Summary: Shares down, pound and oil up
In other news:
The case for eurozone fiscal transfers
Bankers warned over bonus cap dodging
Fitch leaves UK credit rating unchanged
2.45pm BST
The ongoing insurgency in Iraq, and the prospect of UK interest rates being raised before Christmas, has driven European stock markets down across the board today.
We expect the first hike in November 2014. The change in tone was sensible, in our view. Record low interest rates are increasingly unnecessary.
With the economic recovery firming up nicely, any change in monetary policy should ensure this isnt blown off course.
The Bank has clearly stated in its forward guidance that when rates do begin to rise they will do so gradually and to a level materially below their pre-crisis average."
Carneys comments are likely the precursor of the first official vote for higher interest rates and all eyes will be on the voting ratio in next weeks minutes.
Everything you need to know about the situation in Iraq (I'm loving my Eikon more and more) pic.twitter.com/0AKkoO6iFK
ISIS offensive in Iraq, Guardian pic.twitter.com/tmSqgTXwLQ v @MahmoudRamsey
Prospects of a civil war in Iraq OPECs second-largest exporter will keep oil prices uncomfortably high, although for the moment these tensions have been confined to the north of the country.
2.32pm BST
The Resolution Foundation is worried that many UK families are already struggling to meet mortgage payments; a rate rise will hurt them badly.
Their Matthew Whittaker, chief economist, says:
The scale of mortgage debt in this country is still substantial, even after years of economic downturn, and it could start to look precarious for many households over the coming years. Theres no sign yet of a surge in wages which could help to deal with higher mortgage repayments so theres every reason to be very cautious on interest rates. Even a modest rise could have profound implications for the number of households exposed to difficult repayment levels.
2.21pm BST
STAT OF THE DAY: $GM has had 38 recalls this year covering more than 16.4 million vehicles worldwide.
2.18pm BST
Over in America, General Motors has announced yet another car recall, reports CNBC:
GM recalls 512,000 Camaros; Camaro drivers can bump key, turn engine off: http://t.co/w3Ecysl7sJ (via @Lebeaucarnews) $GM
2.09pm BST
This will interest eurozone-crisis watchers.
László Andor, European Commissioner for Employment, Social Affairs and Inclusion, has given a lecture in Berlin today arguing for Eurozone members to share some of the costs of short-term unemployment insurance in the region.
The EU cannot live together for too long with the risk of monetary breakdown, which also would bring with itself social and political breakdown.
If our Economic and Monetary Union is meant to be irreversible, it must also be fair and it must be based on solidarity. We must pay attention to the employment and social outcomes, and try to prevent lasting divergence.
1.13pm BST
UK households have been warned to get ready for the first rise in borrowing costs since mid-2007.
And if you're looking for a new mortgage, the search could get trickier.
"Fixed rate mortgages have been drifting up over the course of the year but this could be a trigger for some more increases.
"The Bank is at pains to say that when rates do start to move it will be gradual, so we should see a continuation of the drift upwards, but there might be an initial rush of deals disappearing."
1.03pm BST
Takeover news -- OpenTable, the website which lets people book restaurant tables at a discount, has been snapped up by Priceline, the airline and hotels reservation service.
Priceline to buy OpenTable for $104/share in cash, about $2.6B. http://t.co/4ckrTm6gEE $OPEN $PCLN
12.47pm BST
The Carney effect on interest rate forwards http://t.co/sPP2QUujuJ pic.twitter.com/O7AzOLuMSy
12.32pm BST
Boris Johnson's economics advisor, Dr Gerard Lyons, suggests that the Bank of England should ease the UK into a world of higher rates, with an "eighth-point" hike:
#BankofEngland needs to manage expectations when they hike by opting for small 0.125% Reinforce gradual message. #MansionHouseSpeech #carney
11.57am BST
Online bookmaker Paddy Power has slashed its odds on a UK interest rate rise this year.
It is now offering 5/4* on the first borrowing hike coming between July and December, down from 3/1 yesterday (before the City's top brass glammed up for the Mansion House).
11.31am BST
Banks across the European Union have been put on notice that the regulators are preparing new guidelines to ensure they do not breach the cap on bonuses which was implemented this year.
