Germany cuts growth forecasts amid recession fears, as Ireland unveils budget - business live
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Version 0 of 1. 5.13pm BST17:13 European markets edge higher Wall Street rode to the rescue to flagging European markets, writes Nick Fletcher, helping them end the day in positive territory - just. This seemed unlikely initially, when a shock fall in Germany ZEW confidence index was following by the country’s government cutting its growth forecasts and a fall in eurozone industrial production. But spirits revived after a positive set of results from US companies, notably Citigroup. So the closing scores showed: On Wall Street, the Dow Jones Industrial Average is currently 136 points or 0.84% higher. On that note it’s time to close up for the evening. Thanks for your comments and we’ll be back tomorrow. Updated at 5.44pm BST 4.46pm BST16:46 US Federal Reserve member John Williams has said he is open to another round of asset purchases after the central bank’s bond buying programme runs out this month, if inflation fall significantly short of target. In an interview with Reuters he also said the phrase “considerable time” when referring the timeframe for interest rate rises should remain in the Fed’s statements: Fed’s Williams: Considerable time language remains accurate, removing it may risk market backlash He also addresses the ECB, which is still considering quantitative easing measures to combat the stagnation in the eurozone economy. ECB president Mario Draghi seems at odds with the Germans on how far to go with stimulus measures, and Williams seems unconvinced enough will be done: Fed’s Williams: ECB response to potential EZ stagnation won’t be fast or aggressive enough 4.38pm BST16:38 Italy’s 2015 is likely to be rejected by the European Commission unless changes are made, Reuters is reporting. Citing an EU source, it says: Italy’s budget blueprint adjusts the structural fiscal deficit - adjusted for the business cycle and one-off factors - by just 0.1% of gross domestic product, a cut considered far too modest by the Commission, which wants a correction of “at least 0.7%,” said the source. The big shortfall in what Italy is proposing is “a serious violation” of the Commission’s recommendations, the source said, and could lead to Italy being put on the Commission’s blacklist of countries out of line with EU fiscal rules.The source said the Commission had still not received Italy’s definitive budget plan, which will be signed off by the Cabinet on Wednesday. 3.55pm BST15:55 German finance minister denies there's a crisis Back to Germany, briefly, and finance minister Wolfgang Schäuble has denied that the German economy is in ‘crisis’. Asked about the decision to slash growth forecasts today, Schäuble told a news conference in Luxembourg: “You can see from the forecasts that the German government expects the weakness to be temporary and that next year already, according to the available figures, it will slowly pick up.” A growth rate of 1.2%, 1.3% is not particularly wonderful and the lowering of the forecasts compared to what we had announced is not pleasing but it’s no reason to start talking about a crisis.” 3.51pm BST15:51 Irish 2015 budget, a recap Dublin correspondent Henry McDonald sums up the Irish 2015 budget (highlights start here). Michael Noonan kept using the phrase “prudent” to describe this budget and it was certainly an apposite description. There were no massive give aways for the public but some help to ease the burden of taxes and the proposed (and universally loathed) water charges. Pensioners were among the winners with them receiving up to €100 in help to pay the new water bills each year. And those in the top rate of tax bracket will see a small rise in their earnings with the tax rate falling from 41% to 40%. There will be a €5 rise for all parents in child benefit payments. And the Double-Irish tax loophole, as predicted, will close by the end of 2020. Perhaps one of his most boldest and politically risky projections was that by 2016 - the year of the next general election and symbolically the centenerary of the 1916 Easter Rising which led to the state’s foundaton - there would be 2 million people at work. In terms of the Fine Gael-Labour coalition’s prospects in less than two years time, this budget has not been a disaster by any means but water charges remain the greatest threat to its survival. While the international media portray this budget as a signal that austerity is ending, it is worth noting the huge gap that still exists between what the Dublin government will bring in via taxation (€65.2bn) compared to what it will spend (€70.5bn). That suggests further financial discipline will be needed, and possibly additional spending cuts. 3.30pm BST15:30 These graphics put the Irish budget, and the various tax changes, into some context: Once again, the 'Double Irish' explained in a graphic pic.twitter.com/TT18hPkO9C (via @WSJ) Ireland's 'fair, competitive & efficient' income tax system to-date: pic.twitter.com/u4invh2oyL 3.22pm BST15:22 And all the Irish budget measures are online here. Updated at 3.22pm BST 3.19pm BST15:19 And Michael Noonan concludes by declaring that his budget is “the right approach for Ireland at this point in our recovery” MN: A new road to a new Ireland. pic.twitter.com/DkRe5z9fm9 3.19pm BST15:19 MN:I am not raising taxes on alcohol. I am not raising taxes on petrol or diesel. I am not raising motor tax or raising V.R.T. #Budget15 3.19pm BST15:19 No change to Irish petrol duty either. 