Britain's safe-haven reputation in doubt on GDP slump

Europe banks rally and sterling takes tumble in latest blow to Chancellor

Britain's safe-haven status was dealt a severe blow yesterday as the eurozone's beleaguered banks showed signs of recovery and the pound sank on dire growth figures.

The European Central Bank pumped more than €1 trillion (£843bn) into the region's banking system in December 2011 and March last year to avert a credit crunch, as fears of a full-scale bailout for Spain and Italy shook markets. The unprecedented long-term refinancing operations offered the funds to more than 500 banks at rock-bottom rates for three years.

But yesterday the ECB revealed that 287 banks have opted to pay back €137bn of the €489bn handed out in the first of the LTROs as soon as next week, in one of the clearest signs yet that the funding pressures on the eurozone banking system are beginning to ease.

Mario Draghi, the ECB's president, also bought time for the eurozone last summer when he promised to do "whatever it takes" to prop up the euro, including intervening directly to buy up the debt of member states if they request aid.

Analysts had expected the banks to repay around €100bn. Michael Symonds, at Daiwa Capital Markets Europe, said: "This is more than we had expected, and underlines the material improvement in funding conditions for most European banks in the past 12 months and, in particular, since the ECB also extended its backing to euro area sovereigns last summer."

Jurgen Michels, European economist at Citigroup, added: "The high figure of the repayment today suggests that in addition to core country banks, with excess liquidity, also banks from periphery countries used the repayment option, probably partly in order to demonstrate to the market that they are in a healthier position."

The positive signs sent the pound sinking to its lowest level for more than a year against the euro, hitting a low of €1.1714 at one point before recovering slightly. The single currency also roared to an 11-month high against the dollar.

Sterling briefly fell to a five-month low against the dollar as a dire 0.3 per cent decline for the UK economy in the final three months of 2012 spooked investors and raised expectations of further quantitative easing from the Bank of England's rate-setters.

Glenn Uniacke, head of options at the foreign exchange specialist Moneycorp, said the pound was being "slaughtered". "The tanking pound is curiously at odds with the soaring stock market, but that will be of little comfort to struggling importers."

Simon Derrick, chief currency strategist at BNY Mellon, added: "Weak GDP is one of a number of pressures on sterling. There's also the potential loss of the AAA rating and the improving picture in the eurozone, which is lessening its safe-haven attraction."

Data showing German business morale improving for the third month in a row in January – adding to signs that growth in Europe's economic engine room is picking up – also fanned demand for the euro.

Investors also sold out of a host of other safe-haven assets such as German and French sovereign debt yesterday as traders took on more appetite for risk. Italy and Spain's cost of borrowing fell to 4.1 per cent and 5.1 per cent respectively, far below the unsustainable 7 per cent seen at the height of the market panic last year.

News
people
News
people
Arts and Entertainment
Keys to success: Andrew and Julian Lloyd Webber
arts + entsMrs Bach had too many kids to write the great man's music, says Julian Lloyd Webber
Voices
Left: An illustration of the original Jim Crowe, played by TD Rice Right: A Couple dressed as Ray and Janay Rice
voices

By performing as African Americans or Indians, white people get to play act a kind of 'imaginary liberation', writes Michael Mark Cohen

PROMOTED VIDEO
News
i100
Arts and Entertainment
Hand out press photograph/film still from the movie Mad Max Fury Road (Downloaded from the Warner Bro's media site/Jasin Boland/© 2014 Warner Bros. Entertainment Inc.)
films'You have to try everything and it’s all a process of elimination, but ultimately you find your path'
Arts and Entertainment
Imelda Staunton as Dolores Umbridge in the Harry Potter films
books

New essay by JK Rowling went live on Pottermore site this morning

News
Russia Today’s new UK channel began broadcasting yesterday. Discussions so far have included why Britons see Russia as ‘the bad guy’
news

New UK station Russia Today gives a very bizarre view of Britain

News
people

Top Gear presenter is no stranger to foot-in-mouth controversy

Arts and Entertainment
Keira Knightley and Benedict Cumberbatch at the premiere of The Imitation Game at the BFI London Film Festival
filmsKeira Knightley tried to miss The Imitation Game premiere to watch Bake Off
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The benefits of Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes