Pound hits highest level since Brexit vote result as BoE signals rate hikes - as it happened

Before we close up for the day, let’s take a look at European markets, where the FTSE 100 is still being hammered by the strengthening pound.

• FTSE 100: -1.1% at 7,216

• Germany’s DAX: -0.1% at 12,527

• France’s CAC: -0.3% at 5,207

• Italy’s FTSE MIB: -0.1% at 22,253

• Spain’s IBEX: -0.5% at 10,308

• Europe’s STOXX 600: -0.3% at 381

The main event today was the speech by Gertjan Vlieghe, an external member of the Bank of England’s Monetary Policy Committee. Despite having voted yesterday to hold rates at an all-time low of 0.25%, the committee member once considered to be most dovish (in favour of low rates) said rates could rise in the “coming months”.

He also said the MPC was unlikely to stop at one rate rise. Economists and investors are now factoring the first UK rate increase in a decade in November, to coincide with the Bank’s next inflation report.

Vlieghe’s comments sent the pound to its highest level against the dollar since 24 June 2016, the day of the Brexit vote result. It touched $1.36, and is currently up 1.4% at $1.3585.

That’s it for today, thank you for all your comments. Have a good weekend, and please join us again on Monday. AM

Industrial production fell 0.9% in the US in August, disappointing expectations of a 0.1% increase. Production was up 0.4% in July.

Manufacturing output was down 0.3%, again worse than the 0.3% increase forecast by economists. It was flat in July.

Paul Ashworth, chief US economist at Capital Economics says the Fed is unlikely to raise US rates against this year.

Industrial production unexpectedly declined, by as much as 0.9% m/m, in August, but the Fed estimates that almost the entire decline was attributable to Hurricane Harvey, which struck late in the month.

Fed officials aren’t going to panic about the weakness of retail sales and industrial production in August, since it appears to be mostly storm related. But September could be even worse when Irma is factored in. Furthermore, the Fed won’t want to commit to another rate hike until it is sure that activity is rebounding after the storm disruption.

That’s why, even though core consumer prices are showing some resurgence, we now expect the Fed to stand pat on rates for the rest of this year.

US markets have opened roughly flat, with investors shrugging off concerns over the latest missile strike by North Korea:

• Dow Jones: +0.1% at 22,233

• S&P 500: -0.03% at 2,495

• Nasdaq: -0.04% at 6,427

It looks like Hurricane Harvey did disrupt US retail sales at the end of last month.

Roiana Reid, economist at Berenberg bank, explains:

US retail sales slipped 0.2% m/m in August, partly due to sluggish vehicle sales in the Houston region where Hurricane Harvey brought activity to a halt.

Excluding autos, retail sales advanced 0.2% m/m, helped by higher gas prices that pushed up the value of sales at gasoline stations (+2.5% m/m).

As long as consumer confidence and job growth remain favorable, expect retail sales and broader private consumption to be solid in the medium term, but expect near-term volatility from the hurricane effects.

Andrew Hunter, US economist at Capital Economics, says that while consumer spending growth may have slowed, the fundamentals for the world’s largest economy look positive.

The 0.2% decline in retail sales in August was worse than the consensus expectation and suggests that consumption growth has slowed a little in the third quarter, albeit possibly because of the disruption caused by Hurricane Harvey toward the end of the month.

Even so, strong gains in previous months still leave real consumption on track for third-quarter growth of around 2.5%, and the fundamentals point to a renewed acceleration before long.

With consumer confidence close to record highs and the labour market continuing to improve, we doubt this is the start of more sustained downturn and expect retail spending to bounce back over the coming months.

US retail sales fell by 0.2% in August, the month when Hurricane Harvey hit America.

It followed a 0.3% rise in sales in July, and disappointed expectations of a 0.1% rise.

15 Sept 201708.12 EDT

Helena Smith

Over to Estonia now, where the latest Eurogroup meeting is taking place in Tallinn, and where Greece is topping the agenda. Helena Smith reports from Athens

Greece was never meant to top the agenda when eurozone finance ministers met in Tallinn today, but thorny issues that could define progress in prospective bailout negotiations will dominate talks.