3.18pm BST15:18 And there’s mixed news on consumption taxes. Finance minister Michael Noonan says that alcohol duty won’t change, but he’s putting another 40 eurocents on a packet of cigarettes. Rumours that two of the pillar banks are announcing a 110% mortgage product aimed at people who want to buy a packet of fags. #Budget15 Noonan "i am not raising taxes on alcohol" #arelief Updated at 3.18pm BST 3.17pm BST15:17 Ireland cuts top rate of income tax Michael Noonan says that he will cut the top rate of income tax from 41%, to 40%. It’s the first in a series of planned tax cuts for workers, he declares. 3.13pm BST15:13 Some changes to personal taxation: MN: Increasing the entry point to the USC to over €12,000 removing 80,000 low income workers from the charge altogether #Budget15 MN: Reducing the 2% USC rate to 1.5%; reducing the 4% USC rate to 3.5% #Budget15 3.12pm BST15:12 Last weekend’s protests against new Irish water charges did have an effect! Noonan says he will introduce “Water Charges Relief worth up to €100 per year”, to help working families. 3.11pm BST15:11 There’s some help for Irish citizens trying to get onto the housing ladder: MN: To support 1st time buyers, I’m introducing a DIRT refund on savings used to purchase their home to a max of 20% of the purchase price 3.10pm BST15:10 Noonan says that Ireland will keep its lower VAT rate on tourism related activities, at just 9%. 3.06pm BST15:06 Henry McDonald: Double-Irish out, patent box in With the Double-Irish tax loophole being consigned to history (eventually), Ireland will also introduce a “knowledge development box” to encourage firms to conduct R&D in the Republic. Henry McDonald explains: As predicted the controversial “double Irish” tax avoidance scheme enjoyed by the likes of Apple is gone, to be phased out in four years. Ireland is also introducing a “patent box” scheme already in operation in Britain, which awards corporations for centering their technogical innovations in the country and being awarded themselves with generous tax breaks. It goes to show conscious and indeed nervous the Irish political classes can be when it comes to pressure from their EU and global trading partners, specifically their opposition to Irish state tax deals with multi nationals. Although of course the 12.5% corporation remains in tact so beloved not only by global companies based in the Republic but also U2’s frontman Bono! Last week, Bono argued that the low tax environment had helped Ireland claw its way to prosperity 2.56pm BST14:56 Noonan is now announcing help for Irish farmers, greyhound racing (!) and micro-breweries (hurrah) MN: Today I am publishing today the Agri-Taxation Review. I am introducing a number of tax measures to support farming #Budget15 MN: The Government will be providing an additional €6 million a year for 3 years to the fund for horse and greyhound racing #Budget15 MN: I’m increasing the annual excise relief production ceiling for microbreweries from 20,000 hectolitres to 30,000 hectolitres #Budget15 2.55pm BST14:55 Noonan: The Double-Irish tax loophole will close The notorious Double-Irish Tax Loophole is being closed after a storm of controversy over the way multinational firms have been cutting their tax bills. The double Irish loophole allows US companies to reduce their tax bill by moving most of their taxable income from an operating firm in Ireland to an Irish-registered firm in an offshore tax haven. Michael Noonan announces that new rules are being brought in, to ensure that all firms incorporated and registered in Ireland will “automatically” pay tax there. MN: End of Double Irish: change company tax residence rules - all companies incorporated in Ire auto tax resident in Ire #Budget15 However, firms have until the end of 2020 to comply, so it’s not an immediate clampdown. So over 5 years for companies to work around Double Irish. In fairness, it will get the positive international headlines govt want. #BREAKING Ireland to tighten corporate tax rules: minister 2.48pm BST14:48 Ireland’s 12.5% rate of corporation tax is settled policy and will not change, Noonan declares. 2.47pm BST14:47 Onto taxation, and Noonan declares that Dublin is publishing a Road Map to “secure Ireland’s place as destination for best & most successful companies in the world”. And here it is! Competing in a changing world #roadmap #Budget15 pic.twitter.com/HPbjnkL0HQ 2.45pm BST14:45 Perhaps channelling Gordon Brown, Michael Nooan promises more ‘prudent’ budget planning in future years. MN: Prudent and responsible budgeting has got us to this point. Prudent and responsible budgeting will be how we will continue #Budget15 2.44pm BST14:44 Ireland revises up growth forecasts Michael Noonan says that the Irish government now expects the economy to grow by 3.9%. That’s a big increase on the 2.7% growth expected in April. And quite a contrast, on the day that Germany cuts its growth forecasts. MN: As a result of the package of measures I am introducing today, the GDP growth forecast in 2015 has been revised up to 3.9% #Budget15 Noonan is also confident that Ireland (unlike France) will easily achieve the 3% deficit target set by Brussels. Noonan: I am targeting a deficit of 2.7% in 2015 2.40pm BST14:40 Dublin correspondent Henry McDonald is struck by the bold way in which Michael Noonan began his budget: After getting onto his feet in the Dail (Irish parliament) to deliver Budget 2015, Michael Noonan first words are: “Many people thought we’d fail...” A bold statement given that Ireland is hardly out of the woods yet in terms of national debt, personal debt, shaky banks and still one of the highest unemployment rates in the EU. 2.36pm BST14:36 Irish exports are growing, and employment has increased for the last seven quarters, Noonan says. 2.36pm BST14:36 The task now, Noonan says, is to build on the foundations of the recovery that have been laid in recent years (since Ireland was forced to sign up for an austerity programme when it was bailed out by the IMF). MN: Today is about looking forward. It’s about building for the future upon this solid foundation that has been so painstakingly laid 2.35pm BST14:35 Noonan says the Dublin government is ahead of the fiscal targets it set itself, and that tax hikes and spending cuts have been less severe than previously expected. 2.34pm BST14:34 Ireland's 2015 Budget statement begins Finance minister Michael Noonan begins delivering the Irish budget for 2015, declaring that it contains plans to “grow the economy” and help the unemployed find jobs. 2.29pm BST14:29 And they’re off..... Noonan on his feet #budget15 #Ireland 2.22pm BST14:22 And here’s a photo of an anti-federalist Eurosceptic outside government buildings in Dublin, from journalism student Niall Mullins: He’s protesting about Ireland’s lost sovereignty, as the austerity “boy scouts of Europe” prepare to unveil Budget 2015: 2.17pm BST14:17 Photos from Dublin ahead of the budget Over in Dublin, you can still see signs of last Saturday’s protests against a new water tax on government buildings today. Here’s a photo from journalism student John Chambers: Almost 50,000 angry demonstrators took to the streets, and there are reports that they have concessions within today’s budget. Half of the budget will be delivered by Brendan Howlin, the Irish Minister in charge of Public Expenditure and Reform, He has laid out his choice of ties to wear when he deliver his half of the budget today. Decisions, decisions..... Meantime the minister has also posted an Irish soccer jersey in solidarity with Martin O’Neill and Roy Keane’s men who take on the might of Germany later tonight, John adds. 2.01pm BST14:01 Lunchtime round-up: Germany in rough waters Time to recap, before turning our attention to the Irish Budget this afternoon. The economic problems bubbling away in Europe have been exposed again this morning, as the German government slashed its growth forecasts amid fresh gloomy data. Berlin now expects growth of just 1.2% this year, and 1.2% in 2015 (down from 1.8% and 2%), in the face of slowing export growth. Economy minister Sigmar Gabriel blamed geopolitical tensions and global economic problems overseas, saying: “The German economy is steering through rough foreign waters. Geopolitical crises have also increased uncertainty in Germany and moderate growth is weighing on the German economy.” The downgrades came shortly after German investor sentiment hit its lowest level since 2012, according to the ZEW Institute’s survey. ZEW’s chief economist reckons Germany could have fallen into recession in the last quarter. Clemens Fuest said: “It can’t be excluded that the third quarter will turn out to be negative, but I wouldn’t expect a longer recession, mainly because the domestic fundamentals in Germany are solid. But other economists are gloomier, with Hargreaves Lansdown warning that Europe’s largest countries could drag the whole eurozone into recession. The International Energy Agency added to concerns over global growth, slashing its demand forecasts for next year. That has pushed the Brent crude oil price down to a new four-year low of $87.57 per barrel this lunchtime. Other data this morning has indicated that the euro area is sagging into a low-growth, low-inflation trap. Industrial production across the wider eurozone fell in August, down 1.8% month-on-month. Eurostat reports that the largest monthly decreases in industrial production were registered in Hungary (-5.8%), Germany (-4.3%) and Croatia (-4.1%). This helped to send the euro down one cent agains the US dollar, at $1.265. In the UK, the inflation rate has tumbled to just 1.2%, a five-year low (and almost the lowest in a decade). Supermarket price wars and the falling oil price are pushing down living costs. Economists predict that the CPI could even drop to 1% or lower, which would force the Bank of England governor to write a letter of explanation to George Osborne. The situation is more worrying in the eurozone, with France’s inflation rate now just 0.4% and Italy deeper in recession. The ONS also reported that UK house prices rose by 11.7% year-on-year in August, the same rate as in July. London prices are up over 19%. What could poss go wrong? MT @graemewearden: London house prices up 19.6% yoy in Aug (ONS): http://t.co/6jZoGBvppf pic.twitter.com/n5EUvxp8wd And in Dublin, the government is preparing to announce the 2015 budget. Michael Noonan, finance minister, is