BBC News - Brexit uncertainty 'could lead to interest rate cut'

The Bank of England may need to cut interest rates should Brexit uncertainty persist, one of its policymakers has said.

Even if the UK avoids a no-deal Brexit, rates may still need to be cut, Michael Saunders said.

Interest rates have been on hold at 0.75% since August 2018, when they were raised from 0.5%.

Last week, the Bank said Brexit uncertainty meant the UK economy was performing below its potential.

"If the UK avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in Bank Rate would be down rather than up," Mr Saunders told local businesses in Barnsley.

The pound dropped against the dollar after his comments were reported, trading down about 0.4% at $1.2277, before paring losses.

Mr Saunders, who is a member of the Bank of England's Monetary Policy Committee (MPC), said that even without a no-deal Brexit, high levels of uncertainty surrounding the UK's departure from the EU would persist and act as a kind of "slow puncture" for the economy.

"In this case, it might well be appropriate to maintain a highly accommodative monetary policy stance for an extended period and perhaps to loosen policy at some stage, especially if global growth remains disappointing," he said.

Passively waiting to see what happened with Brexit risked inappropriate monetary policy, and the cost of reversing a rate cut if the outlook improved would be low, he added at the event at the Barnsley and Rotherham Chamber of Commerce and Institute of Chartered Accountants.

"In general, I would prefer to be nimble, adjusting policy if it appears necessary to keep the economy on track, and accepting that it may be necessary to change course if the outlook changes significantly," he said.

Policy options

At its last meeting on interest rates, the MPC unanimously held rates at 0.75%.

Mr Saunders said he still agreed with recent Bank guidance that a limited and gradual increase in interest rates would be needed over the medium term, if Brexit uncertainty reduced significantly and global growth speeds up.

In the event of a no-deal Brexit, Mr Saunders repeated the Bank's position that all policy options would be open, depending on the damage to growth and how much inflation spikes from a further fall in sterling.

A disorderly no-deal Brexit could leave the Bank of England's rate setters with an unenviable dilemma.

Do they cut interest rates to boost growth - or raise them to curb inflation caused by a possible fall in the exchange rate, shortages and tariffs?

With tackling inflation at the top of its remit, the Bank's economic models assume rates would rise in such circumstances. But rates are set by nine humans, not machines.

The governor, Mark Carney, recently indicated he'd be inclined to cut in the event of a no-deal - and the vote usually goes the boss's way.

But what is remarkable is that there appears to a change of view on his panel of what to do even in the event of a deal.

Just last week, the MPC repeated its mantra that rates would likely go up slowly and gradually in the event of a deal.

But now, one of those who had previously warned of the dangers of not raising rates - Michael Saunders - says that a cut is plausible, deal or no deal.

The Bank says the economy has lost momentum; Michael Saunders likens the pace to a slow puncture. If he's shifting in his position, it's likely others are too

But how much would lower rates help in the event of a disorderly no-deal?

A cut aims to put more money in pockets. But if any hit to growth was due to shortages and disruption, a supply shock, boosting demand, may be counterproductive.

More money is great - as long as there's things to spend it on.

Earlier this month, Bank governor Mark Carney estimated that in a worst-case, chaotic scenario that a no-deal Brexit could reduce the size of the economy by 5.5%.

The Paris-based OECD has predicted a 2% hit in the case of a more managed no-deal Brexit.

Prime Minister Boris Johnson has repeatedly vowed to take the UK out of the European Union by 31 October, without a deal if necessary, but is in a stand-off with Parliament which has passed a law designed to block a no-deal Brexit.

Reuters News - World shares rise as trade optimism muffles impeachment noise

LONDON (Reuters) - World shares erased losses on Friday, buoyed by a wave of optimism that U.S.-China trade tensions might be easing as markets largely brushed off concerns about possible impeachment moves against U.S. President Donald Trump.

