BBC News - UK financial stability 'depends on orderly Brexit'

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The outlook for UK financial stability after the Brexit vote "remains challenging" the Bank of England has said.

Stability is dependent on an orderly exit from the European Union, it said in a report.

The likelihood of risks to financial stability "remains elevated" as a result of the vote.

The report said it will take time to clarify the United Kingdom's new relationships with the European Union.

"The orderliness of the adjustment will influence the risk to financial stability," it added.

Otherwise the greatest risks to UK financial stability are slowing growth in China and the eurozone, the report said.

Banks in the UK provide more than half of debt and equity issuance by continental firms, and account for more than three quarters of foreign exchange and derivatives activity in the EU, it noted.

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Image captionBritish banks are heavily exposed to firms in the European Union

"If these UK-based firms have to adjust their activities in a short time frame, there could be a greater risk of disruption to services provided to the European real economy, some of which could spill back to the UK economy through trade and financial linkages," the Bank said.

However, the governor, Mark Carney, concluded that overall the financial system had proved resilient.

"The UK financial system has stood up well, dampening rather than amplifying volatility in financial markets," he said.

"Households and businesses have, as a result, been able to focus on what they should: whether a new home is right for their families or whether a new investment would help them better serve their clients."

Household debt

But the Bank also concluded that the outlook for the housing market was "highly uncertain".

It said household debt to income in the second quarter of 2016 was at 133%, which is "high by historical standards."

At 4.5 times average income, it pointed out that house prices were similarly high.

Image captionThe Bank is concerned about the growth in house prices

"If these households cut consumption sharply in order to service their debts, this may amplify any downturn in economic activity," the report said.

As a result the Bank has decided to leave its mortgage lending rules as they are.

"This will help ensure that underwriting standards don't slip from responsible to reckless as they have during past periods of consumption-led growth," said Mr Carney.

In June 2014 lenders were told they could not lend any more than 15% of their loan book to people borrowing more than 4.5 times their annual income - so-called riskier mortgages.

Lenders also have to apply an affordability test to anyone wanting to take out a mortgage.

As part of that, lenders have to assess whether a home-owner could still afford the mortgage if interest rates rose by 3% at any time in the first five years of their loan.

The Bank said it would also continue to monitor the buy-to-let market, an area it has previously been concerned about.

While buy-to-let transactions have slowed in recent months, it said there was no evidence of a widespread sell-off by investors.

Reuters News - European stock gains tempered by oil concerns

People walk through the lobby of the London Stock Exchange in London, Britain August 25, 2015. REUTERS/Suzanne Plunkett/File photo

This meant that an overall recovery in stocks was tempered by commodity-related losses.

"The fact that the FTSE 100 is going one way and the FTSE 250 is going the other way suggests that there is a sector specific event going on, as the FTSE 100 is more commodities heavy," said Investec economist Philip Shaw.

The miner-heavy FTSE 100 index .FTSE was down 0.38 percent but the FTSE Mid 250 was up 0.15 percent .FTMC at 0940 GMT (5:40 a.m. ET).

Outside of the commodities sector, investors appeared inclined to take on more risk, with Italian stocks .FTMIB up 0.72 percent and the banking sub-index .FIT8300 up 2.6 percent. This helped push the STOXX Europe 600 Index up 0.16 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS fell 0.27 percent after two days of gains. Tokyo stocks .N225 slipped 0.3 percent, hit by a relatively strong yen.

European government bond markets were also trending in this direction, with safe-haven Germen government bond yields up 1-2 basis points and lower-rated Italian, Spanish and Portuguese bond yields lower.

Italy, in focus ahead of a referendum this weekend, led the gains on the day with its 10-year bond yields IT10YT=TWEB down 4.7 basis points to 2.02 percent.

But the gain comes just days after the bond yields hit their highest level since September 2015.

"I wouldn't overdo it by describing this as a risk-on environment - the gains (in bond and share prices) are still relatively modest," he said.

Italian bond yields have been rising before Sunday's referendum on constitutional change, on which Prime Minister Matteo Renzi has staked his future.

"Citi's base case is for a No vote to prevail with political uncertainties likely to remain elevated over the near-term," wrote analysts at Citi.

"It's worth watching whether PM Renzi resigns in the event of a No vote as promised, before rushing into euro shorts."

The event has brought Italy's ailing banking sector sharp relief, and earlier this week Italian banking stocks hit their lowest point since end-September on continued worries over a cash call at troubled Monte dei Paschi.

The political risk kept the euro restrained despite the pullback in the dollar. The single currency EUR= fell 0.17 percent to $1.0597.

The dollar was again moving higher on the yen to reach112.615 JPY=, after profit-taking pulled it down as far as111.58. It remains over 7 percent higher for the month.

