Carney says rate rises could start sooner than expected; as Bank of England gets new mortgage powers – business live (2024)

And finally, here's the Guardian's considered view on George Osborne's decision to hand the Bank of England more control of the mortgage market, including the power to set maximum loan-to-value ratios:

The Guardian view on George Osborne's Mansion House speech

The temptation to be seen to be doing something rather than nothing is very attractive for a politician. George Osborne took the opportunity atlast night's annual Mansion House speech to do just that. Faced with a housing market in the south-east of England that is livelier than a Brazilian beach carnival, Mr Osborne has decided to grant new powers to the Bank of England to cap mortgages, by either limiting the amount buyers can borrow compared to their income or by restricting the proportion of a house price that can be paid with a mortgage.

Tackling the overheating housing market is to be applauded, given the rapid rise in prices in London and elsewhere in the south-east of England. The IMF has warned that it is a major threat to stability and to the progress of the economy out of recession. Acting on that without the clunking fist of across-the-board interest rate rises would be admirably surgical, since this way the residents of Kingston upon Hull are not punished for the spendthrift house buying of Kingston upon Thames. But there is a problem here: Mr Osborne's policies are incoherent.

If the issue is an overheating property market, then the very first part of the solution lies in Mr Osborne's hands, by ending or curtailing his own Help to Buy scheme. By not doing so, while pushing the Bank of England to take action, he risks pressing down on both the accelerator and the brake at the same time.

Then there is the question about whether this is the right action to be taking. It is unusual for a Conservative government to be imposing what looks something like the credit controls of an earlier era. But that aside, does the Bank really want to be the government's fall guy? When Threadneedle Street raises interest rates, as it probably will need to do sometime soon, it affects mortgage repayments, credit card bills and investment. The danger is that the Bank will prefer not to place lending limits on individuals. If Mr Osborne really thinks that house prices are too high and mortgage lending qualifications need to be tightened, then he should do it himself, and be held accountable.

The root causes of England's house price boom are manifold and long-standing, the prime one being as always that Britain is a crowded island and space is at a premium in and around London. Building new houses is difficult and expensive, and Mr Osborne is also to announce new plans and money to redevelop so-called brownfield sites. Alas, brownfield sites are to the housing market what crackdowns on tax evasion are to fiscal policy: a magical resource for politicians. The real problem remains: too few houses where there are jobs, and too few jobs where there are houses.

<end>

And it'll take more than a few speeches to fix that. Goodnight! GW

To be fair, Mark Carney looked more cheerful when he got to give his speech:

Over at Mansion House, I do believe Mark Carney is thinking that he'd rather be watching the football.....

Mark Carney's whole speech is online here.

Mark Carney is also touching on the UK housing market and the risks posed by the recent sharp increase in prices, over at Mansion House tonight.

He says that the Bank of England has a range of powers (especially as the chancellor is giving it the ability to set loan to value rates).

And Carney is adamant that it won't hike interest rates to combat it (even as he tells Britain that rates could rise sooner than expected).

The governor says:

Using monetary policy now to target indebtedness would risk undershooting the inflation target and damaging growth. For all of these reasons, monetary policy is the last line of defence against financial instability.

Raising interest rates today would be the wrong response to this potential vulnerability tomorrow.

But Carney is also pointing out that an economic expansion is "more precarious" if there are a large proportion of heavily indebted households.

History shows that the British people do everything they can to pay their mortgages. That means cutting back deeply on other expenditures when the unexpected happens, potentially slowing the economy sharply.

That’s why recessions that follow rapid credit growth tend to be deeper and longer lasting.

Breaking: Mark Carney, governor of the bank of England, is warning tonight that UK interest rates could rise sooner than expected.

Carney is making the comments in his speech at Mansion House; at the black tie set-piece event in the City calendar.

He says:

The UK economy is currently unbalanced internally and externally

Internally, there is wasteful spare capacity – an output gap – concentrated in the labour market. The Monetary Policy Committee (MPC) currently estimates this gap to be around 1-1½% of GDP, though we caution against false precision as there are wide confidence bands around this central view.

The MPC’s current guidance makes clear that we will set monetary policy to meet the inflation target while using up that spare capacity. This has implications for the timing, pace and degree of Bank Rate increases.

There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced.

It could happen sooner than markets currently expect.

But Carney says he wants to be clear that that Bank's Monetary Policy Committee has "no pre-set course". It all depends on the data....

