The Bank of England (BoE) has made another dramatic rise in its gross domestic product (GDP) growth forecast for this year and now expects the economy to grow by 2.0% in 2017. This is up from a forecast of 1.4% in November which was itself an upgrade from the 0.8% forecast made in August. The raised growth forecast follows much criticism levelled at the BoE for being too gloomy when it drastically cut its growth forecast after the Brexit vote. In its latest Quarterly Inflation Report the BoE said the improved forecast was partly the result of higher spending and investment contained in Chancellor Philip Hammond’s Autumn Statement. It also attributed factors such as stronger growth in the U.S. and Europe as well as rising stock markets and the greater availability of consumer credit. The BoE also made a striking forecast about the savings rate, which it expects to fall to 4.0% in 2017 which is the lowest rate since the early 1960s. As expected the Bank kept interest rates on hold at 0.25%.
It appears that UK economists are performing a collective U-turn on the impact of Brexit echoing the BoE’s sharp revision to its growth forecast. The latest survey from Consensus Economics shows the average forecast for 2017 growth is now above 1.4%, from a low point of 0.6% in August as the resilience of UK consumers continues to confound most analysts. In general economist forecasts are still gloomier than those of the BoE but several large upgrades are now expected after the hefty revision announced by the BoE last week. Both UBS and Credit Suisse have since raised their 2017 predictions to 1.4% and 1.3% respectively. Credit Suisse was one of a number of investment banks to predict a recession and a 1.0% contraction in the aftermath of the Brexit vote.
Growth in the UK services sector slowed for the first time in four months in January as rising inflationary pressure weighed on businesses. Services activity as measured by the Markit/CIPS Purchasing Managers Index (PMI) survey dropped from 56.2 in December to 54.5 last month. This was well below the City’s consensus forecast for January of 55.8 as new business and employment rose at a slower than expected rate. Though still a positive reading, the latest figures mark the slowest rise in output since October. However worries about a wider slowdown may have been calmed by the business expectations survey which recorded its highest level since May 2016. The concern for the City is that the Services sector along with consumer spending has been one of the two main factors propping up UK growth over the last few years and any sign that the sector might be flagging will send out a warning sign.
Deutsche Bank has fallen further behind its Wall Street rivals performance wise despite the strong rebound in bond trading in the last three months of last year. The bank posted a net loss of €1.9bn ($2.1bn) for the final quarter of 2016 as legal costs for past misdemeanours weighed heavily on results. Shares initially fell by more than 5.0% before recovering to finish the week down by 1.8%. Analysts had expected the bank to post a loss of €1.2bn. The bank intends to continue with its rationalisation programme which could include withdrawing from more markets and client groups, although another round of job cuts is not expected. The bank is confident that it will be profitable this year and has started the year well with its debt trading unit seeing revenue rise by 40% year-on-year in January.
Deutsche Bank has also been fined more than £500m by UK and U.S. authorities for anti-money laundering failings that allowed wealthy clients to transfer $10bn out of Russia in trades that were “highly suggestive” of financial crime. Germany’s biggest bank has been hit with a £163m penalty from the Financial Conduct Authority (FCA) and a $425m (£341m) fine from the New York State Department of Financial Services (DFS) after it was found to have carried out a series of “mirror trades” and other suspicious transactions through its Moscow, London and New York offices that shifted money from Russia to offshore bank accounts. The FCA’s penalty was the biggest ever levied by the City watchdog for lax anti-money laundering (AML) controls.
The UK government has reduced its stake in Lloyds Banking Group to 4.998% as it aims to return the bank to full private ownership in the next few months. The government was left with a 43% stake in the bank after a £20.5bn taxpayer-funded bailout during the 2007-09 financial crisis. Even though the government is now selling the shares at below the average price it paid for them, it has so far received about £18.5bn pounds back. UK Financial Investments Limited (UKFI) is selling on average approximately 1.0% of shares every 3 weeks. This means at the current rate the bank should be fully returned to private ownership by around May.
