And finally... European stock markets have ended the day in the red, although not dramatically.

The Europe-wide Stoxx 600 lost 0.4%, amid some anxiety over the economic outlook and rising Covid-19 cases, and disenchantment with the US Federal Reserve’s failure to produce even more stimulus last night.

In London, banks were among the fallers after the Bank of England said it was pressing on with work on negative interest rates (still an option in the toolbox). Ad giant WPP fell 3%, and airline operator IAG lost 2.1%, on concerns about a second wave of Covid-19.

Here’s the closing prices:

• FTSE 100: down 28 points or 0.47% at 6,049
• German DAX: down 30 points or 0.23% at 13,225
• French CAC: down 27 points or 0.5% at 5,047

Stocks are recovering some of their earlier losses on Wall Street, but the Nasdaq is still down 1%...

Fawad Razaqzada, market analyst with ThinkMarkets, sums up the mood:

Following the Federal Reserve’s policy meeting on Wednesday, US and global stock indices fell, while the dollar traded mostly higher, rising against the pound and commodity dollars, and falling against the yen....

The Fed was not as dovish as the markets had anticipated. Even though it did not say anything hawkish per se, some investors were probably left disappointed by the lack of indication for new stimulus. Still, the Fed plans to hold rates at nearly zero at least until the end of 2023 as Chairman Jerome Powell provided a cautious outlook, even if the central bank was less pessimistic about growth this year compared to June.

Here’s our main stories today:

Goodnight! GW

Ding, ding goes the Wall Street opening bell... and down, down go shares.

Stocks in New York are falling in early trading, as investors show their disappointment at the Federal Reserve.

Technology stocks are being pounded, sending the Nasdaq down 190 points or 1.7% at 10,859.

The broader S&P 500 is also weaker, shedding 49 points or 1.5% to 3,335.

At first glance, that’s a surprising reaction to Jerome Powell’s pledge to leave interest rates on hold until at least 2023 – and its improved economic forecasts.

But... it seems that some investors are disappointed that the Fed didn’t hint at fresh stimulus measures, and is looking to Washington for a stronger fiscal response.

Others, such as Paul O’Connor, head of multi-asset at Janus Henderson Investors, are concluding that central banks are running out of weaponry to fight the crisis:

The bigger picture here is that, after decades of rate cuts and balance sheet expansion, the major central banks are now reaching the limits of their current toolkits.

While Chairman Powell was keen to assert that the Federal Reserve wasn’t “out of ammo” it nevertheless seems clear that most of the big monetary artillery has already been deployed in the battle against deflation. If growth or inflation do disappoint in the future, fiscal policy will have to take more responsibility for reviving macroeconomic momentum than it has done in recent decades.

This is not just a US story – it also applies to the eurozone and the UK as well. The era of monetary policy dominance and investor fascination with central banks is coming to an end.

Newsflash: The number of Americans filing new claims for unemployment benefit has dropped, but was higher than expected.

A total of 860,000 new claims for jobless support were filed in the week to 12 September – down from 893,000 in the previous seven days.

That shows a modest improvement, but it’s still higher than at any level before Covid-19.

This has pulled the four-week average of initial claims down to 912,000.

The pound has now sunk by a cent against the US dollar today, following the news that the Bank of England discussed negative interest rates at this week’s meeting (see earlier post).

It’s sunk to $1.2870, back towards the seven-week lows struck a few days ago.

Brexit is also weighing on the pound again, after Democratic presidential candidate Joe Biden warned London not to breach the Brexit Withdrawal Agreement.

Here’s my colleague Phillip Inman on the Bank of England’s interest rate announcement:

The Bank of England said the economic recovery remained on track but warned the outlook remained “unusually uncertain” after voting to keep its main interest rate unchanged at 0.1%.

Health concerns would continue to drag on the economy’s ability to rebound from the coronavirus lockdown and there was still the prospect of a steep rise in unemployment, the central bank’s monetary policy committee (MPC) said in its September report.

The central bank’s nine-strong interest rate setting committee also voted unanimously to maintain its £745bn quantitative easing (QE) programme, which has increased by £300bn since March and acted to keep long-term interest rates low for mortgages and government borrowing.

