Graeme Wearden 

Pound hits 21-month high as Brexit delay looms – as it happened

Sterling rallies after Theresa May promises MPs a vote to extend article 50 if her deal is rejected.
  
  

The skyline of the City of London.
The skyline of the City of London. Photograph: Dominic Lipinski/PA

Summary

Time for a recap

The pound has surged after Theresa May finally conceded that MPs should be given a vote on whether to extend Article 50, rather than crash out of the EU without a deal in a month’s time.

Sterling has jumped by around 1% against the euro to a 21-month high, around €1.164, and to a five-month high against the US dollar at $1.324.

City traders are calculating that a disorderly Brexit is less likely, while there’s still a chance that May’s deal is eventually approved by MPs (although there wasn’t much support for it in parliament today).

Business leaders, though, fear that they could faces another cliff edge this summer - if MPs only approve a short extension.

The Bank of England is getting ready for market volatility, by launching new weekly liquidity auctions. They will help banks and building societies get their hands on sterling, in the event of a squeeze after a no-deal Brexit.

BoE governor Mark Carney warned that growth would suffer if Britain crashes out without a transition deal, adding that the country doesn’t have enough warehouses to handle stock-piling demands.

In an prize-example of non-preparedness, Britain has discovered that it doesn’t even have enough suitable pallets to trade with the EU, if it leaves without a deal.

In Washington, Jerome Powell has emphasised that the US Federal Reserve will be patient when considering future interest rate moves.

Our Politics Liveblog is tracking all the action on Brexit:

Goodnight! GW

Jay Powell has tried to sidestep a question about political interference.

Asked if anybody at the White House had communicated with him “directly or indirectly” about interest rates, Powell would only say that it wasn’t appropriate to discuss private conversations with any other government officials.

Obviously the Federal Reserve is meant to be independent, and free from meddling. However, that ship sailed once Donald Trump started blasting the Fed’s politics on Twitter.

Sterling’s surge has dragged down stock prices of UK multinationals who have large overseas earnings, such as British American Tobacco (down 2%).

This has helped the FTSE 100 to underperform other European markets. The blue-chip index has closed down 32 points, while the German DAC gained 0.3% and France’s CAC also closed higher.

Back in Washington, Jerome Powell has poured some cold water on Modern Monetary Theory (MMT).

This is the idea that a government which controls its own currency can always fund its spending plans, regardless of deficit levels, and isn’t reliant on borrowing in the markets. It’s becoming a hot topic, as US politicians push policies such as the New Green Deal.

Powell tells the Senate banking committee that he hasn’t seen a detailed explanation of how MMT would work in practice, but that the idea that deficits don’t matter is wrong.

Here’s Guy Foster, Brewin Dolphin’s Head of Research, on today’s Brexit developments:

“Theresa May must feel more like a seamstress than a prime minister given how much time she spends trying to knit together opposing camps within her party.

By offering a short extension she has effectively weakened the means by which Parliament could demand a long extension. There will be no majority for a no deal Brexit whereas an extension should pass.”

Pound romps to fresh 21-month high

Back in the markets, sterling is banging out new highs against other major currencies.

The pound has now hit €1.166 against the euro, up 1% or 1.3 eurocents today. That’s a fresh 21-month high against the single currency.

Sterling is also rampant against the US dollar, up more than one and a half cents to $1.326. That’s the highest since September 2018.

This comes after several prominent MPs welcomed Theresa May’s pledge for a vote to extend Article 50 next month, if her deal doesn’t pass.

It appears that the Cooper-Letwin amendment, to formally rule out a No-Deal Brexit, might not be voted on tomorrow after all, as it’s no longer needed.

My colleague Jessica Elgot explains:

Updated

Jay Powell is now giving Senators a lesson on the US labor market, and the risk that people earn less in a new job than they’d get on welfare:

Jay Powell has warned the Senate that it would be a very serious mistake not to raise the USA debt ceiling.

The Fed chair says it would be a “very big deal” if America was unable to repay its bills, causing serious negative impact to the economy.

