blown military clash. | That’s a fairly subdued reaction to the escalating tensions in the Gulf, suggesting the markets aren’t expecting the detention of the Stena Impero to prompt a full-blown military clash. |
| The big fear is that the Strait of Hormuz could be closed to international oil traffic. | The big fear is that the Strait of Hormuz could be closed to international oil traffic. |
| Hussein Sayed, Chief Market Strategist at FXTM, says oil could easily spike by $10 or $20 per barrel if this critical shipping route was badly disrupted. | Hussein Sayed, Chief Market Strategist at FXTM, says oil could easily spike by $10 or $20 per barrel if this critical shipping route was badly disrupted. |
| The little reaction seen in prices suggest two things. One, markets do not believe that these tensions will further escalate and two, the ongoing trade disputes will further hit demand while the US supply continues to reach new highs. | The little reaction seen in prices suggest two things. One, markets do not believe that these tensions will further escalate and two, the ongoing trade disputes will further hit demand while the US supply continues to reach new highs. |
| While fundamentals do support lower oil prices, investors need to carefully watch the developments in Strait of Hormuz. After all, the Strait is responsible for one-fifth of the world’s oil supply, and any disruption will lead to a significant spike in prices. | While fundamentals do support lower oil prices, investors need to carefully watch the developments in Strait of Hormuz. After all, the Strait is responsible for one-fifth of the world’s oil supply, and any disruption will lead to a significant spike in prices. |
| The pound is dipping in early trading, as investors fret about the Brexit crisis. | The pound is dipping in early trading, as investors fret about the Brexit crisis. |
| Sterling has dropped below the $1.25 mark, after chancellor Philip Hammond announced yesterday that he’d resign if Boris Johnson won the Conservative leadership battle. | Sterling has dropped below the $1.25 mark, after chancellor Philip Hammond announced yesterday that he’d resign if Boris Johnson won the Conservative leadership battle. |
| Hammond surely faced the sack otherwise, for showing insufficient enthusiasm for Brexit. His replacement will be someone who shares Johnson’s belief that Britain shouldn’t fear a no-deal exit from the EU. | Hammond surely faced the sack otherwise, for showing insufficient enthusiasm for Brexit. His replacement will be someone who shares Johnson’s belief that Britain shouldn’t fear a no-deal exit from the EU. |
| Johnson’s latest argument - if man can walk on the moon then the Irish border shouldn’t be a problem - isn’t providing the pound with much support today. | Johnson’s latest argument - if man can walk on the moon then the Irish border shouldn’t be a problem - isn’t providing the pound with much support today. |
| Investors are watching to see if Johnson can maintain his position that Britain definitely, definitely leaves the EU on Halloween, as Neil Wilson of Markets.com explains: | Investors are watching to see if Johnson can maintain his position that Britain definitely, definitely leaves the EU on Halloween, as Neil Wilson of Markets.com explains: |
| Watch for a harder tone on Brexit and the very clear message that Oct 31st is a hard date. As previously argued, the reality of parliamentary arithmetic may see this soften in due course. Pound traders will be watching the new PM like hawks over the coming days. | Watch for a harder tone on Brexit and the very clear message that Oct 31st is a hard date. As previously argued, the reality of parliamentary arithmetic may see this soften in due course. Pound traders will be watching the new PM like hawks over the coming days. |
| Sterling will remain vulnerable to the prospect of a no-deal exit on Oct 31st. | Sterling will remain vulnerable to the prospect of a no-deal exit on Oct 31st. |
| Asia-Pacific stock markets have fallen today, dragged down by worries over the global economy -- and fresh protests in Hong Kong. | Asia-Pacific stock markets have fallen today, dragged down by worries over the global economy -- and fresh protests in Hong Kong. |
| China’s Shanghai index tumbled by 1.3%, closely followed by Hong Kong’s Hang Seng (-1.2%) while Japan’s Nikkei lost 0.25%. | China’s Shanghai index tumbled by 1.3%, closely followed by Hong Kong’s Hang Seng (-1.2%) while Japan’s Nikkei lost 0.25%. |
| Stephen Innes of Vanguard Partners says the clashes between police and demonstrators is hitting the markets: | Stephen Innes of Vanguard Partners says the clashes between police and demonstrators is hitting the markets: |