City analysts said they expect the MPC to add a further £100m to its QE programme at its next meeting in November if the recovery from lockdown continues to be slow.

As well as setting interest rates, Bank of England governor Andrew Bailey has written to chancellor Rishi Sunak to explain why inflation slumped to 0.2% last month, well below the 2% target.

Bailey blames the fall in economic activity due to Covid-19, low crude oil prices, weak demand due to slack in the labour market... and the chancellor’s “Eat Out To Help Out” meal discount scheme.

Bailey writes:

CPI inflation rose to 1.0% in July, from 0.6% in June, but the temporary cut in VAT for hospitality, holiday accommodation and attractions, together with the Government’s Eat Out to Help Out scheme, were expected to lead to a material drop in inflation in August.

These effects have transpired.

More generally, the effects of the Covid pandemic have been associated with a sharp reduction in economic activity in the United Kingdom and globally, reducing UK inflation through a number of channels.

In reply, Sunak says he agrees with Bailey’s assessment that low oil prices, weak economic activity, and his EOTHO and VAT cuts have pulled inflation down.

He adds that the government is completely committed to BoE independence, writing:

The government’s commitment to the Bank of England’s operational independence and our flexible inflation targeting regime, with an operational target of 2% CPI inflation, remains absolute.”

The Bank of England has also revealed that its monetary policy committee were briefed on its work on how negative interest rates might be introduced in the UK.

The minutes of this week’s meeting say:

The Committee had discussed its policy toolkit, and the effectiveness of negative policy rates in particular, in the August Monetary Policy Report, in light of the decline in global equilibrium interest rates over a number of years.

Subsequently, the MPC had been briefed on the Bank of England’s plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates.

The Bank of England and the Prudential Regulation Authority will begin structured engagement on the operational considerations in 2020 Q4.

Importantly, the Bank is not saying that it is ready to cut rates below zero, from today’s 0.1%.

But this does show that such a move is still possible, if inflation (currently just 0.2%) remains so low.

The pound has fallen on the back of this, while the yield (interest rate) on short-term government bonds has fallen further into negative territory.

The outlook for the UK economy remains “unusually uncertain”, the Bank says, adding:

Indicators of global activity have been broadly in line with the Committee’s expectations at the time of the August MPC meeting.

The sterling exchange rate index has fallen by around 2%, in part reflecting recent Brexit developments.

Encouragingly, the Bank of England says the UK economy looks a little stronger than a month ago.

However, it also warns that rising unemployment is a key risk, especially with Covid-19 cases rising.

Announcing today’s interest rate decision, it says:

Recent domestic economic data have been a little stronger than the Committee expected at the time of the August Report, although, given the risks, it is unclear how informative they are about how the economy will perform further out.

The recent increases in Covid-19 cases in some parts of the world, including the United Kingdom, have the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year.

As in the August Report, there remains a risk of a more persistent period of elevated unemployment than in the central projection.

[Reminder: the Bank has predicted that unemployment will hit around 7.5% by the end of the year, from 4.1%]

Newsflash: the Bank of England has voted unanimously to leave UK interest rates at their current record lows, at 0.1%.

The BoE has also left its QE programme unchanged, at £745bn.

More to follow.....

Just in: P&O Cruises has just announced that all sailings are cancelled until early 2021.

The cruise operator is extending its current suspension, due to the ongoing pandemic. It had previously put its operations ‘on pause’ until mid-November.

Today’s move means that all P&O’s Caribbean cruises are cancelled until the end of January 2021 and all cruises from and to Southampton are cancelled until February.

P&O Cruises president Paul Ludlow told the City that travel restrictions make its cruises unfeasible:

“With evolving restrictions on travel from the UK, unfortunately it is necessary to cancel these itineraries.

“These further cancellations vary according to ship as well as complexity and length of itineraries, advice and guidance regarding ports of call and current air availability for fly/cruises.

“We are continuing to monitor the overall situation closely and will certainly reintroduce cruises should the opportunity arise and it is feasible to do so.”

Shares in parent company Carnival are down 2.7% today at £10, and have lost over 70% of their value this year.

The number of people going to their workplace in the UK has hit its highest level since the Covid-19 lockdown began.