expected to announce some help for pensioners, and parents. Here’s our preview Updated at 3.28pm BST 1.20pm BST13:20 Hargreaves Lansdown: Eurozone core looks rotten The downturn in the German economy, along with France’s malaise and Italy’s problems, could potentially drag the eurozone back into recession even as ‘peripheral’ countries recover. So warns Ben Brettell, senior economist at Hargreaves Lansdown: Economic sentiment in Germany turned negative for the first time since 2012 according to today’s ZEW survey data. October’s reading was far worse than economists had forecast and means the index has now fallen for ten successive months. The most severe problems in the euro zone have so far been limited to the periphery, with the core remaining in relative good health. However, in recent months we have seen a shift. Some peripheral economies are now registering decent growth, whilst the core looks in trouble. Together, Germany, France and Italy are responsible for 66% of euro zone GDP. None registered any positive growth in Q2, with Germany and Italy contracting 0.2% and France flatlining. Looking forward the signs aren’t good – in addition to today’s ZEW survey, data released last week show German exports declined 5.8% in August. As Russia’s biggest EU trading partner, Germany stands to lose most from Russian trade sanctions. Given the relative size of these three economies in the euro zone it is perfectly possible they will drag the whole bloc into recession. The threat of deflation was also highlighted again today, with prices falling 0.2% year-on-year in both Italy and Spain. I believe Mario Draghi will eventually be forced to embark on a quantitative easing programme – though he will have to overcome stiff opposition from the Bundesbank first. 1.14pm BST13:14 One of Ireland’s leading economic journalists, Charlie Weston of the Irish Independent, isn’t too impressed by leaks that child benefit is going up by €5 (see earlier) If there is an extra €5 in child benefit, a two-child family will still be down €744 a year from 2008. 12.45pm BST12:45 Germany cuts growth forecasts as recession fears mount Breaking: the German government has just slashed its growth forecasts for this year, and 2015. It now expects growth of just 1.2% this year, down from 1.8% back in April. And in 2015, it now expects growth of 1.3%, down from 2.0% six months ago. Economy minister Sigmar Gabriel is blaming geopolitical crises, and moderate global growth, for holding back the German economy (so reliant, of course, on exports to other countries). So far this year, German GDP grew by 0.7% in January-March, and then shrank by 0.2% in March-April. There’s no indication whether the Ministry believes Germany actually fell into recession in the last quarter, as the ZEW Institute (see 12.16pm) and many economists fear. The news comes just hours after ZEW reported the worst German confidence figures in over two years (see 10.07am). The German economy ministry has also slashed its trade forecasts. Exports are now expected to rise by 4.0% this year, down from 4.7%. But Berlin is hoping for a bounceback in 2015, raising its forecast from 5.1% growth to 5.5%. Domestic demand is also weaker than forecast in April, before the eurozone slowdown. It is now expected to rise by just 1.4% this year, down from 1.9% in April. Germany throws in the towel. Cuts its GDP outlook. This isn’t a surprise, given the blizzard of disappointing economic news in recent weeks. But it reinforces concerns over the European economy, and intensifies the pressure on the European Central Bank to unleash further stimulus measures. Will the German growth downgrade be a green light to ECB !! Updated at 12.49pm BST 12.29pm BST12:29 Back in Ireland.... Labour, the junior partner in the Irish coalition, has managed to secure one major concession from Finance Minister Michael Noonan in today’s budget in Dublin. Henry McDonald reports: The Labour leader and deputy prime minister Joan Burton is expected to announce an increase of €5 in Child Benefit payments. She happens to run the Department of Social Protection which will now pay universal child benefit of €135 per month for every child in the Republic. This marks a major gain for Labour and a surprise increase given that this benefit has been slashed by 25 per cent over the past five years of austerity. Henry’s budget preview is here. 12.16pm BST12:16 ZEW Institute: Germany could be in recession The slump in German investor confidence this month, to a two-year low, may show that Europe’s largest economy is in recession. That’s according to the chief economist of ZEW, Clemens Fuest. He told Reuters: “It can’t be excluded that the third quarter will turn out to be negative, but I wouldn’t expect a longer recession, mainly because the domestic fundamentals in Germany are solid,” “On the export side, there are some negative factors, Ukraine and others. But there is also hope, the U.S. economy is recovering. Overall, the situation is not as bad as people seem to think currently,” As covered earlier (details), ZEW’s monthly index of morale has fallen to minus 3.6%. That suggests investors and analysts are alarmed by the deteriorating eurozone economy, its impact on Germany, and geopolitical clashes in eastern Ukraine Interestingly, Fuest also suggested that Berlin risks being