Jay Powell is now taking questions from members of the Senate banking committee in Washington.

On the economic outlook, he says the Fed wants to use its tools to sustain the current expansion.

On energy, he says America’s shale industry is a “real positive”. Because shale producers pump more oil when prices rise, it acts as a “shock-absorber” to prevent inflation getting out of control as in the 1970.

On trade, Powell warns that “uncertainty is the enemy of business.” The Fed has been hearing for months that the uncertainty over America’s trade links (due to the dispute with China) has had some impact on confidence.

And on US financial stability, he says America’s banks are strong - with no bank failures in 2018.

Jay Powell has also taken the opportunity to tell Congress that America has too much economic inequality, and too much debt too.

He’s challenging Senators to do more to help their citizens, saying:

Productivity growth, which is what drives rising real wages and living standards over the longer term, has been too low. Likewise, in contrast to 25 years ago, labor force participation among prime-age men and women is now lower in the United States than in most other advanced economies.

Other longer-run trends, such as relatively stagnant incomes for many families and a lack of upward economic mobility among people with lower incomes, also remain important challenges.

And it is widely agreed that federal government debt is on an unsustainable path. As a nation, addressing these pressing issues could contribute greatly to the longer-run health and vitality of the U.S. economy.

Powell: Trade wars and Brexit fuel uncertainty

Fed chair Jerome Powell also cites Brexit as a key source of uncertainty that could threaten financial markets.

He tells the Senate banking committee that the mood in the world economy has darkened:

Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year. Growth has slowed in some major foreign economies, particularly China and Europe.

And uncertainty is elevated around several unresolved government policy issues, including Brexit and ongoing trade negotiations. We will carefully monitor these issues as they evolve.

Fed chair Powell: Patience needed over rate rises

Newsflash: America’s top central banker, Jerome Powell, is starting to give his bi-annual testimony to the US Senate.

And the top line is that Powell is reiterating that the Federal Reserve won’t rush to raise US interest rates.

Echoing the message from the Fed’s last meeting, a month ago, Powell says:

In January, with inflation pressures muted, the FOMC determined that the cumulative effects of these developments, along with ongoing government policy uncertainty, warranted taking a patient approach with regard to future policy changes.

Going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve.

Powell also says that the US jobs market remains ‘strong’, with low-skilled workers getting the highest wage growth recently.

UBS: UK investors the most bearish in Europe thanks to Brexit

Brexit has already cast a cloud over UK investors, who are now the gloomiest in Europe, according to new research from UBS Global Wealth Management.

UBS has found that City investors are much more anxious than those in rival financial centres like Frankfurt or Paris, even though the eurozone economy has weakened in recent quarters.

Nick Tucker, Head of UK Domestic at UBS Wealth Management, explains:

“As we get closer to the UK’s official departure from the EU at the end of March, this survey shows that political turbulence is dragging on investor sentiment in the UK compared to the rest of the region. UK investors seem to have dramatically lowered expectations for 2019 in almost every sense, from expected financial returns to their outlook for the economy.”

“From our conversations with clients up and down the country, we know that investors are anxious.

Here are the main findings from the report:

  • The domestic political environment is the top concern for over half (55%) of UK investors, compared to 43% among EMEA investors
  • Less than one third of UK investors (28%) are now optimistic in their outlook for the European economy over next 12 months, compared to over half of EMEA investors (53%)
  • A quarter of business owners are pessimistic about the outlook for their business in 2019, compared to 12% of EMEA investors
  • Investors advised to maintain exposure to sterling and UK assets at benchmark levels

Danielle Haralambous of the Economist Intelligence Unit suspects that today’s offer is just another attempt by the PM to get her deal over the line:

Vauxhall: We might cross to the dark side

The boss of Vauxhall’s parent company, PSA, has warned that a no-deal Brexit could lead to ‘unpopular’ decisions, such as job cuts and factory closures.

Carlos Tavares warned this morning:

“We can go on the dark side, say, well, perhaps you have to shut down plants and things like that. Well, if we have to make unpopular decisions we will.”