Carney says:

At this point it is safest to conclude, as the MPC has, that there remains scope for spare capacity to be used up before policy is tightened and that a host of labour market, capacity utilisation and pricing indicators should be watched closely to determine how that slack is evolving.

Growth has been much stronger and unemployment has fallen much faster than either we or anyone else expected at last year’s Mansion House dinner. So far this has been largely matched by indicators which suggest that there is more supply capacity in the labour market than we had previously thought.

As a result of these two welcome developments, despite rapid jobs growth, pay pressures and unit labour cost growth have remained subdued.

The MPC expects the rate at which slack is being eroded to slow during the second half of this year as output growth eases and productivity growth recovers. But thus far there are few signs of a deceleration in output growth.

And a challenge in deciding when to begin normalising policy is that actual output can be observed but potential supply cannot. That is why the MPC is monitoring a broad range of indicators including coincident ones such as the behaviour of wages and prices.

And when rates rise, it will be gradual and limited.

Bursting with questions about the new powers which the Bank of England is being handed over mortgages? You've come to the right place.

My colleagues Jill Treanor and Hilary Osborne have pulled together a Q&A covering the key points:

Mortgage loans to be capped by Bank of England – but why?

Ed Balls, the shadow chancellor, has issued a response to tonight's Mansion House speech -- or to the extracts that have been reported, anyway.

He pointed to the need to build more homes (something Osborne will address tonight with a pledge to shake-up the planning system).

Balls says:

"George Osborne is still failing to tackle the root cause of the housing crisis which is that we are not building enough homes to match rising demand.

"Over the last few years Labour has repeatedly called for action on housing supply, but the Chancellor has failed to act. Under this government housebuilding has reached the lowest peacetime levels since the 1920s.

"The fact that George Osborne is consulting on new powers for the FPC, just a few weeks after he set out its remit, shows how behind the curve the Chancellor has been all along.

"And the danger of the Chancellor's failure to act on housing supply is that we see a premature rise in interest rates to rein in the housing market which ends up hitting millions of families and businesses.

"You can't deal with the cost-of-living crisis and create a strong and balanced recovery without building more homes. That's why Labour has committed to getting at least 200,000 new homes built a year. And we should introduce a Help to Build scheme for small and medium-sized builders alongside a reformed Help to Buy."

Mansion House doesn't kick off until 9pm tonight, so I'm going to pause the liveblog now - although we will burst back into life later when required.

In the meantime, here's our news story on the chancellor handing new powers to the Bank of England to cap home loans:

Osborne to give regulators power to cap mortgage loans

And here's a summary of his plans to criminalise market rigging, to (he will say) raise standards in the City:

Market abuse review - a round-up

More to come tonight...

The Bank of England can only use these new powers if it believe the UK housing market is a threat to stability; not if it just thinks prices are "too high".

Newsnight's Duncan Weldon explains:

Housing analyst Neal Hudson believes the chancellor is right to give the Bank of England these new powers, but the most important thing is to build more houses.

The chancellor's message is that the UK isn't suffering a housing bubble today, but it might in the future, so he's giving the Bank of England fresh tools now.

The plans being announced by the chancellor tonight will give the Bank of England unambiguous powers to "take the heat out of the housing market", says the BBC's Robert Peston:

He writes:

Tonight the Chancellor is announcing, in his Mansion House Speech, that the Bank's Financial Policy Committee is unambiguously the boss of the regulators, by giving it the power to order these curbs on lending, rather than just propose such curbs.

This power of instruction would extend as well to loans that are a high proportion of the market value of a house - although such high loan-to-value mortgages do not seem to be today's problem.

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In other words, the FPC will henceforth unambiguously have the ability to take the heat out of the housing market.

We will learn later this month whether it is choosing to employ these powers right now.

More Bank of England powers to curb housing bubble

Currently, the Bank of England can make recommendations on the loan-to-value levels that banks apply to new mortgages; Osborne is now giving them actual power to intervene (or at least, that's what he'll say tonight at Mansion House)

Breaking news tonight: the Chancellor of the Exchequer is to give the Bank of England new powers to control the housing market.

The Bank will be given the powers to cap the size of mortgages relative to borrowers' income and relative to the value of the homes they want to buy.

The announcement is likely to be billed as George Osborne's attempt to avoid the UK housing market turning into an unsustainable, damaging boom.

