Bank of England voted 7:2 to hold interest rates steady – as it happened

The more upbeat mood seen this week among investors continued, with European stock markets finishing the day in positive territory. Some reasonable US numbers from the likes of Yahoo and Boeing, plus weak US inflation figures which could convince the Federal Reserve to keep interest rates lower for longer, combined to lift traders’s spirits. But it was not all optimistic, with talk of a number of European lenders set to fail the forthcoming EU bank stress tests. Meanwhile the ECB seemed to be playing down talk it would buy corporate bonds as part of its attempts to boost the struggling eurozone economy. Wall Street moved higher by the time Europe’s traders went home but then started to slip back. The final scores in Europe showed:

• The FTSE 100 finished 27.4 points or 0.43% higher at 6399.73
  
• Germany’s Dax added 0.6% to 8940.14
• France’s Cac closed 0.58% better at 4105.09
• Italy’s FTSE MIB rose 1.09% to 19,266.25
• Spain’s Ibex ended up 0.96% at 10,249.9

On Wall Street the Dow Jones Industrial Average is currently 32 points or 0.2% lower.

The European Central Bank has poured cold water on a report from a Spanish news wire that at least 11 banks have failed financial stress tests.

The ECB is due to publish the results of a financial health check for 130 institutions on Sunday. A spokesman has said that any inference about the results would be “highly speculative”.

Spanish news wire Efe said banks from Greece, Portugal, Italy and Belgium were going to fail the tests, although it gave no details about the size of the financial holes.

A banking expert from the investment firm Pimco has forecast that 18 banks will fail the stress tests.

Philippe Bodereau, who manages $4.3bn of Pimco funds, said some German and Austrian co-operative and public sector banks were likely to fail the tests.

It’s pretty clear that not that many banks are going to fail it. A fair amount of balance sheet strengthening has taken place over the last six to nine months in anticipation of this exercise.

Alert to all UK economic regulation watchers. In just under 10 minutes, a host of senior people from the Prudential Regulation Authority will appear before the Treasury Select Committee.

The witnesses include Andrew Bailey, deputy governor at the Bank of England and chief executive of the Prudential Regulation Authority.

Although the meeting is ostensibly about the PRA’s annual report and accounts, we are expecting questions on the massive glitch that saw the Bank of England’s payment system out of action for several hours on Monday, causing headaches for home buyers hoping to complete transactions.

More to follow...

US consumer prices hardly moved last month, as falling energy prices cancelled out a slight rise in food costs.

Data from the US Bureau of Labor Statistics showed that the consumer price index inched up by just 0.1% in September. Energy prices fell 0.7%, while indices for food, alcohol and medical care increased slightly.

Analysts think that low inflationary pressure will allow the US Federal Reserve to keep interest rates lower for longer.

The UK’s largest pharmaceutical company GlaxoSmithKline expects that the first doses of its Ebola vaccine will be ready by the end of the year.

Andrew Witty, GSK chief executive, told reporters that the GSK vaccine was likely to be the first vaccine available and would be a “useful tool” for the World Health Organization and other agencies.

Johnson & Johnson is also working on a vaccine and has discussed collaboration with GSK.

Shares in GSK are up by almost 3%, after the drugmaker announced that it planned to return £4bn to shareholders.

GSK’s revenues were down 3% to £5.6bn for the third quarter, as performance in the US and Japan dipped.

We have confirmation from reporters in Strasbourg that the Conservatives abstained in today’s vote on the next European Commission, led by Luxembourg’s Jean-Claude Juncker.

One source told Reuters that the incoming Commission president was disappointed by the Tories’ abstention and believes that the Tories have reneged on a deal that resulted in a plum job for Jonathan Hill, the former lobbyist and Cameron ally.

London failed to honour their part of the deal.

A Conservative spokesman in the ECR group insisted there was no deal.

But many of Cameron’s MEPs ignored the order to abstain, according to Brussels-based journalist Dave Keating. Eurosceptic Daniel Hannan was among those voting against the Juncker Commission, while several voted in favour.

The French oil company Total has chosen Patrick Pouyanné, head of its chemicals and refining business, to take over as chief executive, following the death of Christophe de Margerie in a plane crash in Russia.

Thierry Desmarest, currently honorary chairman, has been nominated as executive chairman until the end of 2015. After this time, the roles of CEO and chairman will be combined again. De Margerie had done both jobs.

Here is Reuters on Pouyanné

Pouyanne had a key role in merging Total’s loss-making refining and petrochemical units in recent years, and also had senior roles at the group’s exploration units in Angola and Qatar.

A graduate of France’s elite Polytechnique and Mines engineering colleges, he was also an advisor in ministerial offices under previous conservative governments.

The European Parliament has backed the incoming European Commission headed by Jean-Claude Juncker.

No big surprise there, and it appears the Commission had a healthy majority, with 423 votes of the 699 MEPs voting in favour.

This voting picture comes from the chief of staff to Pierre Moscovici, the former French finance minister, who will take charge of the EU’s economic affairs.

So now it is official. Juncker and his team start work on 1 November.

From the man himself...

One day after a plane crash that saw the boss of Total and three crew members killed by a drunk driver at a Russian airport, the French oil company is moving fast to fill the gap at the top.