seen as “dogmatic”, if it insists on running a balanced budget rather than increasing borrowing to stimulate growth. Germany certainly wouldn’t struggle to find buyers for a debt splurge. Investors have been piling into bunds again today, driving down the yield on its 10-year debt to record lows. That’s a sign that they anticipate low growth and low inflation, and want somewhere safe to put their money.... Yields on 10-year German bunds fall to a record low 0.856% as evidence accumulates that #Germany's economy is in trouble. German 10yr yield drops to record low of 0.85% after shocking ZEW numbers. pic.twitter.com/wS6qsYBrvy 11.58am BST11:58 The euro has fallen by over a cent against the US dollar, down 0.9% this morning to $1.2649. That follows this month’s slide in German investor confidence, and the fall in industrial production in August, which both suggest the eurozone economy is weakening. 11.41am BST11:41 With UK supermarkets engaged in an increasingly vigorous price war, and oil prices hitting four year lows this morning, it’s hard to see UK inflation surging from its five-year low of 1.2% anytime soon. Indeed, it could keep falling -- further away from the 2% target set by the Bank of England. Martin Beck, senior economic advisor to the EY ITEM Club, says: “Bolstered by falling oil prices, there is little sign of any inflationary pressures in the horizon. If anything, there is reasonable chance that inflation could dip below 1% around the turn of the year, which would lead to letter writing from Mark Carney to the Chancellor. (the Bank of England governor must write a letter of explanation if inflation is more than 1 percentage point away from the 2% target). 11.21am BST11:21 Deflation alert: Sweden & Spain record falling consumer prices in Sept of -0.4% and -0.3%, respectively, French inflation a 5-yr low of 0.4% 11.12am BST11:12 Since 2008 the UK has followed the Eurozone's lead on inflation. How far down will we go this time? pic.twitter.com/46XAGIoRbH 11.10am BST11:10 Here’s our news story on the fall in UK inflation, by Katie Allen: UK inflation falls to five-year low of 1.2% UK inflation falls to five-year low of 1.2% http://t.co/zxjKiJKJh3 via @guardian 11.08am BST11:08 Sweden could cut interest rates as inflation turns negative At 1.2%, Britain’s inflation rate is still higher than many European neighbours, such as Sweden where new inflation data has also come in below forecasts. Economics correspondent Phillip Inman reports: While France edges closer to negative inflation after a fall to 0.4% in September this morning, Sweden is already there. Last month Swedish inflation fell to -0.4% year-on-year in September, below consensus of a 0.1% decline. HSBC economist James Pomeroy reckons interest rate cuts could be just around the corner in Sweden, Europe’s second largest non-eurozone economy after the UK. He said: “Aside from oil and the currency, the Riksbank recently commented that increased competition in Sweden was keeping price increases down. Competition from overseas and e-commerce was cited as one of the key reasons for low price increases - and looking at the sector breakdown of inflation, only restaurants and alcohol show any price increases on a year-on-year basis. Pomeroy added: “Prices were much softer on both the headline and core measures, rising just 0.2% and 0.3% month-on-month respectively, when September data usually benefits from a seasonal pick-up in prices. The effect of a weaker oil price is yet to be fully reflected as this will be more prevalent in the October numbers, but there were signs that this was having an effect, as household fuel and transport saw a significant slowdown. As a result, we expect the inflation data to be weaker in the coming months, prompting the Riksbank to cut rates to 0% in December.” 11.02am BST11:02 ING are also pondering whether their prediction that UK interest rates will rise next February is wrong. They’re not changing it yet, though -- economist James Knightley reckons there is “the potential for wages to start to rise more quickly”, as the minimum wage rises by 3% this month. 10.56am BST10:56 Summary This chart shows how food, transport and recreation costs all helped to pull down the UK’s inflation rate to 1.2% year-on-year in September: James Knightey, ING economist, comments: Food price deflation intensified to -1.4%YoY from -1.1% as the supermarket price war escalates while lower petrol prices were also a contributing factor. Nonetheless, even core inflation pressures weakened with CPI excluding food and energy slowing to 1.5% from 1.9%. In fact there was moderation in most components with healthcare, transportation and recreation and leisure categories seeing fairly large falls in inflation. 