He will also announce changes to the UK planning regime, which could help construction firms build up to 200,000 new homes.

Details will announced in Osborne's Mansion House speech tonight, at 9pm BST.

My colleague Phillip Inman has the story:

George Osborne will use his Mansion House speech to give City regulators the power to cap risky mortgage loans in a bid to allay fears of a growing housing bubble.

In a dramatic move, the chancellor plans to allow the Bank of England to limit mortgage loans that could undermine the financial stability of the UK housing market.

In a bid to show he is taking action to boost the supply of homes, Osborne will also say he is making changes to the planning regime that could see a further 200,000 homes built.

The new rules will allow the Bank of England to set a maximum multiple of income that homebuyers can borrow and prevent mortgage lenders from offering first-time buyers high loan to value mortgages.

Osborne is expected to tell the Mansion House tonight that:

Our economic plan has brought stability and security and I’m not going to let anything undermine that.

So I am acting against future risks in the housing market by today giving the Bank of England new powers to intervene and control the size of mortgages compared to family incomes and house values and I’m also taking new steps so we build many more homes in our towns and cities.”

A quick recap:

Chancellor George Osborne is expected to announce tonight, in around four hours time, that the government plans new measures to clean up the City.

These will make it a specific criminal offence to rig financial benchmarks, such as the official 'fix' between currencies in the foreign exchange market. Those found guilty could be jailed for up to 7 years.

Treasury minister Andrea Leadsom has said it's vital to stamp out wrong-doing in the City, telling the BBC:

It will make it clear to traders that if you abuse those rules you will end up in prison.

There are more details here.

But legal experts caution that it may be hard to secure convictions;

And campaigners for a fair tax system have demanded that more is done to fix the culture of the financial sector.

Osborne is also expected to confirm that the UK will not opt into the EU's new market abuse directive - preferring to go it alone.

With the Brent crude oil price hovering around $112 per barrel, a three-month high, City traders are wondering what impact the Iraq insurgency will have on the economy.

If oil prices move higher, they'll put a brake on economic growth and also drive up inflation, as Chris Beauchamp of IG explains:

Traders have seen the words ‘Iraq’ and ‘civil war’ in headlines and duly sent oil prices flying today. So far, the direct impact of the fall of Mosul and Tikrit has been limited in production terms, but it is a situation that will bear close attention.

The longer-term worry is the impact of higher oil prices on inflation readings for major economies – it might finally deliver the higher price growth that Mario Draghi wants, but with inflation edging up in the US there will be concerns that CPI growth might get out of hand and force the Federal Reserve to take action.

This is the worst-case scenario, but markets are more than capable of focusing on that to the exclusion of all others.

A couple more photos from Athens, showing how riot police treated cleaning staff after the supreme court suspended an earlier ruling that they should get their jobs back.

In Greece, the cleaning workers who refused to accept being laid off by the government last year have suffered a defeat in the courts, and at the hands of riot police.

The Greek Supreme Court ruled in favour of the Greek government today, and suspended a ruling from a lower court that the workers -- who were dismissed last year -- should be rehired.

That's a big disappointment to almost 400 cleaners, whose lawyers had argued that they were fired illegally a year ago and should be rehired.

The Kathimerini newspaper has more details:

According to reports, at least three women were injured as riot police tried to remove protesting cleaners who had gathered in front of the ministry's entrance after the announcement of the decision.

And this video clip from Athens shows a riot police officer hitting a cleaner on the head:

Here are more photos from the scene:

Now here's a surprise....Portugal's government has turned down the final slice of its bailout, worth €2.6bn, rather than implement new austerity measures.

The move comes after Portugal's top court blocked plans to cut government workers' pay and state pensions.

Reuters has the story:

Portugal has decided to forego the last payment of its international bailout from creditors after the rejection of a series of austerity measures by the country's constitutional court, the finance minister said on Thursday.

"The government thinks that it is not the time to make decisions about substitute measures, a decision which has the consequence that we will not receive the last tranche of the programme," Finance Minister Maria Luis Albuquerque told journalists.

In order to receive the payment of 2.6 billion euros, the government would have had to present alternative austerity measures to the European Union and IMF by the end of June.

Given the recent rally in eurozone bonds, the Lisbon government may feel confident that it can borrow the money in the financial markets rather than from its Troika of lenders.