MSCI’s world equity index, which tracks shares in 47 countries, reversed earlier losses and was trading flat by 1120 GMT. It was still heading toward its worst weekly performance since mid-August, though Europe’s STOXX 600 index fared better, adding 0.5% as London’s bourse outperformed on a weaker pound and hopes grew of progress toward resolving the trade war. Wall Street futures also suggested a bright start for U.S. markets, gaining around 0.3%.

Investors focused on a whistleblower report that said Trump abused his office in trying to solicit Ukraine’s interference in the 2020 U.S. election for his political benefit, and that the White House tried to “lock down” evidence about that conduct.

The report came after the speaker of the U.S. House of Representatives Nancy Pelosi this week launched an impeachment inquiry into Trump, who has denied wrongdoing.

However, chances of his being removed from office look slim given that the Republicans control the Senate, where any impeachment trial would be held.

“What we are waiting to see is how this might impact the U.S.-China trade negotiations,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.

“It’s that combination this week of weakening economic data and rising political uncertainty that has caused some tricky periods in markets.”

Earlier in the day, Asia-Pacific shares outside Japan had been buffeted by the political worries in the United States and shed 0.3%.

The dollar index measuring it against a basket of currencies was up 0.1% near a three-week high of 99.146, and on track for its best week in a month.

Balancing worries over the ramifications of any possible impeachment of Trump was an apparent easing of trade tensions between Washington and Beijing.

The trade war has upset financial markets and disrupted global supply chains as the world’s two largest economies heap hundreds of billions of dollars in tariffs on each other’s products.

China’s top diplomat said on Thursday that China was willing to buy more U.S. products and that trade talks would yield results.

Those comments fueled the positive mood after Trump on Wednesday praised the Chinese purchases, saying a trade deal could come sooner than people thought.

“Trade... remains the most important issue for markets, and the news that we have had over the last couple of weeks I would see as gestures of goodwill from both sides - trying to set up a more constructive negotiation in a couple of weeks’ time,” Gimber added.

European shares reacted well to those signals, also getting a boost from moves in currency markets. London stocks added 1%, with exporters buoyed by a weaker pound central bank policymaker hinted at a cut in UK interest rates.

Sterling was a other big loser in early London trading, weakening 0.3% after Bank of England policymakers Michael Saunders signaled a possible rate cut amid Brexit uncertainty and disappointing global growth.

Meanwhile the euro was pinned at its lowest level since May 2017 as a steady drip of negative economic data this week sapped investor demand for the single currency, further helping export-oriented European stocks.

A key market gauge of the euro zone’s inflation expectations fell to its lowest level since early July on Friday, reflecting growing concern that the European Central Bank’s stimulus will be unable to fuel price pressures.

SCEPTICISM ON MAJOR DEAL

Washington and China are preparing for another round of trade talks scheduled for Oct. 10 and 11, but investors voiced scepticism at prospects of a major breakthrough then.

“There is still a huge gulf,” said Eoin Murray, head of investment at Hermes Investment Management, adding that prospects for a deal had receded from earlier in the year.

“Around April, May time, the main sticking point was the enforcement mechanism - but we have retreated miles from that at this point.”

Tech remains a sticking point, with reports on Thursday that the United States is unlikely to allow American firms to supply China’s Huawei Technologies [HWT.UL] undermining hopes of a broad bilateral deal.

Underlining market sensitivity, European chipmakers Infineon and Siltronic both fell around 1.5%, mirroring losses for Asian chip-related shares Samsung Electronics and SK Hynix.

Major Huawei supplier Micron Technology had fallen 7% in after-hours trade after it forecast first-quarter profit below Wall Street targets.

In commodity markets, Brent crude futures fell $1, or 1.5%, to $61.74 a barrel, weighed down by slowing Chinese economic growth that dampens the demand outlook and a faster-than-expected recovery in Saudi output.

Reporting by Tom Wilson; editing by John Stonestreet

Our Standards:The Thomson Reuters Trust Principles.