The Financial Services Compensation Scheme (FSCS) savings limit – that protects investors should a bank or building society collapse – has been increased to £85,000 with effect from the 30th January following a £10,000 rise in the protection level. The weakening of the pound against the euro since the Brexit vote led to the change in the threshold. The amount of compensation payable is set at €100,000 across the European Union and so significant currency movements can alter the level for UK savers. The change means the protection limit returns to its pre-July 2015 level.
|5-YEAR CDS SPREADS AND SHARE PRICES|
|Movements over the Last Week|
|Date:||6th February 2017|
|5-Year CDS Spreads (bps)||Equity Share Prices|
|ABN Amro Bank N.V.|
|ABN AMRO Groep N.V.||75||75||0.0%||22.50||22.00||+2.3%|
|Parent: Aldermore Group plc|
|Aldermore Bank plc||n/a||n/a||n/a||2.19||2.14||+2.3%|
|Allied Irish Banks||66||64||+3.1%||4.90||4.99||-1.8%|
|Parent: Arbuthnot Banking Group plc|
|Arbuthnot Latham & Co.||n/a||n/a||n/a||15.61||14.90||+4.8%|
|Aust and NZ Banking Group Ltd||60||61||-1.6%||29.11||29.77||-2.2%|
|Banco Bilbao Vizcaya Argentaria S.A.||118||109||+8.3%||6.18||6.38||-3.1%|
|Parent: Barclays plc|
|Barclays Bank plc||77||76||+1.3%||2.29||2.31||-0.9%|
|BNP Paribas S.A.||87||77||+13.0%||61.14||61.45||-0.5%|
|Parent: Close Brothers Group plc|
|Close Brothers Limited||n/a||n/a||n/a||14.44||14.41||+0.2%|
|Credit Agricole S.A.||76||67||+13.4%||12.28||12.48||-1.6%|
|Parent: Credit Suisse Group AG|
|Credit Suisse AG||113||108||+4.6%||15.08||15.28||-1.3%|
|Deutsche Bank AG||159||156||+1.9%||18.84||19.18||-1.8%|
|Parent: HSBC Holdings plc|
|HSBC Bank plc||66||63||+4.8%||6.85||6.88||-0.4%|
|Parent: ING Groep N.V.|
|ING Bank N.V.||61||59||+3.4%||13.81||13.66||+1.1%|
|Intesa Sanpaolo S.p.A.||144||128||+12.5%||2.24||2.27||-1.3%|
|Parent: Investec plc|
|Investec Bank plc||n/a||n/a||n/a||5.66||5.75||-1.6%|
|Parent: Lloyds Banking Group plc|
|Lloyds Bank plc||67||65||+3.1%||0.66||0.66||0.0%|
|Metro Bank plc||n/a||n/a||n/a||34.88||32.90||+6.0%|
|Nationwide Building Society||80||80||0.0%||n/a||n/a||n/a|
|Nordea Bank AB||46||48||-4.2%||106||106||0.0%|
|Parent: RBS Group plc|
|Royal Bank of Scotland plc||101||99||+2.0%||2.29||2.32||-1.3%|
|Ult. Parent: Banco Santander S.A.|
|Santander UK plc||81||81||0.0%||5.34||5.36||-0.4%|
|Shawbrook Group plc||n/a||n/a||n/a||2.47||2.41||+2.5%|
|Parent: Standard Chartered plc|
|Standard Chartered Bank||92||92||0.0%||8.01||7.82||+2.4%|
|Svenska Handelsbanken AB||43||43||0.0%||136||133||+2.3%|
|FTSE 350 BANK INDEX||n/a||n/a||n/a||4361||4364||-0.1%|
|SNR FIN ITRAX CDS 5-YEARS (ESTIMATED)||84||85||-0.9%||n/a||n/a||n/a|