Here's AP's take: Portugal Waives Its Last Bailout Instalment

Twitter's share price is now up 3%, as Wall Street investors digest Ali Rowghani's departure as COO.

Shares on Wall Street have dipped in early trading, with the Dow Jones industrial average falling around 0.2%.

But Twitter's shares are bucking the trend, rising by 1%. Shortly before the market opened, its chief operating officer Ali Rowghani announced he was leaving.

Torbjorn Kjus, oil analyst at DNB Markets in Norway, also believes the oil price could spike if the situation in Iraq worsens.

Kjus told the WSJ:

"It's purely a fear-factor hitting right now.

"Right now it's $2 up, and it could easily go up more than that based on developments" [such as a move of violence southward].

The Brent crude oil price remains just shy of the $112.39 mark set in March 2014. If it breaks through there, it will hit its highest level in a year.

That's why analysts were worrying this morning about the impact on economic growth -- especially as the World Bank downgraded its growth forecasts yesterday.

An oil spike isn't great news for strong economies either, but it would help push eurozone inflation up...

Some mixed-looking US economic data has been released, but it's not as bad as it first appeared.

US retail sales rose by just 0.3% in May, just half as much as expected. But April's initial reading of 0.1% has been revised up to a healthier-looking 0.5%.

And the number of Americans filing new claims for jobless benefit rose a little last week, to 317,000 from 313,000 the previous week.

That's slightly higher than expected, but again, nothing to really suggest the US economy is faltering.

Perhaps the solution to preventing manipulation of the FX market is simply to stop using a one minute window at 4pm to set the daily currency rates.

Mark Taylor, the dean of Warwick Business School, believes traders would be incapable of influencing a larger window, given the size of the market.

“If we really want to make sure the foreign exchange reference rate isn’t rigged, we need to remove the incentives to cheat. At the moment the foreign exchange benchmark – the daily London 4pm fix – is made by taking the average of trades 30 seconds before and after 4pm, so if some large trades worth billions of dollars each are sent through it can move the rate a small amount and that could be worth millions of dollars to the traders.

“One solution would be to take away the temptation by taking the average over an hour - so 30 minutes either side of 4pm rather than 30 seconds. It’s a simple, workable solution because it would be a lot harder, if not impossible, to move a market as big as the FX market for an hour. Removing the incentive is much better than regulation because of the global, decentralised nature of the foreign exchange market.”

(reminder, we explained how the market works at 939am)

UK prosecutors are likely to take a "highly aggressive approach" with suspected wrong-doers in the financial markets, once the new criminal powers planned by the government are available.

So says Richard Burger, regulatory partner at City law firm RPC, anyway:

“The number of prosecutions achieved by the regulators with their new powers will be seen as the yardstick of their success. This will put them under a huge amount of pressure to achieve results and almost guarantees a highly aggressive approach.”

“The SFO’s Director, David Green, has said he expects to be judged by the results of the agency’s prosecutions of those involved in Libor and now the same will be true for future foreign exchange manipulation.”

And that means businesses will have to beef up their compliance departments - which have already swelled in recent years.

But plenty of prosecutions doesn't necessary mean plenty of conviction. And Alistair Graham, litigation partner at international law firm Mayer Brown , suggests lawyers could struggle to make market abuse charges stick:

He says:

“Yet more criminal sanctions from the UK government suggest a wholesale move towards the US-style of enforcement for financial offences, but it remains difficult to see how such an offence will be proved beyond all doubt. The threat of prison is used with great effect in the US – but it is questionable how many convictions will be achieved as a result of this style of enforcement in the UK."

George Osborne's plan to bring in new criminal sanctions for market abuse may sound good, but will they work?

The CBI, which represents British businesses, says it's important to send a signal to the City - but more important to actually change its character (a point the Robin Hood campaign made earlier)

As John Cridland, CBI Director-General, put it:

“Rebuilding trust in banking is critical to underpinning the economic recovery and to the UK’s long-term growth, so it makes sense for the regulatory focus to be firmly on conduct.

“We need to send out a strong signal against wrongdoing and beefing up regulators’ tools to combat market abuse will help to do this.

“At the same time, we need to look more broadly, at instilling a culture in the banking industry that always put customers first – achieving this will require strong leadership from the top of each and every organisation.”

Here's a chart showing how the price of Brent crude has jumped to a three-month high this morning of $112 per barrel, driven by the escalating situation in Iraq (see 10.17am for more details).