Tavares also warned that a disorderly Brexit would disrupt supply chains at Vauxhall, which employs hundreds of people in Luton, and at Ellesmere Port in the North West.

Here’s Carolyn Fairbairn, CBI Director-General:

“Moves to avert no deal in March are essential. There are now proposals from Parliament and Government. But they are just one step.

To avoid a hammer blow to firms and livelihoods, delay cannot simply be an extension of stalemate. Compromise is the only way.”

Claire Walker, co-executive director at the British Chambers of Commerce (BCC), has warned business leaders to keep preparing for all Brexit possibilities:

“The overriding priority is still to assure businesses and communities that an unwanted ‘no deal’ scenario will not happen by default on March 29th.

“Businesses still need to ensure they are preparing for all possible scenarios and government and its agencies must provide clear, precise and accurate information for all eventualities.”

IoD: Article 50 extension may be needed

Edwin Morgan, interim Director General of the Institute of Directors, has welcomed Theresa May’s commitment to let MPs vote on extending Article 50.

Morgan also warned that most UK firms simply aren’t ready for a no-deal Brexit (not least if they need a pallet to ship goods to Europe!).

“The Prime Minister is right to put her cards on the table for what happens if she fails to get approval for a withdrawal deal by 12 March. Parliament must feel and accept the weight of responsibility that is on their shoulders. The message from our members is clear, nearly 80% would choose to avoid a no-deal outcome. Too much information about that scenario is still missing – including from our own Government – for firms to be ready in a few short weeks.

“Seeing the impasse continue may not be comfortable for businesses, but a disorderly exit could bring unbearable disruption for firms in sectors from farming to finance, manufacturing to business services, across the UK. It is a long time since we have been in a world of easy choices, and while an extension is not an end in itself, it may become a necessity to achieve an orderly exit.”

Our diplomatic editor Patrick Wintour has put his finger on the problem with May’s announcement -- a short A50 extension creates the risk of crashing out in June, rather than March.

The pound wobbled during Theresa May’s statement, as the PM made it clear that she didn’t want to see Brexit delayed - even though she’s finally accepted that it could be pushed beyond 29th March.

But it’s still clinging onto its 21-month high against the euro, at €1.162, and a four-month high against the US dollar at $1.32.

Naeem Aslam of Think Markets says May has pushed UK’s fate onto the cliff edge:

She has said ‘chose between my deal or delay the Brexit’.

This political circus has become a real joke. Investors do not need uncertainty and there was a lot of optimism in the market because investors were thinking that no deal scenario is off the table, but now, it seems like it is still on the table.

And as Sky’s Faisal Islam points out, UK businesses won’t relish the prospect of more uncertainty.

Theresa May: Votes on Withdrawal deal, no-deal and A50 extension

Theresa May is giving a Brexit statement to the House of Commons right now.

And the Big News is that parliament will hold up to THREE votes on Brexit in two week’s time.

May outlines her plan:

  1. The government will hold a second meaningful vote on the PM’s Withdrawal Deal by 12 March at the latest.
  2. If the government doesn’t win a meaningful vote, it will table a motion on 13 March to ask whether the House supports leaving the EU on 29th March without a deal.
  3. If MPs reject leaving without a deal, the government will hold a vote on a “short, limited” extension to Article 50 on March 14th.

But the PM also warns that she doesn’t want to see Article 50 extended, saying a short extension would create an even sharper cliff edge this summer. And a long extension would mean taking part in the next elections for the European Parliament in May (hardly what Leave voters wanted).

Our Politics Live blog is tracking all the action:

With Mark Carney’s hearing now over, Royal Bank of Canada have spotted that the probability of Brexit happening on time has fallen to just 14% (as implied by odds on Betfair, anyway).

Instead, an exit in April-June now looks most likely, followed by no Brexit at all.

