Hello again. The pound has continued to climb, on the back of the news that three Bank of England policymakers pushed to raise interest rates at this week’s meeting.

Sterling has now risen to $1.325, up three quarters of a cent today, as traders anticipate a rate rise in August (maybe).

That has pulled down shares in London, though (as a stronger currency erodes the value of overseas earnings).

Stock markets have also been hit by another bout of trade war jitters.

Britain’s FTSE 100 shed 70 points, or nearly 1%, to 7556. That’s its lowest level since early May.

In Germany, the Dax shed 1.5%, dragged down by automobile stocks following Daimler’s profits warning.

David Madden of CMC Markets says:

Equity markets are lower as dealers are worried about the global trade situation. The standoff between the US and China is not any closer to being resolved, and traders are fearful President Trump will turn up the heat on the EU next.

Time for a recap.

The Bank of England has voted to leave interest rates unchanged at 0.5%. But three policymakers, including chief economist Andy Haldane, pushed for rates to rise to 0.75%.

The split vote raises the chances that interest rates are hiked in August. Some experts aren’t convinced, though, and believe borrowing costs could remain unchanged for longer.

The pound jumped following the announcement, rising from a 7-month low to reach $1.325.

The Bank of England also changed its guidance on quantitative easing. It now expects to start unwinding its bond-buying programme once interest rates have hit 1.5%, down from a previous goal of 2%.

Britain’s public finances have improved, thanks to a rise in tax receipts. The UK borrowed £5bn to balance the books in May, the smallest amount in over a decade.

Economists say the government has more flexibility to relax austerity. With borrowing below forecast, Philip Hammond has the firepower to increase spending on the NHS.

Eurozone finance ministers are meeting to discuss Greece. The Eurogroup will consider how Athens will complete its bailout this summer, and what measures are needed to help it return to the financial markets.

I’ll be back later when we have developments on Greece...

Via Kallum Pickering of Berenberg, here’s a handy chart showing how the odds of an August rate hike have jumped to over 60% today:

Pickering says Haldane’s vote has made City economists change their forecasts:

Today’s surprise vote for a rate hike by the Bank of England’s chief economist Andy Haldane shifts the balance of probability for the next hike to the August meeting.

Previously we had called for a November hike, with a risk of a potential move in August already. However, the minutes from the June meeting show that, despite heightened uncertainty about the global economy linked to trade tensions, the Monetary Policy Committee (MPC) is confident that growth has rebounded to around its trend rate in Q2 (c0.4% qoq) after a soft patch in Q1.

There is clearly a split at the Bank of England over the state of the British economy.

The minutes of today’s meeting show that six members believe the UK economy isn’t strong enough to handle higher interest rates, especially with the global economy looking shakier.

Those members are governor Mark Carney, deputy governors Ben Broadbent, Jon Cunliffe and Dave Ramsden, and external committee members Silvana Tenreyro and Gertjan Vlieghe.

As the minutes put it:

For the majority of members, an increase in Bank Rate at this meeting was not required. For these members, the news since the previous meeting had given them greater reassurance that the softness of activity in the first quarter had been largely temporary. In particular, indicators of household consumption had recovered strongly from their subdued levels at the time of the previous meeting.

Set against that, the outlook for global growth had weakened somewhat, and global financial conditions had tightened, with some modest impact on UK bank funding and corporate credit spreads. Data on manufacturing output and goods exports in April had been weak, although business surveys had generally suggested steady underlying GDP growth. For these members, there was value in seeing how the data evolved from here, in order to learn more about the extent to which conditions were evolving in line with the May Inflation Report projections.

But chief economist Andy Haldane disagreed! Along with external members Ian McCafferty and Michael Saunders, Haldane argued that the economy was healthy, and that growth was bouncing back from the winter slowdown.

The minute say that this trio pushed for higher borrowing costs, to avoid a spike in inflation.

Three members favoured an immediate increase in Bank Rate. These members had a higher degree of confidence that the slowdown in Q1 was temporary or erratic and would largely be unwound.