FastFT flags up that the West Texas Intermediate measure of oil is now at a nine-month high this morning (Brent crude is a more global measure).

Iraqi oil minister Abdul Kareem Luaibi announced earlier that the country's biggest oil refinery at Baiji remained under government control , despite the Sunni rebels' offensive through northern Iraq.

We reported earlier that analysts fear that the oil price could spike, hitting the global economic recovery.

Christopher Bellew, a trader at Jefferies Bache, shares the concerns, telling Reuters:

"I would entirely ascribe this move to the insurrection in the north of Iraq ... The fear is that it will cause a threat to Iraqi oil exports

"If this conflict knocked out Iraq as an exporter, that would have significant impact on prices ... How high could they go? It depends on what happens."

Our live blog is tracking the action here.

Vince Cable's warning about Britain's house price boom (see 11.16am) comes as figures published by the Council of Mortgage Lenders showed how borrowers are stretching their salaries to raise enough money to get on the housing ladder.

My colleague Hilary Osborne reports:

In April, first-time buyers across the UK took on mortgages that were 3.42 times their salary, and worth 83% of the value of the property they were buying.

Only in December 2013 have first-time buyer income multiples been higher, although as the property market reached its last peak they were up at 3.39 times salary.

The CML figures showed movers are aso taking on large commitments, with typical borrowing in April at 3.03 times salary, compared with 2.87 the previous year.

And that means that the first rung of the housing ladder is a bigger leap than ever before:

The average size of a first-time buyer mortgage reached its highest level on record, rising to £121,500, from £118,750 in March. At the same time the typical income of a first-time buyer household increased to £37,000, from £35,704 in March, which was also the highest average income on record.

The most recent data for London showed first-time buyers were taking out mortgages worth 3.83 times their salaries. Deposits from parents and the fact that buyers in the capital are slightly older, at an average of 32 when they take their first loan, versus 29 across the UK, meant that loan to values in London are lower, at 75%.

In other news, Intel has lost its appeal against the €1.06bn fine handed down by the EU in 2009 for anti-competitive conduct.

Brussels' competition chief Neelie Kroes insists the chip-maker got its just desserts:

Intel says it's "very disappointed" by the decision.

Is George Osborne also planning to announce new measures to rein in the housing market, in tonight's Mansion House?

Business secretary Vince Cable appeared to drop some hints this morning, telling Radio 4 listeners that banks must be put under more pressure not to "throw petrol on the fire" of the house price boom.

Cable also said he was "appalled" to discover that banks have been lending up to five times people's salary -- and indicated that the Bank of England could decide to intervene.

Cable said:

"Most of us who have been through various housing booms in the past have recognised that a kind of stable level is three or three-and-a-half times

"I was appalled when I discovered that banks were lending five times.

"They have already reined it back on advice from the Bank of England but this is the key area that the Bank of England has got to operate in to make sure that this boom in house prices, particularly in the south of England, doesn't destabilise the whole of the economy.

The Bank's Financial Policy Committee is charged with monitoring the housing market, and has various macro-prudential policy tools at its disposal. So why is Cable piping up now?

Back to the UK government's market abuse clampdown.... and campaigners for a fairer tax system don't believe it will change the City's priorities.

David Hillman, spokesperson for the Robin Hood Tax campaign, says:

"It's better late than never for the Government to get a grip on this scandal, which shows once again that our supposedly reformed financial sector is still a law unto itself.

"But while the review may tackle this particular malaise it won't tackle City culture which continues to put a fast buck ahead of its obligations to society.

"The mother of all scandals remains: banks caused the biggest crisis of a generation and we are paying to clear up the mess. Many other countries are ensuring banks pay for past mistakes - why can't we do the same?"

George Osborne, though, remains implacably opposed to the financial transaction tax which the Robin Hood campaign is seeking. He even launched legal action to prevent eurozone countries implementing one.

The escalating situation in Iraq (see last post) has also driven the cost of US crude oil up this morning.

US crude touched $105.4 per barrel this morning, the first time it's broken above the $105 mark since March. You've got to go back nine months for a higher price.

Marketwatch explains:

London-based Brent crude for July delivery surged $1.09, or 1.1%, to $111.04 a barrel. If Brent settles at this point, it will be the highest level for a front-running contract since March 3, when the front-running contract settled at $111.20 a barrel.

Oil prices shot up in March on rising tensions over Russia and the Ukraine.