10.26am BST10:26 UK inflation hits five-year low - the political reaction Back to the unexpected slide in UK inflation to a five-year low of 1.2% last month... The Treasury has issued a statement arguing that “the government’s long term economic plan is working” (that familiar phrase!). They add: “The triple-lock pension guarantee that this government has put in place means that the basic state pension will rise by at least 2.5 per cent next April; double the rate of inflation. That means around an extra £150 more in the pockets next year of those that have worked hard all their lives”. But the opposition Labour party make the same point we flagged up earlier -- wages are still lagging behind. Shadow Treasury Minister Catherine McKinnell says: “The squeeze on working people continues despite this fall in the rate of inflation. Total pay is rising at just 0.6 per cent, which is half the rate of CPI inflation announced today. “Working people whose real wages have fallen by £1,600 a year since 2010 face a further hit if the Tories win the election and cut tax credits again. George Osborne’s Strivers’ Tax will see a one earner family earning £25,000 and with two children lose almost £500 a year. “Labour’s economic plan will tackle the cost-of-living crisis and earn our way to higher living standards for all, not just a few at the top. We will balance the books in the next Parliament, but do so in a fairer way.” And this chart, from last month’s unemployment report, shows how earnings have failed to match rising prices since 2009: Updated at 10.37am BST 10.16am BST10:16 Eurozone industrial production takes a dive More gloom.... industrial production across the eurozone slumped in August, according to new figures from Eurostat. It’s the latest sign that Europe’s economy weakened over the summer. Output declined by an alarming 1.8% month-on-month in August alone, meaning it was 1.9% lower than a year ago. It was driven by a 4.8% slump in creation of “capital goods”, or heavy-duty machinery, which. Intermediate goods production fell by 0.7% and non-durable consumer goods by 0.2%, while durable consumer goods increased by 0.2% and energy by 1.2%. Eurostat reports that the largest decreases in industrial production were registered in Hungary (-5.8%), Germany (-4.3%) and Croatia (-4.1%). Worrying signs, especially with predictions that Germany could have slipped into recession.... The highest increases were seen in Denmark (+6.9%), Portugal (+3.1%) and the Netherlands (+1.3%). 10.07am BST10:07 German economic sentiment tumbles Yikes. Economic optimism in Germany has taken an almighty shunt. The ZEW Institute’s monthly survey of investor expectations tumbled to minus 3.6% this month, down from 6.9 in September. This is the first time since November 2012 that the ZEW has been in negative territory. ZEW blamed geopolitical tensions and weak economic development in parts of the eurozone. But it also recognised that recent economic data from Germany has been weak, with factory orders, output and exports all sliding in August. The ‘current conditions’ measure hit its lowest in over four years, showing that firms are suddenly finding conditions tougher. German economic sentiment drops further: ZEW Econ sentiment at 23-m low of -3.6 ,Current conditions at 3.2 (52-m low) http://t.co/DBfZvkNPjZ Updated at 11.22am BST 10.00am BST10:00 Despite this fall in inflation, UK workers are still suffering from falling real pay. Annual earnings rose by just 0.6% in the three months to July. We get new data for the three months to August tomorrow, and economist expect a meagre increase, to just 0.7%. 9.58am BST09:58 Prime minister David Cameron has welcomed the news that inflation has fallen further away from the Bank of England’s target (!). It's good news that inflation remains low. Our #LongTermEconomicPlan is delivering more financial security and stability for families. City traders aren’t convinced: RT @David_Cameron: It's good news that inflation remains low. Our #LongTermEconomicPlan > "only because earnings growth is so poor" Last RT: Hmmm, stick to the politics 9.55am BST09:55 UK house price inflation running at 11.7% The ONS has also reported that UK house prices rose by 11.7% year-on-year in August, the same rates as in July. As usual, London’s red-hot property market pushed the average up. 9.51am BST09:51 Reuters’ Jamie McGeever agrees that this slide in inflation means the Bank of England will be leaving UK interest rates unchanged for months..... UK inflation falls much faster than expected...kiss goodbye to a UK rate hike any time soon 9.50am BST09:50 Not only is this the lowest UK inflation rate in five years, it’s almost the lowest in a decade! UK inflation down to 1.2%. Lowest for 5 years. With exception of Sep'09, lowest for a decade. pic.twitter.com/fkpi50AkTe 9.47am BST09:47 ONS: Supermarket price wars and cheap oil push inflation down Today’s report shows that UK food prices are down by 1.5% over the last year, while motor fuels prices are down by 6.0%. That’s the main reason that Britain’s inflation rate has fallen so much in the last year: The ONS says that “increased supermarket competition,” the strong pound (until recently!) and falling crude oil and petroleum prices are likely factors. UK CPI: food prices fell 1.5%, price of motor fuels down 6%. "Historically these prices have been among the main causes of inflation" 9.42am BST09:42 This chart shows how UK’s inflation rate has been steadily below the Bank of England’s 2% target for months: 9.40am BST09:40 Cheaper food and lower energy prices also dragged the CPI inflation rate down to 1.2%: The ONS says: Housing & household services (including utility bills) accounted for a third of the rate of inflation in the year to September. If falling food and motor fuel prices were excluded, the rate of inflation would be a third higher. 