RBC’s Adam Cole adds that a 2nd referendum looks more likely, but still isn’t at all certain, writing:

There is little doubt that Labour support for a second referendum is a necessary condition for such a referendum happening, but it is far from sufficient. That the implied probability of second referendum happening has also risen (second chart; now around 33%) is not surprising, but again there are limits to how far this can run.

In particular, it seems highly unlikely that an amendment that backed a second referendum would make it through the Commons, given that there is little support on the government benches and many Labour MPs in Brexit-voting constituencies are also opposed.

Carney: Sterling crisis wouldn't provide growth boost

Q: If the pound fell after a no-deal Brexit, wouldn’t that boost growth?

Mark Carney stamps, firmly, on the notion that crashing out of the EU would be good for the economy.

The role of a flexible exchange rate is to act as a shock-absorber. A no-deal, no transition Brexit would be a shock, it would be a negative shock.

He cites BoE forecasts that a smooth transition to WTO trading terms would lead to the pound plunging by between 8.5% and 10%, and a 2.5% drop in GDP compared to last November’s forecasts.

So the weaker currency is “an offset, but it is swamped, overwhelmed by the loss of trade access,” the governor explains.

Asked about consumer spending, Mark Carney replies that consumers are making fewer big-ticket purchases such as houses and cars, but overall consumption growth has held up well.

He also says the Bank isn’t picking up any material sign that households are stockpiling ahead of Brexit (some families have been stocking up on pharmaceuticals products, food, and pet supplies).

Q: Consumer confidence and spending, especially in Leave areas, has been consistently more positive than economist forecasts. Does that suggest economists are too pessimistic about Brexit, or has the impact of Brexit simply not hit people yet?

Governor Carney says we don’t know what form Brexit will take, and how long it will take to get there, so you can’t make that judgement yet.

Heads-up: Just fixed a typo in that 11.17am post -- Mark Carney predicted that the Bank’s GROWTH forecasts will be lower after a no-deal Brexit.

Q: Why are some businesses much more worried about Brexit than others?

MPC member Dr Gertjan Vlieghe explains that the effects are very unevenly distributed across the economy.

A specialist manufacturer which buys basic raw materials, such as chemicals or steel, and turns it into a high-value product won’t be particularly affected by Brexit.

But Brexit is an “existential” issue to a company that is part of a major automotive supply chain, Vleighe adds.

Q: Are there enough warehouses to handle the stock-piling necessary for a no-deal Brexit?

No there are not, Mark Carney replies, saying that one of the issues facing UK firms is a shortage of warehouse space.

There’s a limit to warehousing capacity, and also how much you can stockpile to keep factories running, he adds, citing the just-in-time “lean supply chains” used by the car industry and aerospace manufacturers.

Q: So we’re looking at chaos?

Carney declines to use that particular word, saying only that it would be an economic shock.

Mark Carney then warns MPs that growth will suffer if Britain crashes out of the EU without a deal.

Updated

Carney: Brexit extension isn't as good as a deal

The Treasury Committee is now grilling governor Mark Carney over the prospect of Brexit delay.

Carney warns that simply kicking the can down the road isn’t as good for the economy as reaching a deal, saying:

There’s a big difference between an extension of Article 50, even a long extension, and an agreement with a transition to a known end stage.

Wherever we’re headed, it would serve the economy well to have a transition period to that new world, so that people knew soon where they’re headed, businesses could reorganise their affairs and get ready for this new world, and government could finish its tasks.

Carney also points out that Brexit uncertainty will linger well beyond Britain’s day of departure (as Westminster will need to negotiate a future relationship with Brussels, and strike new trade deals with the rest of the world).

Carney: We need more redistribution to tackle globalisation's consequences

Back in parliament, Charlie Elphicke MP asks Mark Carney about a recent speech calling Brexit an ‘acid test’ for the new world order.

Q: How can Brexit could be used to enhance Britain’s openness, competitiveness and productivity, and rebalance the economy?

“Fantastic”, mutters Carney, when faced with this poser.

But the governor makes some good points - about the important of having flexibility to set your own rules on financial stability, rather than simply being a rule taker.