Dealers reported Japanese buying for the new month with orders today settling on Dec. 1. Against a basket of currencies, the dollar held at 101.280 .DXY and not far from last week's14-year peak.

The greenback was still on track for its strongest two-month gain since early 2015, underpinned by expectations the FederalReserve is almost certain to hike interest rates next month.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

(Additional reporting by Wayne Cole in Sydney; Editing by Tom Heneghan)

BBC News - National Living Wage: OECD urges caution over increase

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The UK should be careful with its plans to raise the National Living Wage, according to the Organisation for Economic Co-operation and Development.

The OECD said "caution" was needed in the roll-out of the policy, given its possible impact on employment.

In the Autumn Statement, Chancellor Philip Hammond pledged to raise the wage to £7.50 an hour next April.

The OECD also forecast that the UK would have one of the lowest growth rates among G20 countries by 2018.

Pay rise

The National Living Wage was introduced by Chancellor George Osborne in his Budget in July 2015.

It came into effect in April this year, and was set at a rate of £7.20 an hour for workers aged 25 and over, with the aim of increasing it to £9 an hour by 2020. The UK's Office for Budget Responsibility estimated it would give a pay rise to 1.3 million workers this year.

The OECD said the UK's labour market had been "resilient", although job creation had moderated recently.

"Real wages have been growing at a time of low inflation, but the fall of the exchange rate has started to increase price pressures," it said.

"Caution is needed with the implementation of the policy to raise the National Living Wage to 60% of median hourly earnings by 2020.

"The effects on employment need to be carefully assessed before any further increases are adopted, especially as growth slows and labour markets weaken."

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Analysis: Andrew Walker, BBC economics correspondent

The OECD says the world economy has been stuck in a low growth trap for five years. It says government spending and tax policies could be used to provide a boost.

The report expects action on these lines from the administration of President-elect Donald Trump in the United States and predicts that will result in a modest boost beyond US borders.

It also suggests that other countries could afford to take similar steps. But the OECD says that any benefit could be offset if countries resort to measures that restrict trade to protect their own industries.

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Brexit 'unpredictability'

The OECD predicts that the UK's economy will grow by 1% in 2018, slower than both Germany (1.7%) and France (1.6%).

However, the organisation has raised its UK growth forecasts for this year and 2017. It now predicts the UK's economy will expand by 2% this year, compared with an earlier forecast of 1.8%, while in 2017 it has lifted the growth forecast to 1.2% from 1.0%.

The OECD said the upward revision was specifically because of Bank of England action and the depreciation in sterling since the Brexit vote.

Looking ahead, the organisation warned that the UK's unemployment rate could rise to more than 5% because of weaker growth.

It also predicted a sharp rise in inflation as the pound's slide against the dollar and euro starts to be reflected in prices in the shops.

"The unpredictability of the exit process from the European Union is a major downside risk for the economy," it said.

The OECD's forecast for growth in the US has risen since the election of Donald Trump as the country's next President.

It revised its prediction for 2016 up to 1.5% from 1.4%, and next year's estimate to 2.3% from 2.1%. In 2018 it is forecasting 3% growth

BBC News - ECB warns of political uncertainty risk to eurozone

Political uncertainty is putting the eurozone's financial stability at risk, according to the European Central Bank.

The Brexit referendum and the US election both ratcheted up what it calls its "composite indicator of systemic stress".

It says the 19 countries that use the euro could be hit by trade wars, higher inflation and rising US interest rates.

In a worst-case scenario, the ECB says, this could reignite the 2009 eurozone debt crisis.

It also warned that some stock markets could be heading for sharp falls. "Valuation measures... are in some regions hovering at levels which, in the past, have been harbingers of impending large corrections."

The bank is also worried about political uncertainty within the eurozone, with a constitutional referendum in Italy on 4 December and elections in France and Germany next year.

Resilience

In its latest twice-a-year Financial Stability Report, the ECB said: "Higher political uncertainty may lead to more domestically focused, growth-hindering policy agendas.

"This, in turn, could delay much-needed fiscal and structural reforms."

And it pointed out that the euro area banking sector was still suffering from a high level of bad loans, high operating costs and excess capacity.

However, it added that the euro area's financial system had shown resilience in the face of repeated bouts of market turbulence during the past six months.

ECB vice president Vitor Constancio said the bank was maintaining its economic projections, with the baseline forecast indicating slow but steady growth in the coming years.