BBC News - US and Japan agree initial trade deal focusing on agriculture

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The US and Japan have agreed an initial trade deal that will eliminate or lower tariffs on certain products traded between them.

Duties on some agricultural goods will be removed or lowered, while digital products will also benefit.

US President Donald Trump said the world's first and third largest economies achieved a "tremendous" deal.

The trade agreement did not mention car tariffs of up to 25%, which were previously threatened by the US.

But Japanese Prime Minister Shinzo Abe said he had received assurances that no such tariffs would be imposed, according to media reports.

The US, which had a trade deficit with Japan of $67.6 billion in 2018, has held discussions with Japan throughout the year.

Under the deal, over 90% of US food and agricultural products going into Japan will either be free of any duty or receive preferential tariff access, according to the Office of the United States Trade Representative (USTR).

Japan will reduce tariffs on products such as fresh and frozen beef and pork, and will immediately eliminate them for certain nuts, fruits and vegetables.

In return, the US will either remove or lower duties on some $40 million of agricultural imports from Japan, including cut flowers, green tea and soy sauce.

According a transcript published by the White House., Mr Abe said there would be a "very wonderful, positive impact on the global economy".

The US and Japan have also agreed on preferential treatment for certain digital products.

They will prohibit any duties being imposed on digital products such as videos, music and e-books and will ensure data can be freely transferred across borders.

The US said it looked forward to negotiating a "comprehensive agreement" with Japan, according to the USTR statement.

How about the controversial car tariffs?

The US had been considering levies on some foreign-made car and car part imports, including from Japan and the European Union, but delayed the decision earlier this year.

The new deal did not cover car duties- but Mr Abe said he had been reassured by Mr Trump that the US would not impose tariffs on Japanese cars.

"Between President Trump and I, myself, this has been firmly confirmed that no further, additional tariffs will imposed," Reuters quoted him as saying.

The US has been fighting trade disputes on several fronts over the past year.

BBC News - Bank of England forecasts low interest rates for longer

Image copyrightPA MEDIA

Image captionThe pound would fall further under a no-deal Brexit, says the Bank

The Bank of England has signalled that prolonged Brexit uncertainty will keep interest rates lower for longer.

Policymakers said the UK would avoid falling into recession this year, but warned that Brexit and trade worries were weighing on the economy.

The Bank kept interest rates on hold at 0.75%.

The Monetary Policy Committee (MPC) that sets interest rates also warned that a no-deal Brexit would hit the economy.

Policymakers said it would lead to weaker growth, higher inflation and a further drop in the value of the pound.

However, the Bank stressed that interest rates could move up or down if the UK left the European Union without a deal.

The minutes of the Bank's September meeting said that policymakers would have to balance raising interest rates to keep a lid on inflation against cutting them to support growth.

How does the Bank see the outlook?

The UK economy contracted by 0.2% in the three months to June. The Bank expects the economy to expand by 0.2% in the third quarter of this year.

While this is weaker than the 0.3% growth predicted last month, it means the UK is expected to avoid a technical recession, defined as two consecutive quarters of economic decline.

A survey by the Bank showed that consumer spending remained robust, with many families choosing to spend more time in the UK this summer rather than go abroad because of the weaker pound.

Image copyrightPA MEDIA

Image captionMore holidaymakers have chosen to stay in the UK

It said the increase in "staycations" had boosted spending on restaurants and hotel accommodation.

The Bank also said the government's decision to inject more money into departments in the latest Spending Review would boost UK growth by around 0.4% over the next three years.

What about Brexit?

The MPC said that the ongoing uncertainty over the UK's relationship with the EU risked a further period of "entrenched uncertainty".

They said ongoing uncertainty would lead to weaker growth and less inflationary pressure, reducing the Bank's need to raise interest rates.

The minutes of the meeting said: "The longer those uncertainties persisted, particularly in an environment of weaker global growth, the more likely it was that demand growth would remain below potential."

However, policymakers repeated that more clarity that the economy was heading towards a Brexit deal meant that increases in interest rates would be needed over the next three years.