According to the French business daily Les Echoes, the board of the oil company is meeting today and will consider splitting the functions of chairman and chief executive, which were both held by Christophe de Margerie, who died in the plane crash.

Thierry Desmarest, currently honorary chairman, will become executive chairman, while Patrick Pouyanné, president of refining and chemicals, is to be appointed director-general. If this plan is approved, shareholders will vote on the appointment of Pouyanné, who is not currently a member of the board.

Total declined to comment on the story.

Following the publication of the minutes, the pound has dropped 0.5% against the dollar to $1.603.

The Bank’s minutes also provide interesting reading on the state of the international economy, especially the eurozone.

Here are a few highlights:

• The recent loss of momentum in the eurozone was “especially notable” in Germany, whose export-orientated economy makes it more vulnerable than many other countries to shifts in global demand.
• Sanctions imposed on Russia and weakness in the Russian economy are likely to have a “limited” effect on Germany, although it has had a bigger impact on German business confidence.
• The news from emerging economies was “a little to the downside”, with slowing growth in Chinese industrial production expected to weaken overall economic numbers. The Bank said it was unclear how the outlook would be affected by political unrest in Hong Kong.
  
• In other emerging economies, tighter monetary policy since the start of the year has weighed on the growth outlook.
  
• The United States has shown a more positive story, but the Bank thinks that the recent pace of expansion may not continue.
• Lower oil prices appeared to reflect subdued global demand and rising supply. But the the upward-sloping oil price futures curve was consistent with some of the weakness in oil prices expected to be temporary.

The Bank of England minutes refer to the last MPC meeting held on 7 & 8 October

The majority view

Most members of the rate-setting committee said there was not enough evidence of inflationary pressure to justify raising interest rates. They highlighted falling labour costs, weak pay growth and signs that economic growth is beginning to slow down.

For these members, there remained few signs of inflationary pressure in the UK economy, even after looking through the effects of a stronger sterling exchange rate. In particular, unit labour costs had fallen over the past year. Pay growth, which was likely to remain subdued in the public sector, was lower than was consistent with meeting the inflation target in the medium term. Household inflation expectations had fallen a little, although they continued to be well anchored to the inflation target. While the economy had been growing sufficiently quickly to absorb some of the slack in the economy, there were some signs that the pace of growth was beginning to ease. The housing market appeared to be cooling with house price growth slowing to a more sustainable pace. Further downside news in the euro area had increased the risks to the durability of the UK expansion in the

The minority view

But two of the bank’s external members wanted to raise rates to 0.75%, arguing that keeping rates too low for too long would unbalance the recovery.

While growth in the euro-area economy had been disappointing, so far, in contrast to 2011, the United Kingdom had not been affected by damaging financial contagion. The continued fall in the unemployment rate was consistent with the rapid absorption of slack and, even if the rate at which unemployment was falling were to ease markedly, it would nonetheless reach its estimated medium-term equilibrium level by the middle of 2015. Survey evidence of tightening in the labour market, including from the Bank’s Agents, suggested that wage growth might pick up quite sharply as slack was absorbed. Since monetary policy could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them. It was possible that the real rate of interest consistent with stable inflation over the medium term was now rising.

The Bank of England voted 7:2 last month in favour of keeping interest rates at 0.5%, according to minutes just published.

Heineken, the world’s third largest beer maker, has been hit by lower than expected sales as Europeans drank less during a wet summer.

The brewer, which also makes Sol, Amstel and Strongbow cider, as well as the namesake beer, said global beer sales were hardly changed over July- September, reflecting a slump in sales in Europe.

Sales, measured by beer volume, were down by 4.7% in western Europe and 6.6% in central and eastern Europe.

In eastern Europe, the company blamed poor weather, as well as the weakening economy in Russia, but sales also dropped in the UK, France and the Netherlands.

But for the company’s management, the glass is half full, as it still expects to meet its financial forecasts.

From banking to fashion: here is our story on the former boss of Coop, Euan Sutherland, who is taking over as the boss of SuperGroup, the company behind the shop Superdry.

Ex-Co-op chief takes over at Superdry

Nobody saw that coming, as the editor of Retail Week points out.

Is Homebase closing stores because people simply aren’t any good at changing washers and building garden sheds? Or perhaps, they don’t want to do it themselves?

In Home Retail Group’s statement to the City the company appears to suggest as much (my emphasis).

Homebase competes in several segments of the broader home improvement market, including Do-It-Yourself (DIY) and home enhancement. As a result of several economic factors, the home improvement market experienced a cyclical downturn for a number of years through to 2012. Although economic indicators have more recently improved, several structural factors continue to affect home improvement retailing including an excess of retail space, the rise of a generation less skilled in DIY projects, and the growth of non-traditional digital and multi-channel competitors and category specialists.

Homebase will close 25% of its stores by 2018 citing “inconsistent store operating standards” and “a large estate with low sales densities that result in a challenged financial model”.

Meanwhile on a call with journalists, the boss of the Home Retail Group says he is committed to keeping the Homebase DIY chain.

The main European share indices have risen modestly in early trading, although the FTSE100 is flat.

• France’s CAC +0.18%
• Germany’s DAX +0.6%
• FTSEurofirst 300 +0.07%