But Carney then takes a much wider view, telling the Treasury Committee that there needs to be a “reinvestment of economic gains, so that everyone moves up”.

He cites the rise in fintech, saying:

How do you provide a framework for new financial technology, not just to benefit the City, but also to help small and medium enterprises in Dover, Deal, Dulwich or... Dunfermline.

Don’t forget Doncaster, Darlington, and Dorchester, the MPs chant back.

Carney’s bigger point is that globalisation is creating problems, so politicians needs to redistribute the gains made in recent decades. He sites the US-China trade war, saying:

The tensions in globalisation are actually starting to affect the global outlook.

They are bigger, they’re structural, they require a more deliberate response, and it has to balance some element of redistribution and reinvestment of the gains of globalisation.

As well as getting the balance between democratic accountability and standards that are high enough - whether for financial stability, product safety, or environmental standards - that we have confidence that we can trade freely.

Carney adds that he doesn’t expect a global recession. But the biggest risk that could trigger such a downturn is around globalisation.

My personal view is that the challenges around trade globally have structural drivers. The solution isn’t a textbook solution that ‘free trade is good’.

Updated

DOUBLE BOOM! Sterling has just hit a four-month high against the US dollar, touching $1.323 for the first time since mid-October.

Pound hits 21-month high against the euro

BOOM! The pound has just hit a 21-month high against the euro, as speculation of a Brexit delay sweeps through the City.

Sterling is trading at €1.162 for the first time since May 2017, up almost one eurocent or 0.8% this morning.

Craig Erlam of City firm OANDA says the the pound is soaring on hopes of a soft Brexit, or a second referendum.

Erlam explains that a hard Brexit looks less likely, if Theresa May agrees to take no-deal off the table at today’s cabinet meeting,

The pound is tearing higher on Tuesday as we await another vote in Parliament tomorrow – albeit not on May’s deal, again. The decision comes as the opposition Labour Party threw its support behind a second referendum if it couldn’t get its own Brexit deal over the line and Theresa May opened the door to an extension, having failed to secure amendments with the EU in time for tomorrow’s vote.

These are all bullish scenarios for the pound, despite remaining the unlikely options, not only for what they put on the table but also for who they put pressure on. The ERG – a group of hardline Brexiteers – many of whom favour a harder Brexit and some no-deal, will not be pleased with the recent developments with another referendum jeopardising the whole process and an extension threatening it. That may force them to reluctantly support May’s deal, when push comes to shove.

Sterling has also risen further against the US dollar, over $1.32 for the first time in a month.

Our Politics Live blog is covering all the action from Westminster:

Updated

Carney challenged over Bank's treatment of BAME staff

Treasury committee chair Nicky Morgan brings up another important issue - diversity at the Bank of England.

She reminds Mark Carney that he told the Bank’s Court that there was a particular problem with retaining ethnic minority staff, who are underrepresented at every level of the central bank.

Morgna also cites a report in the Times last week that BAME staff were more critical of the Bank’s culture -- citing inappropriate language and behaviour, and problems in progressing within the Bank.

She says

BAME employees perceived a lack of transparency in hiring and firing, and were critical of the Bank’s narrow recruitment base.

This is not good.

Carney replies that the Bank management take the issue of diversity seriously, and have made considerable progress.

In the last five years (since Carney arrived), the proportion of BAME staff at the BoE has risen from 13% to 19%, and from 2% to 5% of senior management.

Last year, BAME recruits made up 39% of new hires, Carney adds, citing blind recruitment, inclusive management policies, and pooled hiring decisions.

But, he also concedes that the experience for BAME colleagues is “notably different, notably worse, than for other colleagues”.

“We’re not satisfied with the progress made. It’s not just about numbers.

Updated

Governor Mark Carney adds that the Bank will provide ‘all the stimulus it can’ if Britain leaves the EU without a withdrawal deal.

Interest rates could either rise or fall in that scenario, he adds, pointing out that a no-deal Brexit will probably be inflationary (as the pound would surely plunge, pushing up import costs).