Why does the Bank think rates will stay low for longer?

The Bank of England, like many of us, is on hold, and in a Brexit holding pattern too.

Although there is no change in the Bank of England's interest rate decision, marking out the UK from its counterparts in the US and eurozone, there are interesting Brexit developments in September's deliberations of the Monetary Policy Committee.

For the first time, the Bank has felt the need to signal a direction of travel for interest rates in the now plausible scenario of "political events" leading to "a further period of entrenched uncertainty" about Brexit.

The committee concluded that the longer that uncertainty continues, particularly against a background of a weak global economy, the more likely that growth, and also inflation will slow.

The implication of these minutes being that UK base rates would also remain lower for longer.

It has until now signalled that rates are likely to rise gradually back from its post-crisis lows only if there was a "smooth Brexit", a deal with a transition.

Or else under no-deal, amid exchange rate falls, inflation rises and slower economy, there could be either cuts or rises.

What did the MPC say about the global economy?

Policymakers said the US China trade war had intensified over the summer, which would continue to weigh on overall growth.

Manufacturing output continued to be weak, and while policymakers said the direct economic impact of ongoing trade tensions was likely to be "relatively small", they said the trade war was "having a material negative impact on global business investment growth".

They did not say how the recent attacks on Saudi Arabia's oil supply would affect inflation except to say that prices had risen sharply following the attacks.

Reuters News - European powers back U.S. in blaming Iran for Saudi oil attack, urge broader talks

UNITED NATIONS (Reuters) - Britain, Germany and France backed the United States and blamed Iran on Monday for an attack on Saudi oil facilities, urging Tehran to agree to new talks with world powers on its nuclear and missile programs and regional security issues.

The Europeans issued a joint statement after British Prime Minister Boris Johnson, German Chancellor Angela Merkel and French President Emmanuel Macron met at the United Nations on the sidelines of the annual gathering of world leaders.

But Iran ruled out the possibility of negotiating a new deal with powers, Iranian Foreign Minister Mohammad Javad Zarif tweeted on Monday, saying European partners have failed to fulfill their commitments under a 2015 nuclear pact.

European leaders have struggled to defuse a brewing confrontation between Tehran and Washington since U.S. President Donald Trump quit a deal last year that assures Iran access to world trade in return for curbs on its nuclear program.

The United States reimposed sanctions on Iran and sharply tightened them. Iran has responded by gradually breaching nuclear commitments made in the 2015 accord and has set an October deadline to further scale back its nuclear obligations unless the Europeans salvage the pact by shielding Tehran’s economy from U.S. penalties.

“The time has come for Iran to accept negotiation on a long-term framework for its nuclear program as well as on issues related to regional security, including its missiles program and other means of delivery,” Britain, France and Germany said.

Tension rose on Sept. 14 following an attack on Saudi Arabia’s oil facilities, which Riyadh and Washington have blamed on Iran. Tehran denies responsibility, and Yemen’s Iran-aligned Houthi group, which has been battling a Saudi-led military coalition, has said it carried out the attack.

“It is clear to us that Iran bears responsibility for this attack. There is no other plausible explanation. We support ongoing investigations to establish further details,” Britain, France and Germany said.

U.S. Secretary of State Mike Pompeo thanked the European nations for their statement blaming Iran, saying, “This will strengthen diplomacy and the cause of peace.”

Macron has led a European push over the summer to find a compromise between the United States and Iran and wants to use the U.N. meeting as an opportunity to revive diplomacy, though his efforts have stalled in recent weeks.

When asked about Macron’s attempt to mediate, U.S. President Donald Trump said: “We don’t need a mediator. ... They (Iran) know who to call.”

The United States will intensify pressure on Iran, U.S. Special Envoy for Iran Brian Hook said in New York on Monday.

The United States was seeking to address the issue through diplomacy and a multilateral effort, and there was a role for the United Nations Security Council to play, Hook said without elaborating.