| The Hang Seng is suffering yet another Monday hangover as weekend demonstrations gridlocked Hong Kong again. The pro-democracy protests that began last month in opposition to the contentious extradition bill are showing little signs of abating. | The Hang Seng is suffering yet another Monday hangover as weekend demonstrations gridlocked Hong Kong again. The pro-democracy protests that began last month in opposition to the contentious extradition bill are showing little signs of abating. |
| The longer these demonstrations persist, the more massive of a toll both in real and psychological terms will negatively imprint on Hong Kong’s thriving financial centre. | The longer these demonstrations persist, the more massive of a toll both in real and psychological terms will negatively imprint on Hong Kong’s thriving financial centre. |
| 'Where were the police?' Hong Kong outcry after masked thugs launch attack | 'Where were the police?' Hong Kong outcry after masked thugs launch attack |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| Global markets are subdued this morning, weighed down by worries over the global economy, rising tensions in the Middle East, and the prospect of a new UK prime minister. | Global markets are subdued this morning, weighed down by worries over the global economy, rising tensions in the Middle East, and the prospect of a new UK prime minister. |
| Germany’s finance ministry has cast a cloud over the new week, warning that its factory sector faces tough challenges. | Germany’s finance ministry has cast a cloud over the new week, warning that its factory sector faces tough challenges. |
| In a new monthly report, it said manufacturers are suffering from a slowing global economy, which is hitting demand for exports. | In a new monthly report, it said manufacturers are suffering from a slowing global economy, which is hitting demand for exports. |
| “Leading indicators as well as shrinking order books point to a lasting period of economic weakness in the industrial sector.” | “Leading indicators as well as shrinking order books point to a lasting period of economic weakness in the industrial sector.” |
| That’s not an understatement. Earlier this month we learned that German factories had suffered their biggest drop in orders in a decade, down over 8% year-on-year. A reminder that Germany’s economy, once the powerhouse of the region, has been hurt by the US-China trade war and the wider eurozone slowdown. | That’s not an understatement. Earlier this month we learned that German factories had suffered their biggest drop in orders in a decade, down over 8% year-on-year. A reminder that Germany’s economy, once the powerhouse of the region, has been hurt by the US-China trade war and the wider eurozone slowdown. |
| Elsewhere, some investors are sitting tight until they know whether the US Federal Reserve will cut interest rates next Wednesday (the Financial Times is confident they will lower borrowing costs by 0.25%, judging by today’s front page). | Elsewhere, some investors are sitting tight until they know whether the US Federal Reserve will cut interest rates next Wednesday (the Financial Times is confident they will lower borrowing costs by 0.25%, judging by today’s front page). |
| FT: Fed poised to lower rates for first time in a decade #tomorrowspaperstoday pic.twitter.com/ZEfYsxAej6 | FT: Fed poised to lower rates for first time in a decade #tomorrowspaperstoday pic.twitter.com/ZEfYsxAej6 |
| Such a rate could would please Donald Trump, but might not be enough to brighten the economic outlook. | Such a rate could would please Donald Trump, but might not be enough to brighten the economic outlook. |
| Traders are also watching events in the Gulf closely, after Iran seized a UK-flagged tanker, the Stena Impero on Friday. Outgoing UK PM Theresa May is chairing a security meeting on the crisis this morning, as relations between the two countries deteriorate. | Traders are also watching events in the Gulf closely, after Iran seized a UK-flagged tanker, the Stena Impero on Friday. Outgoing UK PM Theresa May is chairing a security meeting on the crisis this morning, as relations between the two countries deteriorate. |
| UK defence minister rejects criticism over tanker seized in Gulf | UK defence minister rejects criticism over tanker seized in Gulf |
| Worrying times, and an early test of Boris Johnson’s diplomatic skills.... | Worrying times, and an early test of Boris Johnson’s diplomatic skills.... |
| Concerns over escalating tensions in the Gulf have pushed the oil price up this morning, gaining 1.5% or almost one dollar per barrel to $63.37. | Concerns over escalating tensions in the Gulf have pushed the oil price up this morning, gaining 1.5% or almost one dollar per barrel to $63.37. |
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