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.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you looking to take your ...

SThree: Trainee Recruitment Consultant

£20000 - £40000 per annum + competitive: SThree: Exciting career prospect for ...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Day In a Page

A groundbreaking study of 'Britain's Atlantis' long buried at the bottom of the North Sea could revolutionise how we see our prehistoric past

Britain's Atlantis

Scientific study beneath North Sea could revolutionise how we see the past
The Queen has 'done and said nothing that anybody will remember,' says Starkey

The Queen has 'done and said nothing that anybody will remember'

David Starkey's assessment
Oliver Sacks said his life has been 'an enormous privilege and adventure'

'An enormous privilege and adventure'

Oliver Sacks writing about his life
'Gibraltar is British, and it is going to stay British forever'

'Gibraltar is British, and it is going to stay British forever'

The Rock's Chief Minister hits back at Spanish government's 'lies'
Britain is still addicted to 'dirty coal'

Britain still addicted to 'dirty' coal

Biggest energy suppliers are more dependent on fossil fuel than a decade ago
Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition

Orthorexia nervosa

How becoming obsessed with healthy eating can lead to malnutrition
Lady Chatterley is not obscene, says TV director

Lady Chatterley’s Lover

Director Jed Mercurio on why DH Lawrence's novel 'is not an obscene story'
Farmers in tropical forests are training ants to kill off bigger pests

Set a pest to catch a pest

Farmers in tropical forests are training ants to kill off bigger pests
Mexico: A culture that celebrates darkness as an essential part of life

The dark side of Mexico

A culture that celebrates darkness as an essential part of life
Being sexually assaulted was not your fault, Chrissie Hynde. Don't tell other victims it was theirs

Being sexually assaulted was not your fault, Chrissie Hynde

Please don't tell other victims it was theirs
A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935