West Texas Intermediate crude for the same month jumped $1.03 cents, or 1%, to $105.42 a barrel. The last time crude settled at $105 a barrel for a front-running contract was September 19, 2013, when it closed at $105.86 a barrel.

Over in the City, the sight of insurgents taking control of Iraqi cities has pushed the oil price up by 1%, to a three month high.

And traders are worried that the escalating crisis could drive prices higher, knocking economic growth.

The price of Brent crude oil has jumped by one dollar per barrel today, to $111.05.

A bigger jump could potentially spark a stock market rout, warns Joao Monteiro, analyst at Valutrades:

Oil prices are pushing higher off the back of unrest in Iraq and although the situation is some distance from the oil fields, the reality is that a $20/barrel spike in crude prices could well prove sufficient to derail the global economic recovery.

Ultimately with markets so toppy and repeatedly looking for a reason to sell, this could all make a lot of sense.

IG's David Madden agrees:

The apparent unravelling of the post-2003 settlement in Iraq has sent oil prices surging for the second time in a week; a signal of how sensitive investors are to the prospect of higher oil prices that could act as a dramatic drag on global growth.

For now, it seems the selling is confined to the more skittish market participants, but if the index moves much lower the quiet retreat could turn into an increasingly panicky rout.

No sign of a rout in the equity markets yet, though:

• FTSE 100: down 6 points at 6832, - 0.1%
  
• German DAX: up 5 points at 9955, +0.06%
  
• French CAC: up 9 points at 4564, + 0.2%
  

With over three trillion pounds worth of foreign exchange trading each day, how could a few rogue City traders possibly rig it?

The key is that benchmarks are calculated at a certain time every day, to give a snapshot of what various assets are worth.

This creates risks for City banks, because multinational customers will ask for transactions to take place at the daily 'fix' (an unfortunate title), before it's actually been set.

Katie Martin, the Wall Street Journal's foreign exchange expert, explained on BBC News this morning:

The traders at the bank have to take hedging positions, they place trades in the market, they share some information with colleagues or people at other banks to try and avoid risks around when those trades are completed.

And that's when it all gets tricky - it's that half-hour period. What have they discussed with each other?

The fear is that this creates an opportunity for FX traders to sharing confidential information about which orders they are putting through.

Katie recently wrote an in-depth piece about the issue here:

Forex Probe Uncovers Collusion Attempts

But can Osborne fix this problem on his own? No. Brenda Kelly, chief market strategist at IG, warns that any regulations set in the UK would have to be agreed globally.

Until that were done, it would be impossible to regulate this market completely.

The full clip is here, from around 8.52am.

Full details of the government's markets review are online here.

It explains how the existing law against Libor-rigging would be extended to cover market rates, and also tries to justify opting out of the EU's own market-rigging rules.

Here's a flavour:

• extending the new legislation the government put in place to regulate LIBOR to cover further benchmarks in the foreign exchange, fixed income and commodity markets, based on an early recommendation of the Review – this legislation includes new criminal sanctions
• extending the Senior Managers and Certification Regime to cover all banks that have a presence in this country, by bringing in foreign banks that have branches here
• expanding the tough UK criminal regime for market abuse. As part of this, the UK will not opt in to EU rules. Our own rules will be as strong or stronger than those of the EU, but will preserve flexibility to reflect specific circ*mstances in the UK’s globally important financial sector

More reaction to the news that the chancellor wants to clean up the City (by mid-2015, anyway)

George Osborne will also announce tonight that the UK will opt out of a European directive, which sets out specific rules to make market abuse a criminal offence.

Not for the first time, Britain wants to go it alone (the Treasury argues that this means we can get criminal sanctions in place sooner, but it will also keep the City at arms length from Brussels).

The British Bankers' Association has welcomed the news, with CEO Anthony Browne saying:

"The key task ... will be ensuring that we have a system that is robust and punishes any wrongdoing while being sensitive to the need to continue to attract global banks and investors to the UK."

You'd hope that global banks and investors wouldn't be attracted to a place where some traders were rigging the markets, of course....

While ITV's Joel Hills is suspicious that the chancellor has at least one eye on the next election, by announcing this new clampdown tonight :

Allegations that traders within banks colluded to manipulate foreign-exchange rates in currency deals are being looked at by the authorities in the UK and abroad. The investigations are ongoing, the outcomes uncertain but the mood in the City is, let's say, "not optimistic".