In an interview with U.S. network NBC on Monday, Johnson said Trump was “the one guy who can do a better deal. ... I hope there will be a Trump deal.”

‘NOT JUST A HANDSHAKE’

Trump flirted with meeting Iranian President Hassan Rouhani while both are in New York for the U.N. General Assembly, but the chances appear slim.

“We haven’t received any requests this time, yet, for a meeting and we have made it clear a request alone will not do the job,” Iranian Foreign Minister Zarif told reporters in New York earlier on Monday. “A negotiation has to be for a reason, for an outcome, not just for a handshake.”

He said there are conditions for a meeting - Iran has demanded the United States lift sanctions - and then there could be a meeting between Iran, the United States, France, Britain, Germany, Russia and China - the original parties to the nuclear deal - but there would be no bilateral meeting.

Speaking after he arrived in New York on Monday, Rouhani said Iran’s message to the world “is peace, stability and also we want to tell the world that the situation in the Persian Gulf is very sensitive,” the state news agency IRNA reported.

Trump has criticized the nuclear accord, negotiated under then-U.S. President Barack Obama, for “sunset” clauses by which some of its provisions will expire as well as for its failure to address Iran’s missile program and regional activities.

A senior Gulf official, speaking on condition of anonymity, said Gulf countries, the United States, the Europeans and others needed to engage in “collective diplomacy” to defuse tensions.

“The conversation should no longer be about the JCPOA (nuclear deal) but Iran’s missile program and its regional misbehavior, which are as important if not more important - they have the potential to hold the region to ransom,” the official said.

Reporting by John Irish and Kylie MacLellan; additional Reporting by Michelle Nichols and Parisa Hafezi; Editing by Jonathan Oatis and Clarence Fernandez

Our Standards:The Thomson Reuters Trust Principles

BBC News - Climate change: Firms make green energy vows as call for action grow

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Some of the world's largest firms including Amazon and Google have committed to big-spending green energy plans as calls for climate action increase.

Amazon has pledged to be carbon neutral by 2040 and Google said it would make record renewable energy purchases.

The announcements coincide with a day of climate action on Friday, with strikes being held around the world.

Millions of people - mostly children and teenagers - are due to take part.

Ahead of the demonstrations, Amazon chief executive Jeff Bezos outlined new climate initiatives, including promises to make the company carbon neutral and meet the goals of the Paris climate agreement by 2040.

To meet its pledge, the e-commerce giant said it had ordered 100,000 electric delivery vehicles to reduce its fuel consumption. The first will enter service in 2021.

The company said its aim is to meet the targets set out in the Paris agreement 10 years earlier than specified.

Still, some Amazon employees don't feel the company has gone far enough.

More than 1,500 workers pledged to stage a "walkout" protest on Friday against the company's environmental record.

On Thursday, Google said it would make the "biggest corporate purchase of renewable energy in history" with a string of new solar and energy deals.

Chief executive Sundar Pichai said the agreements include more than $2bn (£1.6bn) in new energy infrastructure, including millions of solar panels and hundreds of wind turbines.

"Once all these projects come online, our carbon-free energy portfolio will produce more electricity than places like Washington DC or entire countries like Lithuania or Uruguay use each year," Mr Pichai said in a blog post.

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Image captionGoogle boss Sundar Pichai said the firm would make green energy investments in the US, Chile and Europe

Swedish retailer Ikea also touted its green energy efforts.

On Thursday, Ingka Group - which owns most Ikea stores - said recent investments in wind and solar will enable the firm to beat its 2020 target to produce as much renewable energy as it consumes.

The company has spent billions on wind farms and solar panels at its stores, and said it recently purchased a stake in two US solar parks.

Chief executive Jesper Brodin told Reuters the company would continue to invest in solar parks and wind farms.

"Being climate smart is not an added cost. It's actually smart business and what the business model of the future will look like... Everything around fossil fuels and daft use of resources will be expensive," Mr Brodin said.