Q: Is the Bank of England more likely to raise, or lower, interest rates after a no-deal Brexit, asks Nicky Morgan MP.

It’s clear that the Bank’s top policymakers are split on this issue.

MPC member Gertjan Vleighe argues that borrowing costs won’t go up. He tells the Treasury committee that the shock to consumer confidence will be so severe that the Bank will either leave policy unchanged, or cut rates.

Deputy governor Dave Ramsden isn’t convinced, though. He fears a supply-shock if Britain crashes out of the EU, with port disruption making imports scarcer. That would drive up inflation, as businesses and consumers scrapped for goods.

Bank of England boosts liquidity programmes ahead of Brexit deadline

Bank of England governor Mark Carney is appearing before the Treasury committee now.

And he’s started with some news -- the Bank is preparing to pump more liquidity into the UK financial system if needed.

With Brexit tensions mounting, the Bank will now hold liquidity auctions every week, rather than monthly, from the start of March until the end of April.

Carney tells the committee that this is a prudent and precautionary move.

It will allow around 100 banks and building societies to get extra cash in sterling, in return for handing the BoE eligible collateral (a range of financial securities). The Bank of England stands ready to provide liquidity in all major currencies.

This would be valuable if the financial system seized up after a disorderly Brexit.

Carney insists that the Bank isn’t seeing any liquidity stresses in the market, and that the move is part of “normal contingency planning”.

Carney is appearing along with deputy governor Dave Ramsden and monetary policy committee members Jan Vlieghe and Jonathan Haskel. We’ll watch out for any major developments.

Updated

ONS: Rich got richer last year, and the poor got poorer

Just in: The richest households in the UK saw their income grow last year, while the poorest families got poorer.

That’s according to the Office for National Statistics, which has published new income distribution data this morning.

It shows that the average income of the poorest fifth of the population contracted by 1.6%, mainly driven by fall in the average value of cash benefits.

The average income of the richest fifth, on the other hand, increased by 4.7% due largely to increases in wages.

The ONS adds:

Over the slightly longer term, it is the average income of the poorest fifth that has risen the most, up 11.6% since 2008, whilst the income of the richest fifth has risen 4.9% over the same period.

That’s all well and good... however, a 11.6% increase on a tiny household budget is rather smaller than a 4.9% boost to a City bankers’ wallet.

The pound is holding onto its earlier gains, still trading at a one-month high against the euro (at €1.158) and the US dollar ($1.316).

Michael Brown, senior analyst at currency exchange firm Caxton FX, says the prospect of a Brexit extension is supporting sterling:

The pound’s gains are a result of markets beginning to price in an extension to the Article 50 negotiating period, with reports this morning that the Prime Minister is set to discuss the matter with Cabinet before laying a motion in the Commons this afternoon.

Though a delay is simply pushing back the exit date, and doesn’t solve anything itself, markets are taking solace in the fact that such a move would delay a ‘cliff-edge’ no-deal scenario. Confirmation of such a delay would likely strengthen the pound further in the near-term, though political headwinds remain including the opposition Labour Party calling for a 2nd Brexit referendum

Unpalletable news: Britain has 'wrong sort of pallets' for no-deal Brexit

In a worrying example of Brexit non-planning, Britain doesn’t have the right sort of pallets to keep trading with the EU if it leaves without a deal.

According to Business Insider, the UK government is due to hold emergency talks with industry leaders today after discovering this hitch.

The problem is that the EU insists that all pallets entering the bloc from third-countries are heat-treated, to prevent any nasty pests or microbes getting in.

That’s not a requirement today (on the grounds that EU countries have similar biological life). So there’s going to be an unseemly scramble for any scarce certified pallets soon, unless Brexit is delayed or Theresa May’s deal is voted through.

BI’s Adam Payne says this has come as a nasty shock to the government.

The Department for Environment, Food and Rural Affairs has arranged for a conference call with various figures to take place on Tuesday to discuss the alarming pallet shortage, with just 31 days until Brexit day on March 29.