9.38am BST09:38 The Office for National Statistics reports that UK inflation was dragged down by lower price rises in the transport, recreation and culture and restaurant sectors. 9.36am BST09:36 The pound is sliding.. down over one cent against the US dollar to $1.5981. Traders are calculating that the tumble in UK inflation means the Bank of England won’t start hiking borrowing costs for months.... 9.32am BST09:32 UK inflation rate falls to five-year low of 1.2% Breaking: the UK inflation rate has fallen sharply in September to its lowest level since 2009. The annual consumer prices index rose by just 1.2% last month, down from a 1.5% increase in August. That’s a much larger fall than expected, and takes a lot of pressure off the Bank of England to raise interest rates soon. On a monthly basis, prices were unchanged. Details and reaction to follow! Updated at 11.04am BST 9.28am BST09:28 Heads-up....it’s nearly time for the UK inflation data to be released.... Economists expect that CPI will fall again, to 1.4% from 1.5% in August. 5 mins; #UK #CPI inflation data in focus for #GBPUSD #traders.Low price pressure will leave #BOE more space for delaying the first rate hike 9.27am BST09:27 Preview: Ireland's 2015 budget Here’s our Dublin correspondent, Henry McDonald, on Ireland’s 2015 budget which is being announced this afternoon: Praised across Europe and indeed the world as the EU’s “poster child” for enduring six years of austerity cuts without Greek-style mass violent protests, Ireland prepares today for another budget which will determine the fate of the Fine Gael-Labour coalition. Although budget 2015 will be far from a giveaway one there will be some measures to ease the pain applied on Irish citizens’ pockets since the Republic was forced to make swingeing cuts in its public services and welfare in order to placate the IMF and EU when the state was bailed out from national bankruptcy. And while unemployment is falling and growth continues to rise albeit marginally, the sight of tens of thousands of angry people on the streets of central Dublin last Saturday protesting about the introduction of water charges has reminded the government that while it can be flattered in Brussels it will be battered by the electorate over that one issue, possibly even fatally wounded when the water bills start mounting up to the 2016 general election. In response to growing anger over water charges, Irish Finance Minister Michael Noonan is expected to introduce a number of measures including an extra €100 for that section of the electorate in Ireland no government can ignore - the pensioners. The new €100 payment will be specifically targeted for the grey vote to help them pay water charges. Among the other moves aimed at easing austerity will be: There will also be extra spending for social housing and the recruitment of more Gardai to counter public concern about rising crime levels across the Republic but especially in Dublin. Updated at 10.49am BST 9.19am BST09:19 Italy falls deeper into deflation Oh dear, more weak inflation data from Europe. The Italian consumer prices index has fallen to minus 0.2% in September, the lowest rate in decades. With prices also falling in Spain, and rising at a lower rate in France (see earlier), Europe’s low-flation problem appears to be worsening.... Italian final September #inflation at -0.2% (-0.1% in August). Lowest level since 1959 http://t.co/kAdWPx5gFl 9.06am BST09:06 IEA slashes oil demand forecast Just in. The International Energy Agency has cut its forecast for oil demand next year, recognising that global growth will be weaker the than thought. In its latest monthly report, the IEA said the recent falls in the oil price are partly due to weaker supply, and suggested they could fall further. It says: “Recent price drops appear both supply and demand driven. Further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift.” It now expects oil demand in 2015 to rise by 1.1 million barrels per day, down from 1.4 million previously, to 93.5 million bpd. 8.59am BST08:59 European markets mixed in early trading Most European stock markets have lost ground again this morning, with the French CAC losing 0.3%. After recent sharp falls, traders appear to be sitting edgily until the German ZEW confidence data is released at 10am. Marc Ostwald of ASM Investor Services explains: With markets as jumpy as they are, and increasingly despondent about Eurozone prospects, it may be the German ZEW survey that catches most attention... Here’s the state of play: 8.50am BST08:50 ECJ begins hearing into ECB's bond-buying programme Heads-up. The European Court of Justice has begun examining whether the European Central Bank’s bond-buying plan, which helped calm the eurozone crisis, is legal. The case, against the Outright Monetary Transactions scheme announced in 2012, was brought by the German Bundesbank. A decision isn’t expected until next summer. The case centres on whether OMT breaches the rules banning the ECB from lending money to individual governments, or “monetary financing”. OMT has never been activated, but it would allow the ECB to buy bonds issued by a eurozone government. If the ECJ rules against the OMT, that could also hamper the ECB from further unorthodox measures to ease the crisis, fight deflation and spur growth. The FT’s Peter Spiegel is at the scene: Early start at European Court of Justice for hearing on Germans' case against @ECB's bond-buying OMT programme pic.twitter.com/yDNKplmD4R Judges just now entering #ECJ chamber for #OMT hearing. 