Reuters News - China says it will promote trade deals regardless of TPP, RCEP direction

U.S. President Barack Obama holds meeting with Trans-Pacific Partnership (TPP) leaders at the APEC Summit in Lima, Peru November 19, 2016.REUTERS/Kevin Lamarque

China said it will actively participate in bilateral and multilateral trade deals, with the goal of deepening reform and opening up its economy, regardless of the direction the Trans Pacific Partnership (TPP) or the China-backed Regional Comprehensive Economic Partnership (RCEP) might take.

The statement follows U.S. President-elect Donald Trump saying he would withdraw the United States from the multi-country TPP that excludes China, putting RCEP - a rival pact that excludes the United States - as the front-runner for new free trade deals in the region.

When asked for clarification on the specifics of the planned reform, Commerce Ministry spokesman Shen Danyang said in a briefing on Thursday that it was "comprehensive" and included economic reform.

China will push for RCEP negotiations to be sped up to conclude soon, with full respect for Association of Southeast Asian Nations (ASEAN)'s core status in the deal, Shen said.

Chinese President Xi Jinping pledged at the APEC summit in Peru to open the economy further, as leaders of Asia-Pacific countries sought new free-trade options following the election of Trump whose campaign promised to scrap or renegotiate trade deals.

The RCEP, which includes Australia, India and more than a dozen other countries, is seen as perhaps the only path to the broader Free Trade Area of the Asia-Pacific (FTAAP) to which APEC aspires.

The China Daily, the official state-run English-language newspaper, said many Chinese commentators were revelling in the demise of the TPP, and called it an "excessively complex" deal that was "doomed from the start".

"Encumbering a trade arrangement with too many politics isn't the right way to do business," the paper said in an editorial, adding that the TPP was "more of a political weapon than a real business deal".

"So long as it is meant to be genuine real trade, China is happy to write the rules with all its partners," it said.

(Reporting by Yawen Chen, Nicholas Heath, and Michael Martina; Editing by Eric Meijer)

BBC News - Autumn Statement: Big increase in borrowing predicted

There will be substantial increases in government borrowing in each of the next five years, according to the Office for Budget Responsibility (OBR).

Chancellor Philip Hammond confirmed that he would abandon the government target to spend less than it earned in 2019-20.

The OBR predicts it will now borrow £21.9bn that year, compared with the £10bn surplus previously forecast.

There have also been cuts to the amount of growth expected in 2017 and 2018.

The OBR expects the economy to grow by 1.4% in 2017, down from the 2.2% it predicted in March.

The growth forecast for this year has been raised slightly to 2.1% from 2.0%.

It expects growth to be 2.4% slower in the next five years as a result of the Brexit vote.

Growth in 2018 is expected to be 1.7%, down from the 2.1% forecast in March, and is predicted to return to the 2.1% rate previously forecast in 2019.

But Chancellor Philip Hammond stressed in his Autumn Statement speech that the forecast for 2017 was still equal to the International Monetary Fund's prediction for the German economy and ahead of its forecast for "many of our European neighbours including France and Italy - a fact that will no doubt be a source of very considerable irritation to some".

Instead of trying to balance the budget in 2019-20, the government will instead aim to do so as soon as possible in the next Parliament as part of its new targets.

The OBR warned that there was greater uncertainty than usual surrounding these forecasts, especially for the last two years of the period, because it does not know the terms on which the UK will leave the European Union.

"Our economy forecast is not based on a precise prediction of the outcome of the Brexit negotiations, but rather on broad-brush judgements consistent with a range of possible outcomes," the OBR document said.

"We have been given no information about the government's goals and expectations for the negotiations that is not already in the public domain. And we would not in any event wish to base our forecast on assumptions we could not be transparent about."

The lower growth next year is blamed on lower investment and weaker consumer demand "driven respectively by greater uncertainty and by higher inflation resulting from sterling depreciation".

Slowing economic growth is expected to spur unemployment - rising from the current rate of 4.8% to reach 5.5% by the end of 2018.

"This relatively modest increase in the rate equates to around 200,000 more people unemployed," the OBR said.

Much of the slowing predicted by the OBR is due to rising inflation as a result of the weakness of the pound.

CPI inflation next year is expected to be 2.3%, up from the previous forecast of 1.6%, while the prediction for 2018 is up from 2% to 2.5%.

The OBR said that its forecasts were "somewhat less pessimistic" than the Bank of England's predictions from earlier this month and also the Treasury's analysis from before the EU referendum.

The Treasury had predicted that the economy would contract in the first quarter after a vote to leave the EU, although that was based on the assumption that Article 50 would be triggered immediately, starting the process of leaving.

The OBR unexpectedly included a chapter in its analysis comparing its forecasts with what would have happened to the economy if the vote had gone the other way.

It concludes that the vote to leave the EU will cut growth by reducing migration, slowing the growth of productivity and increasing inflation.

By Anthony ReubenBBC Reality Check