Some 62% of adults travelled to work last week, according to The Office of National Statistics’s weekly check on the UK economy.

That’s the highest level since the ONS started measuring the impact of the pandemic in March.

It adds:

The proportion of adults travelling to work rose above 60% for the first time since the survey began, to 62%.

The proportion working from home remained at 20% for the second consecutive week, with the proportion of working adults not working from home or travelling to work reducing from 23% to 18%, suggesting more people are returning to work.

The proportion of adults shopping for necessities increased to 74%, a level not seen since June. The proportion shopping for other things remained relatively steady at 23%.

The ONS also flagged up that there are now more cars on the road, and more people on the streets:

• Department for Transport (DfT) traffic count data show that on Monday 14 September, all motor vehicle traffic was three percentage points below traffic seen on the equivalent Monday in the first week of February, the highest recorded level since the Prime Minister’s announcement on 16 March.
• According to traffic camera data, between 7 and 13 September counts of cars, pedestrians and cyclists in London were around 5% above the average level seen immediately before lockdown

But the economy isn’t back to normal, with 10% of the workforce still on furlough leave, and 11% of businesses saying they face a moderate or severe risk of insolvency.

Here’s the latest predictions on what the Bank of England might do at noon:

Jasper Lawler of London Capital Group:

There is a growing consensus that the Bank of England will act again at its November meeting so if that’s the case, today will be a primer for markets. The end of the government furlough scheme in October coupled with the rising chance of everyone’s favourite cliff edge, a no deal Brexit– all point to action, most likely more QE come November.

If the last meeting is anything to go by, the BOE are in a bit of a muddle over negative rates. Their policy review concluded they would cause more harm than good but Governor Bailey followed it up by saying they are in the toolbox.

Mohit Kumar of Jefferies:

We do not expect a new policy announcement at the meeting, particularly with the Brexit uncertainty on the cards. However, we do expect the MPC to keep the door wide open for further accommodative measures including more QE and rate cuts. Some positive news on the Brexit front as UK appeared to provide some concessions on fisheries, which has been a stumbling block in the negotiations.

Adam Cole of RBC Capital Markets:

The initial recovery from the lows of the spring lockdown looks to be strong with consumer spending bouncing back particularly quickly but the outlook beyond this initial phase remains shrouded in uncertainty. However, at least two of the major challenges facing the economy are now beginning to crystalise; the ending of the government’s furlough scheme and rising risk of a no-deal Brexit. While we expect the MPC to be on hold for this meeting we do expect further announcements to support the UK recovery to come over the autumn/winter.

John Lewis, though, doesn’t share Next’s optimistic outlook.

The John Lewis Partnership has just reported a £55m pre-tax loss for the first half of this year, after being forced to shut stores during the pandemic.

But if you include £580m of ‘exceptional items’, including the cost of stores closures, restructurings, and redundancies,, the loss swells to £635m.

This has forced John Lewis to cancel its partner bonus for the first time in many decades.

New chairman Sharon White told fellow partners that:

The Group found itself in a similar position in 1948 when the bonus was halted following the Second World War.

We came through then to be even stronger than before and we will do so again.”

White also warned that the retailer is still bracing for its worst-case scenario.

In April, we set out a worst case scenario for the full year of a sales fall of 5% in Waitrose and 35% in John Lewis. That remains our worst case view. We now believe the most likely outcome will be a small loss or a small profit for the year.

Retail group Next is bucking today’s selloff, after hiking its profit guidance for the year.

Next now expects to make a pretax profit of around £300m this year, up from the central scenario of £195m given in July.

Next CEO Simon Wolfson says three factors helped Next rise out the Covid-19 crisis. First, it has a strong online business; secondly, demand for homeware items, children’s clothes and leisure wear garments held up relatively well during the lockdown; thirdly, its out of down retail park stores were less affected by the pandemic than high street outlets.

Wolfson told the City that the outlook is still very uncertain:

Standing as we are, in the midst of the pandemic, with no sign yet of abatement or vaccine, it might seem odd that the essential tone of this report is optimistic. Particularly, some might say, coming from NEXT.