10mins late for a German case. Bad form. @ECB Updated at 8.51am BST 8.41am BST08:41 Spain remains in deflationary territory, with its annual consumer prices index coming in at minus 0.2% in September. And core inflation (stripping out food and energy), dipped to minus 0.1%, a record low. Spain's deflationary spiral intensifies as core inflation touches new low pic.twitter.com/uu0rddjMtD 8.30am BST08:30 French inflation hits lowest in nearly five years Lower energy price have dragged France’s inflation rate down to its lowest level in nearly five years. Prices fell by 0.4% month-on-month in September, dragging the annual consumer prices index down to +0.3%, or +0.4% on an EU-harmonised basis. INSEE, the French statistics body, said that falling energy prices were the main factor, down 2.5% compared with a year ago. Fresh food prices rose, though. Updated at 8.31am BST 8.20am BST08:20 #Mulberry loses a quarter of its market value in seconds.... pic.twitter.com/vOUamJHt1l 8.14am BST08:14 VIX volatility index hits two-year high The VIX index, which measures volatility, has hit its highest level since 2012, the height of the eurozone crisis. That’s another sign of growing angst in the financial markets.... Starting your day with a dose of #fear. Volatility index #VIX has jumped to highest since 2012. pic.twitter.com/jOlIW3licE 8.12am BST08:12 Fears over global economic growth have driven the oil price down again this morning. The cost of a barrel of Brent crude fell to $88.08, a new four-year low. 8.09am BST08:09 YIKES. Shares in Mulberry have slumped by 20%, from 750p to 600p. This morning’s shock profit warning has sent investors fleeing, having heard that full price sales in the UK have slumped by 12% in the last six months (statement here). Stonking profits warning from Mulberry, saying trading conditions worse than thought and profits 'significantly' below expectations. 8.03am BST08:03 ...and shares in Burberry have fallen by 4% in early trading. 8.00am BST08:00 Mulberry isn’t the only UK fashion chain feeling the pinch. Rival luxury brand Burberry has warned this morning that the “external environment becoming more difficult”, even though underlying revenues are up 14% over the last six months. 7.54am BST07:54 Profit warning from Mulberry Ouch. The City has been hit by a shock profits warning from fashion group Mulberry, and it looks like a big one. Mulberry has warned that profits for the full year, to March 2015, are expected to be “significantly below current expectations”. Chief executive Bruno Guillon quit Mulberry in March, after his strategy of making its handbags and accessories ever more expensive and exclusive backfired. The company admits that conditions haven’t improved since: As reported on 12 June 2014, the company anticipated a challenging year. The first half was expected to be particularly difficult, with it taking some time for the measures implemented after the April management change to take effect. Actual trading conditions have been more difficult than expected, in part due to the continuing headwinds affecting the luxury sector. Shares are expected to slide when the London stock market opens.... 7.40am BST07:40 Coming up: UK inflation, eurozone data, and the Irish budget Good morning, and welcome to our rolling coverage of the financial markets, the economy, business and the eurozone. It looks likely to be another edgy day in the stock markets, after Wall Street ended last night with fresh declines. The Dow’s latest triple-digit fall (it lost 223 points) is adding to concerns that stock markets are on a long march south. Here’s IG’s opening calls: Coming up today.... We get a new healthcheck on the eurozone economy, at 10am, BST, with the latest industrial production data for August. It’s expected to be bad, as we’ve already seen sharp output falls in Germany and weak readings elsewhere. The ZEW survey of German economic sentiment is also released at 10am, and likely to show a fall in confidence. Before that, at 9.30am, we get the latest UK inflation data. Economists predict the consumer prices index fell in September, from 1.5% to 1.4%. Good news for consumers, if so. A drop in inflation would also lessen the pressure on the Bank of England to consider raising interest rates; not that wages are rising fast enough yet anyway.... There’s also some eurozone inflation data due this morning, from France and Spain. Over in Luxembourg, European finance ministers are gathering for a regular Ecofin meeting. They’ll be discussing how to spur investment and growth in the ailing European economy, and also putting pressure on France and Italy over their latest budgets. There’s plenty of US corporate news to watch for, with JP Morgan Chase, Citigroup, Wells Fargo and Johnson and Johnson all posting financial results. And this afternoon, it’s the Irish budget. Dublin is expected to announce sweeping changes to its corporate tax rules, including phasing out the notorious ‘Double Irish’ loophole that has allowed multinational firms to cut billions of euros off their tax bill. Ireland to close ‘double Irish’ tax loophole I’ll be tracking all the main events through the day.... Updated at 8.05am BST |