They felt that the economy was developing broadly in line with the May Inflation Report forecasts, but the most recent indicators of labour demand and pay settlements indicated some upside risks to the expected pickup in average weekly earnings and unit wage costs. These members also felt that the benefits of waiting for additional information were limited.

Rather, they judged that a modest tightening of monetary policy at this meeting could mitigate the risks of a more sustained period of above-target inflation that might ultimately necessitate a less gradual subsequent change in policy and hence a sharper adjustment in growth and employment.

You can read the minutes online here.

Newsflash: The Bank of England has voted to leave interest rates at 0.5%.

But it’s a split vote! The Bak’s chief economist Andy Haldane voted to raise borrowing costs to 0.75%, along with Ian McCafferty and Michael Saunders.

The remaining six members of the MPC voted to leave rates on hold, though.

More to follow!

The pound is weakening, as the City braces for the Bank of England’s decision on interest rates at noon.

Sterling has fallen by 0.3% today to $1.313 against the US dollar. That’s its lowest level this year.

Over in Europe, the eurozone’s bailout fund has warned that Greece still faces major “challenges” before it can end its bailout programme this summer

That’s an important point, as eurozone ministers gather to discuss Greece’s financial future this afternoon.

Helena Smith reports from Athens

“Greece has made significant progress in stabilising its economy,” the European Stability Mechanism said in its 2017 annual report.

“Continuing on this path is decisive for the sovereign to regain stable market access. […]

Despite strengthened market confidence, the Greek economy faces a difficult economic and financial environment. Greece must address remaining challenges before the programme concludes to ensure that it can build upon its significant programme achievements in the post-programme period.”

The assessment echoes similar comments by the ESM’s managing director Klaus Regling in Athens last week.

Speaking after holding talks with the Greek finance minister Euclid Tsakalotos, the ESM chief said despite the progress the debt-stricken country had made, it will continue to remain under “tight” surveillance when it exits its current bailout programme in August. Supervision is expected to be strict for several years.

“Surveillance will be tight in the case of Greece,” he told reporters adding that while all bailed out euro zone economies were subject to supervision, Athens would be given especially enhanced oversight because of the unprecedented amounts of emergency bailout funding the country had received.

Greece would only be a success story if it continued to implement tough economic reforms, Regling said. If it fails to do so, investor confidence will plummet and the markets will retaliate, he warned.

Excluded from international capital markets, Greece has been dependent on international rescue funds since May 2010 in what has been the biggest bailout of any state in global financial history.

John Hawksworth, chief economist at PwC, says the drop in UK borrowing will allow the government to relax its austerity policies.

However, tax rises will still be needed to fund the increase in NHS spending announced this week, he adds:

“As a share of GDP, public borrowing in 2017/18 is now estimated to be just 1.9%, the first time the budget deficit has been below 2% of GDP since 2001/2. Since the OBR estimates that the output gap in 2017/18 was close to zero, the structural budget deficit was probably also just below 2% of GDP in that year, meaning that the Chancellor has already met his medium term fiscal target set originally for 2020 with further deficit reductions likely over the next couple of years.

“So the Chancellor can afford to ease off on austerity without endangering his medium term fiscal targets. We estimate that, of the proposed £25 billion of real NHS spending rises across the UK by 2023/24, around £10 billion is already implicit in current spending plans used in OBR forecasts. So we estimate that the Chancellor may only need to raise taxes or increase borrowing relative to previous plans by around £15 billion in 2023/24 to fund these plans, which is equivalent to around 0.6% of GDP in that year. A net tax rise of around 0.3% of GDP, plus a modest borrowing rise of a similar magnitude would be enough to fund the additional health spending over and above that implicit in current fiscal projections.

The improvement in the UK public finances suggests there is room to boost spending on key public services.