“It is the tiny, procedural, mundane-seeming stuff that will absolutely trip people up,” one industry figure briefed by Theresa May’s government told BI, adding that the country was “not even remotely ready” for no-deal.

There’s really no excuse for DEFRA not spotting the pallet issue earlier. Last October, Universal Pallets warned that this issue would cause delays for exporters, as it takes time to heat-treat pallets and get them stamped.

Updated

BCC: Britain isn't ready for no-deal

Dr Adam Marshall, Director General of the British Chambers of Commerce (BCC), is urging the government to take a no-deal Brexit off the table.

Marshall warns that many UK companies - and the government itself - simply aren’t ready for a disorderly exit.

“At this pivotal moment, the government must take decisive steps to avoid the damage that a messy and disorderly exit would cause to business and the economy in just a month’s time.

“It is time to be honest. Government and its agencies are not prepared for a ‘no deal’ exit on 29th March. Neither are many businesses.

“The overriding priority must be to assure businesses, employees, investors and communities that an unwanted ‘no deal’ scenario will not be allowed to happen by default on March 29th.”

Two weeks ago, the Bank of England reported that HALF UK companies hasn’t drawn up contingency plans for no-deal....

The CBI’s chief, Carolyn Fairbairn, has warned MPs that they need to use any Brexit delay wisely:

Bullish traders are piling into the pound this morning, lured by the prospect of a Brexit delay, says Neil Wilson of Markets.com.

Sterling has rallied on movements in the political space that have encouraged the bulls. First, Labour is now backing a second referendum - one u-turn. If anything, though, this just hints at the party worrying about an exodus to The Independent Group. Secondly, and more importantly, there appears to be building pressure on the prime minister to take no deal off the table - another u-turn.

If no deal is abandoned, it would likely entail a delay to Brexit, and whilst assuaging concerns about crashing out without a deal in place, it would not remove all the uncertainty. A key cabinet meeting today will reveal all – we hope.

Babcock faces £10m Brexit bill, every year

Ouch. UK engineering services group Babcock has warned the City that Brexit will cost it millions of pounds, every year.

That’s on top of a £10m bill for restructuring its European aerial business, which provides emergency medical and firefighting services. This will allow it to meet EU rules on ownership, and flying rights, once Britain has left the EU.

In a statement to shareholders, the aerospace and defence company says:

The UK exiting the EU has resulted in additional costs as we restructure our aerial emergency services businesses to comply with European operating requirements.

There is a one-off tax cost of around £10 million this year and we estimate that additional ongoing costs related to the operation of the new structures will be around £10 million per year.

Babcock’s Emergency Medical Services provides air ambulance operators in Europe, and also Australia, and can provide its own doctors and nurses in a emergency. It also operates an Aerial Firefighting division -- increasingly in demand, as climate change leads to more wildfires.

Shares in the company, which also refits ships and submarines and decommissions nuclear power stations, have fallen over 3% following today’s news.

Updated

Roland Rudd, who chairs the People’s Vote campaign, believes a second Brexit referendum is looking more likely.

The new Independent Group are also backing the plan:

But... some Labour MPs representing constituencies who voted Leave in June 2016 wouldn’t support another referendum, as my colleague Dan Sabbagh tweeted last night:

The Financial Times also expects MPs to be offered the chance to delay Brexit, saying:

If MPs reject a revised deal in a vote set to take place before March 12, Mrs May will then offer a vote on whether to press ahead with a no-deal Brexit on March 29 or take a “short extension” of the Article 50 exit process.

A Brexit delay now looks that “most likely path forward”, says Adam Cole of Royal Bank of Canada.

He told City clients this morning:

The PM will open the way for a “short” Brexit delay at a cabinet meeting this morning, according to reports, and outline the terms in her statement to the Commons this afternoon, ahead of tomorrow’s debate.

If the meaningful vote by (likely on) March 12 fails, MPs would be given a second vote on leaving with no deal or delaying Brexit which would almost certainly result in delay and this now appears the most likely path forward. We note, however, that proxy markets were yesterday attaching only a 20% probability to Brexit happening “on time.”