But our confidence in the future is not because we see a comfortable route through to the end of the pandemic. The prospects for the next six months remain as uncertain as the outlook for the virus itself; never has our guidance been more tentative or as broad in its possible outcomes.

But in all our guidance scenarios the Group generates a profit, generates cash and reduces its debts.

Shares have jumped over 2% in early trading to over £63 (still down 10% this year).

As feared, European stock markets have fallen in early trading.

In London, the FTSE 100 is down 62 points or 1% at 6019, as City traders wait for the Bank of England’s decision at noon.

Naeem Aslam of Avatrade says last night’s Federal Reserve press conference seems to have unnerved the markets, despite its pledge to keep interest rates on hold for several years.

The fact that the Fed chairman highlighted uncertainty for the U.S. economy.

The Fed cautioned the market last night that the pace of economic acidity is likely to remain slow. This has made investors adopt a cautionary tone today.

Yes, there is no denying that there was little to none surprise in the Fed statement. But the reason that we see strength in the dollar index is that it is catching some safe-haven bid, and two members of the Fed committee weren’t in favor of the current monetary policy. This is really significant because we usually do not see this when it comes to the Fed committee. The likely scenario is that this is where the market is going to focus for any future Fed meetings; you will have a dove camp and a hawk camp.

European car sales have taken a worrying dive, new figures show.

Auto sales slumped by over 18% year-on-year in August, according to the European Automobile Manufacturers Association. That’s much worse than the 3.7% dip record in July, and ends a run of improving sales.

It suggests that the early rebound in demand after lockdowns eased has petered out, with some government stimulus packages also ending (France offered a scrappage scheme).

Michael Dean, a Bloomberg Intelligence analyst, says:

Sales are on track to decline by at least 20% in 2020, and the drop may be worse if August’s setback is an indication that July’s demand bounce was only a short-lived recovery supported by subsidies.

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

The Bank of England has a lot on its plate right now. The economy is emerging from one of its worst slumps ever, a no-deal Brexit could be looming, and inflation has slumped to near zero.

And at noon today, the BoE will reveal its latest monetary policy decision, and update us on its assessment of the economic outlook. It’s likely to be a sobering read, with unemployment expected to nearly double this year.

The Bank could well drop some loud hints that it will launch more stimulus measures soon, especially if Brexit fears grip the economy tighter.

Jim Reid of Deutsche Bank predicts the Bank of England will leave interest rates and its QE programme on hold today, but may act before Christmas:

Our base case is that there’ll be a further £60bn top-up to the QE program in December, though risks are rising that this might be announced slightly earlier at the November meeting. The meeting comes against the backdrop of rising Brexit uncertainty, which will only serve to heighten uncertainty and weaken confidence.

Brexit wasn’t mentioned once in the minutes of the August meeting, but it’ll be interesting to see if this change ....

America’s central bank has already had its say. Last night, the Uederal Reserve said it would keep interest rates at record lows until at least 2023, to ensure that inflation was on track to overshoot its target.

As Fed Chair Jerome Powell put it:

Effectively what we are saying is that rates will remain highly accommodative until the economy is far along in its recovery,

The Fed also raised its growth and unemployment forecasts, suggesting confidence that the economy was healing. It now only expects US GDP to shrink by 3.7% this year, up from a 6.5% contraction before. Unemployment is now seen at 7.6% by the end of the year, down from 9.3%.

You might expect this pledge of even more loose monetary policy to cheer investors and lift risky assets, but US stocks actually closed lower last night, with the Nasdaq losing 1.25%.

Investors were alarmed that Powell warned the US rebound could be at risk without more government spending -- a nudge to Congress to end their disagreements over stimulus packages.

Fiona Cincotta of City Index explains:

Stocks sold off and the US Dollar rose following the Fed’s announcement in and risk off move as the market portrayed its frustration at the Fed’s reluctance to offer any more stimulus.

That knocked stocks in Asia, and european equities are also facing losses at the open. The FTSE 100 predicted to fall around 1% - back to the 6,000 point mark.

We’ll be tracking all the action through the day, including the latest US unemployment and housing data.

The agenda

• Noon BST: Bank of England interest rate decision
• 1.30pm BST: US weekly jobless figures
• 1.30pm BST: US mortgage approvals and housing starts