The European Banking Authority, publishing its first analysis of pay practices across Europe, said that it was looking at the new "allowances" being handed to top bankers as a result of the cap which restricts bonuses to 100% of salary, or 200% if shareholders approve.
"In general these allowances which are paid as fixed amounts in addition to the base salary as considered by institutions as fixed remuneration. However these allowances are discretionary as they are paid to selected members of staff and in most cases only for limited periods of time. Under exceptional periods they can also be cancelled," the EBA said.
Currently bankers deemed to be taking or managing risks are covered by its codes, as just 1.2% of staff are covered. The average ratio between variable and fixed pay reduced from 205% in 2010 to 108% in 2012.
11.17am BST
Shares in UK retailers are being hit hard today by the prospect of an interest rate hike before Christmas.
A rise in borrowing costs could easily hit high street spending in the crucial spending period, as households deal with higher mortgage payments.
It's not just the housebuilders tanking. Higher interest rates, cooling house prices are also bad for retailers: pic.twitter.com/PTopChqsNU
11.12am BST
Bruce Dear, head of London real estate at law firm Eversheds, urges Mark Carney to take a nurturing approach to the UK economy when the time comes to raise borrowing costs.
Since 2008 the UK economy has been supported by a zimmer frame of 300-year low interest rates. With recovery underway, the trick is to raise rates in small and well spaced quarter point steps.
Pull the cheap money crutch away too suddenly and the economy may not be strong enough to walk alone. For Mr Carney, this appears to be more a case of nursing rather than ice hockey.
10.27am BST
The number of people in work across Europe continued to creep up in the first quarter of this year, despite falling in five countries.
New data from Eurostat shows that the number of employed people increased by 0.1% in the euro area in January-March, compared to October-December, and by 0.2% in the wider European Union.
Among Member States for which data are available, Hungary (+1.5%), Latvia (+0.8%), the United Kingdom (+0.6%), the Czech Republic and Poland (both +0.5%) recorded the highest increases in the first quarter of 2014 compared with the previous quarter.
Cyprus (-1.2%), Portugal (-0.3%), Lithuania and Finland (both -0.2%) and Italy (-0.1%) recorded the only decreases.
10.04am BST
Britain's economy may have grown even more strongly than we thought in the first three months of this year.
The Office for National Statistics has revised its assessment of the UK construction sector, based on new information from builders. It now reckons that the sector grew by 1.5% in the January-March quarter, a big jump on the 0.6% previously estimated.
@notayesmansecon that's assuming that there are no revisions to the services and agriculture components of GDP
There were falls in orders for public new housing (-45.7%), infrastructure (-16.5%), private industrial (-14.6%) and private commercial work (-1.9%). Public other new work and private housing new orders both increased by 6.8% and 2.8% respectively.
A possible reason for the fall in public housing new orders is that investment in housing associations is coming from private investment rather than a public source.
9.49am BST
S&P is also due to publish its latest assessment of the UK's credit-worthiness today; that report probably won't come until late this afternoon.
9.45am BST
The recent recovery in the UK economy wasn't enough to persuade Fitch to upgrade Britain's credit rating.
Early this morning, Fitch announced that it had decided to leave the UK on AA+ rating, the second highest notch, with a stable outlook.
"favourable macroeconomic trends, including strong GDP growth, falling unemployment and inflation close to the 2.0 percent target, have continued in the UK economy"
Fitch expects gross general government debt (GGGD), using the EU Treaty definition, to peak at 92%-93% of GDP in 2015-16 and to start falling in 2017, when the primary balance turns positive. Debt remains among the highest of 'AA' and 'AAA' rated sovereigns.
At the same time, recent rapid increase in the house price-to-income ratio, in particular in London, could lead to excessive leverage if supported by unsustainable lending practices. If unchecked over the longer term, this would increase macroeconomic risks and could also have a knock-on impact on the sovereign's fiscal position.
9.08am BST
Berenberg bank now reckons that the first UK interest rate rise will come in November.