Pound hits four-week high on Brexit delay reports

The pound has jumped to its highest level in four weeks this morning, amid speculation that Britain’s departure from the European Union could be delayed.

Sterling has rallied half a eurocent against the euro to €1.158, its highest level since 25th January. That’s nearly a 10-month high.

The pound is also strengthening against the US dollar, up half a cent to $1.315, for the first time since the end of January.

Last night, The Sun newspaper reported that Theresa May will today propose to Cabinet that she formally rules out a No Deal Brexit on March 29, opening the door to a delay.

That could delay Brexit by weeks, or even months, if parliament fails to back her Withdrawal Agreement in the next few weeks.

More here: Theresa May to propose to Cabinet today that she formally rules out No-Deal Brexit

This would be a dizzying u-turn by the PM, who has long argued that Britain is leaving on the 29th March, come what may.

But several cabinet ministers have been piling heavy pressure on May to categorically rule out a no-deal Brexit. Amber Rudd, David Gauke and Greg Clark are all demanding that May rules out the prospect of Britain crashing out of the EU at the end of next month.

May insisted yesterday that a delay wouldn’t resolve anything, but the PM risks seeing the issue taken out of her hands. Tomorrow, MPs could pass a cross-party amendment laid by Conservative MP Oliver Letwin and Labour’s Yvette Cooper that would in effect rule out a no-deal scenario.

News that the opposition Labour Party have also shifted their position, and could back a public vote on Brexit has also caught the City’s attention -- as it potentially increases the changes that Britain doesn’t leave at all.

As my colleague Jessica Elgot reported last night:

Jeremy Corbyn has finally thrown his party’s weight behind a second EU referendum, backing moves for a fresh poll with remain on the ballot paper if Labour should fail to get its own version of a Brexit deal passed this week.

The decision to give the party’s backing to a second referendum follows a concerted push by the shadow Brexit secretary, Sir Keir Starmer, and the deputy leader, Tom Watson, who fear any further delay could have led to more defections to the breakaway Independent Group (TIG), whose members all back a second referendum.

Updated

Introduction: Central bankers Mark Carney and Jerome Powell in spotlight

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

Two top central bankers will be in the spotlight today, facing questions about monetary policy and the state of the economy.

Bank of England governor Mark Carney is due before the Treasury Committee at 10am GMT, along with deputy governor Sir Dave Ramsden and external policymakers Gertjan Vlieghe and Jonathan Haskel. They’ll be quizzed about the Bank’s latest Inflation Report, which slashed UK growth forecasts and warned a no-deal Brexit could cause a recession.

MPs may also ask the Bank about the prospects of interest rate rises over the next couple of years, and the impact of the recent global slowdown on the UK.

A few hours later, Carney’s US counterpart will also be facing lawmakers at the Senate. Federal Reserve chair Jerome Powell’s bi-annual testimony will be extremely closely watched by investors, for any clues on whether the Fed has ended its rate-hiking cycle.

He’ll also be asked about plans to trim the Fed’s balance sheet, unwinding its massive stimulus programme, and the impact of Donald Trump’s trade war on the US economy.

Markets have risen strongly since the Fed’s last meeting, at the end of January, when it was surprisingly dovish about monetary policy plans; Powell’s comments today could easily move the dollar and US Treasury bond prices.

The markets will also be chewing through new US housing data, and consumer confidence report.

Plus, UK housebuilder Persimmon is updating the market - reporting that pre-tax profts have jumped to nearly £1.1bn - up from £970m last year. This is just days after it emerged Persimmon (under fire for paying bosses huge bonuses) could be banned from the government’s Help to Buy subsidy scheme.

The agenda

  • 10am GMT: Treasury committee hearing with the Bank of England
  • 1.30pm GMT: US housing starts and permits data for December
  • 2pm GMT: US Case-Shiller index of US house prices in December
  • 3pm GMT: Jerome Powell testifies before the Senate Banking Panel
  • 3pm GMT: US consumer confidence index
 

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