Rupert Harrison, former advisor to the Treasury, believes the NHS (just promised a spending increase) should benefit:

Harrison (now at asset manager BlackRock) tweets:

The government will be delighted by today’s fall in borrowing, says Kamal Ahmed of the BBC:

Fraser Munro of the Office for National Statistics points out that last year’s borrowing figures were better than expected too:

The Conservative Party have welcomed the news:

(yes, that’s the same Conservative Party that once hoped to eliminate the entire deficit by 2015)

Newsflash: UK government borrowing fell last month as the long, slow process of fixing the public finances continues.

Britain borrowed £5bn to balance the books in May, the Office for National Statistic reports. That’s down from around £7bn in May 2017 and is the lowest borrowing for any May since 2005.

In April and May combined, Britain has borrowed £11.8bn. That’s £4.1bn less than a year ago, and the best start to a financial year since 2007 (before the financial crisis).

This improvement is due to rising tax revenues, the ONS explains:

In the latest financial year-to-date, central government received £112.9 billion in income, including £82.6 billion in taxes. This was around 3% more than in the same period in 2017.

Over the same period, central government spent £123.6 billion, roughly equal to that spent in the same period in 2017. Of this amount, just below two-thirds was spent by central government departments (such as health, education and defence), around one-third on social benefits (such as pensions, unemployment payments, Child Benefit and Maternity Pay), with the remaining being spent on capital investment and interest on government’s outstanding debt.

In another boost, last year’s deficit has been revised down to £39.5bn, down from £40.5bn. That’s the lowest net borrowing since the financial year ending March 2007.

Overall, Britain’s national debt stands at £1.8 trillion, or around 85% of GDP.

Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.

The Bank of England is in the spotlight today as its Monetary Policy Committee meets to set interest rates. While borrowing costs probably won’t change today, the City will be looking for hints that the long-awaited hike could come in August.

The key issue is whether the Bank still believes the recent weakness in UK economic growth is temporary.

That slowdown scared the MPC away from raising interest rates last month, forcing investors to rethink their expectations about how fast borrowing costs will rise.

The two hawkish members of the MPC, Michael Saunders and Ian McCafferty, will likely vote for a hike today. The majority, though, will (probably!) decide to leave interest rates at just 0.5%.

Mike Bell of JP Morgan Asset Management argues that there’s no reason to raise interest rates yet, especially with Brexit uncertainty bubbling away:

Some lead indicators suggest wage growth could soon start to accelerate, so the case for a rate hike is building.

However, there’s no rush to raise to rates this week given still high political and economic uncertainty.

But you never know....

It’s also an important day for Greece. The Greek bailout ends in August, so Eurozone finance ministers will discuss what debt relief measures are needed to help Athens return to the financial markets.

The Greek government is hoping for substantive measures to address its debt pile, which has swelled to 180% of its GDP.

Spokesman Dimitris Tzanakopoulos told reporters:

“We are optimistic that we are on the verge of a solution with substance.”

Full-blown debt write-offs aren’t on the agenda, but the eurozone could agree to extend the payback data on Greek debt, giving Athens more wriggle-room to recover from years of economic trauma.

Tzanakopoulos argues that Greece needs debt relief in order to become an ‘ordinary’ country again:

“The accepted criteria for all sides is that this solution be convincing for markets and embed the creditworthiness of our country - the final act in restoring the credibility of Greece to be able to plan for the next day like any ordinary country.

The eurogroup will also discuss what ‘surveillance’ measures should be imposed on Greece, to ensure it keeps meeting its commitments even after the bailout is over.

We’ll also keep an eye on Vienna, where Opec members are gathering for tomorrow’s meeting. Some oil ministers (including the Saudis) are pushing for a deal to raise oil output, but others are keener to maintain current production caps....and keep prices higher.

Plus, the latest UK public finances will show how much Britain borrowed last month.

Here’s the agenda:

• 9.30am BST: UK public finances for July
  
• Noon BST: Bank of England interest rate decision
  
• 2pm BST: Eurogroup meeting on Greece begins