The issues will range from the very public licensing row with Eldorado Gold - the Canadian mining company that has threatened to halt operations in Greece - to the unseemly spat over the country’s former statistics agency chief, Andreas Georgiou, who has been dragged through the courts accused of inflating debt figures in a row that has incensed international creditors.

Athens’ leftist-led government wants upcoming bailout talks to be completed by December so that, in the words of prime minister Alexis Tsipras, Greece can make a “clean exit” from international supervision when its third €86bn bailout program ends in August 2018.

Privatisations will be key to success. On Thursday, Greece took another step towards selling its ailing state assets, finally signing the deal to hand over its train company, TrainOSE, to Italy after four years of negotiation. The rail network was sold to Italy’s state run rail network Ferrovie Dello Stato for many have called a paltry sum of €45mn.

Andrew Goodwin, lead UK economist at Oxford Economics, questions whether the Bank of England is “crying wolf” or genuinely serious about an imminent rate hike.

He’s not convinced they mean it:

The early evidence suggests that the MPC’s hawkish shift has had the desired effect and triggered a reappraisal of interest rate expectations by markets. But we are sceptical that the data will evolve in a way that would allow the MPC to actually follow through on its threat to raise interest rates.

One reason why we think a near-term rate hike remains unlikely is the enduring softness of wage growth. Though this week’s data saw unemployment hit a 42-year low of 4.3%, wage growth remains anchored at just above 2%. This suggests that concerns about a build-up in underlying inflationary pressures are overblown.

Unless we see a decisive acceleration towards 3% [inflation], the MPC will find it hard to justify making a move given the lack of a compelling reason elsewhere. For one, there is unlikely to be a material improvement in the growth outlook for some time to come. And the potential downside risks from Brexit will continue to loom large for the foreseeable future, even if Theresa May adopts a more conciliatory tone in next Friday’s speech. So, as with several other instances in recent years, we think there is a strong chance that the MPC will again be seen to be crying wolf.

Allan Monks, economist at JP Morgan, says the Bank of England wants to “have its cake and eat it”, and that while the odds of a rate hike in November has increased, some of the data would need to show improvement first.

Vlieghe’s views are adding to expectations for a November rate rise. However, an important question is why the BoE didn’t raise rates in September – without even a tightening in the vote – if so many of the MPC see such a clear case for raising rates. We see two potential answers to this question:

One is the BoE’s communications have previously failed to prepare the market for an imminent rate rise. The BoE may well have been shocked by the market’s dovish reaction to its August Inflation Report, where it essentially warned the curve was too flat – only to then witness a further flattening. As we have argued, this reaction has made the BoE more agitated, the consequences of which we are now witnessing. Now the market is better prepared for a rate rise, the BoE may feel that it has the green light to deliver in November.

A second explanation for the BoE’s policy inaction yesterday is that it still wants to have its cake and eat it – i.e. effectively generate a some degree of tightening without actually changing rates.

One remarkable element of Vlieghe’s speech is his positive spin on what is still a significant disappointment in the wage data ... The odds of a November hike have increased significantly, but there are still some hurdles that the data must clear first.

As the Bank of England prepares to push the button on the first interest rate rise since July 2007, homeowners are facing the prospect of an increase in mortgage repayments.

But what would the effects be of a rate rise for the average household? Read a handy piece on the subject from my colleague Shane Hickey here.

Having touched $1.36 at one point, the pound is currently trading at $1.3584, up 1.4% or almost two cents on the day.

Not everyone is convinced by Gertjan Vlieghe’s arguments for why the time is approaching for a rate hike.

One of the reasons he gave was the potential for a pick-up in wage growth in the coming months.

Bank of England policymaker, Gertjan Vlieghe, has given the pound a further boost during a question and answer session after his speech in London.

He said rates would need to rise more than once if the economy develops as expected.

That contradicts the idea that for the time being, the Bank’s MPC would be satisfied with a single rate rise, to 0.5% from 0.25%, essentially unwinding their emergency rate cut in August 2016 in response to the Brexit vote.

Vlieghe:

It’s obviously more than unwinding last August. We are making that judgement over a three-year period, so it will depend on how the data evolves.