The Chancellor is expected to say he is acting to protect "the integrity of the City" but some will also see this as an attempt to protect himself from accusations of failure to act should hefty fines start being imposed on banks in the run-up to the general election.

This is the fourth time that the government has taken aim at the City, says Sky's Mark Kleinman.

In the wake of the Libor-rigging inquiry, which has seen a handful of banks fined with more to come, the Chancellor believes there is further political capital to be generated from trying to stamp out errant behaviour.

His crosshairs are focused on the foreign exchange and commodity markets, where arcane price-setting mechanisms based on cosy huddles of bankers predominate.

Kleinman also questions how much progress the UK will make on its own:

Potentially more troubling for the Chancellor is that he will require widespread international backing to impose an effective clampdown on trading practices.

He may find that without it, his latest attempt to regulate the banking sector looks like little more than tinkering around the edges.

Dr Gerard Lyons, economic advisor to Boris Johnson, has welcome George Osborne's market review.

He's also struck by the change in Britain's approach to the City since the financial crisis struck.

Dr Lyons also points out that the foreign exchange market is HUGE.

Andrea Leadsom, economic secretary to the Treasury, has confirmed this morning that the government is determined to clean up the financial markets.

Speaking on the Today programme a few moments ago, Leadsom said chancellor Geoge Osborne wants to get "ahead of the game", by setting out very clearly how benchmarks in the financial markets are managed, and what criminal sanctions can be imposed.

It will make it clear to traders that if you abuse those rules you will end up in prison.

It extends the existing criminal offence of rigging the Libor rate (the benchmark showing the rate at which banks lend to each other), she said.

The financial services industry is "vitally important" to the UK, Leadsom added. It employs one million people, most of whom are doing a very normal job in towns and cities across the country, she said..

But...

The problem is there are a small group of people who need to understand that rigging benchmarks is unacceptable.

Lots of coverage of the chancellor's upcoming Mansion House speech in the papers.

The Independent reckons that Osborne's review could result in long stretches for rogue traders convicted of rigging the markets.

Tougher penalties, including jail sentences of up to seven years, will be extended to other parts of the financial services sector in an attempt to prevent more scandals.

While the Guardian points out that the review is expected to take a year, so the clampdown isn't imminent:

Cathy Jamieson MP, the shadow financial secretary, said: "This review is too little, too late. We pressed ministers to regulate commodities markets and the full array of financial benchmarks back in 2012, but the chancellor failed to act."

The Financial Times reckons that there's a degree of politics to the pledge to clean up the City:

With the FCA and other regulators investigating the FX markets amid rigging allegations, Mr Osborne is anxious to show he is taking firm action as an election looms in 2015.

Central to his plans is a new “fair and efficient markets review” which will be led by Minouche Shafik, the new BoE deputy governor for markets and banking, along with Martin Wheatley, FCA chief, and Charles Roxburgh, director-general, financial services at the Treasury

The Daily Telegraph argues that Britain is pushing back against the EU; going it alone, rather than opting into European criminal abuse rules

George Osborne is to reject Brussels’ efforts to clamp down on rogue bankers and introduce new UK rules designed to criminalize those who manipulate London’s key markets instead.

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

The waiting is nearly over. The anticipation is building. You could cut the atmosphere with a pudding spoon. Yes, it's nearly time for the chancellor of the exchequer's Mansion House speech.

While most of the world is glued to São Paulo tonight, George Osborne will announce a new push to clean up the financial markets after a series of scandals that have rocked the City.

His proposals include making the manipulation of foreign exchange, fixed income and commodities benchmarks an explicit criminal offence.

A review will begin in the autumn, looking at which markets need closer scrutiny and what criminal penalties are needed.

As our City editor Jill Treanor reports this morning:

Criminal offences for manipulating these global markets, which are based in London, will be among measures considered in a year-long review being launched by the chancellor, which was immediately criticised by Labour for being too late.

It follows steps in 2012 to allow prison sentences of up to seven years for anyone involved in rigging the key interest rate benchmark Libor.

George Osborne is expected to warn that the UK needs the City to clean up its act:

"The integrity of the City matters to the economy of Britain.

"Markets here set the interest rates for people's mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy. I am going to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them."

Here's Jill's story: Currency market rigging could become criminal offence

I'll be tracking the reaction to the plan, along with other breaking news and key developments through the day.....