Carney said an interest rate hike: could happen sooner than markets currently expect. The message was caveated, but Carney would have been well aware of the probable impact of his words. He would not have chosen the words lightly, which makes them significant. As of yesterday, markets were pricing in a hike around Q2 2015, but two-year swap rates have since risen more than 15bps. We expect the first hike in November 2014. The change in tone was sensible, in our view. Record low interest rates are increasingly unnecessary.
Mark Carney seems much more pragmatic than the dogmatic dove he is often caricatured as. That is an important takeaway for how monetary policy will be conducted. As the economy has recovered, his tone has changed. Less than one year ago Mark Carney said he did not expect to have to hike interest rates until late-2016 or perhaps 2017. Now he is saying they may go up in 2014.
Employment is rising at a record pace and we see no sign of economic growth slowing from its current approaching 4% annualised pace. Wage growth remains weak, which could still delay the first hike. But weak wage inflation will not last for long if growth remains this strong.
Pound soaring on UK rate rise prospects. Good news if you are off on holiday, infuriating if you are still waiting for your passport
Bank of England Forward Guidance adds to "certainty" by telling you that Base Rates can go down,stay the same or go up! #BoE
8.39am BST
Brent crude has now hit $114 per barrel, a new nine-month high, amid fears that the crisis in Iraq will hit supplies (see 7.45am onwards).
Press Association has more details:
Analysts at Barclays said: "The stakes are high for the oil market. With Libyan production looking set to be offline for a significant period, and the return of Iran's sanctions-restricted barrels likely to be slow, Iraqi oil is an important swing factor."
They pointed to disruption to a key pipeline linking Kirkuk in Iraq to Ceyhan in Turkey, which has been repeatedly bombed by insurgents.
8.32am BST
Shares in UK housebuilders and property developers are falling in early trading, following chancellor George Osborne's decision to hand the Bank of England new powers to control the housing market.
While Carney was laying the ground for a rate hike, the chancellor was telling the black-tied throng at the Mansion House that the BoE can impose caps on how large a mortgage people can get, relative to income and property value.
UK homebuilders under pressure as UK rates look set to rise soon and after Chancellor gives BoE more power to cap mortgage lending ratios
8.29am BST
Last April markets didn't expect first UK Bank rate hike til mid-2016. How things have shifted since then pic.twitter.com/3U4uwfOTG6
8.22am BST
#UK STERLING OVERNIGHT INTERBANK AVG CURVE PRICING IN CHANCE OF RATE HIKE IN 5M VS 8M YDAY... pic.twitter.com/FqNsFJZ4Na
8.09am BST
Reuters is reporting that investors now predict that the first UK interest rate hike is likely to come before Christmas, rather than next spring:
Six months ago, big pol question was could/would BoE raise rates before the election? Carney has answered that now ..#forward-guidance
8.06am BST
It's the Mark Carney effect: the pound has hit a one-month high against the US dollar, and an 18-month high against the euro,
Sterling got a kicker from comments by BoE Governor Mark Carney, suggesting rates could be lifted from a record low level sooner than the market expects.
Mr Carney has been one of the more dovish members within the central banks ranks, so when traders see comments like the start of BoE rate increases is getting nearer and an acute need for vigilance on housing market they react.
7.52am BST
This chart shows how Brent crude has climbed steadily since the Iraq insurgency began, to hit its highest level since last September this morning ($113.75 per barrel).
"There have been no disruptions to oil supplies so far but people are very nervous."
Iraq scrambles to defend capital Baghdad from insurgent advance http://t.co/Hw5bBxOITa pic.twitter.com/74PNQn1PY3
7.45am BST
Good morning, and welcome to our rolling coverage of the financial markets, the world economy, business and the eurozone.
Reuters: security sources in Iraq say insurgents are now in control of the towns of Saadiyah and Jalawla
The prospect of further [oil price] rises appears quite likely as the Iraqi government tries to stem the losses of territory to the insurgents.
Given the fragile state of the global economic recovery sharply rising oil prices is the last thing the global economy needs...
Mark Carney on timing of first rate rise: the decision is becoming more balanced http://t.co/JI85s5QmNT pic.twitter.com/lxf4c5QWSZ
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