SONIA TO BE ?MARKET CONVENTION? FOR INTEREST RATE SWAPS FROM Q1 2020

Banks should stop using the LIBOR benchmark for sterling interest rate swap contracts from the first quarter of 2020 and instead switch to SONIA, the Financial Conduct Authority (FCA) has said (Reuters; The Times, p44, £). In a speech yesterday Edwin Schooling Latter, the FCA's director of markets and wholesale policy, said that the regulator will be ?encouraging market-makers to make SONIA the market convention from Q1 2020?.

Schooling Latter added that ?as infrastructure and liquidity to support SONIA swaps are already in place, this should be achievable with relatively little cost?. However, he did not rule out any further sterling LIBOR swap transactions past this point. The FCA has said it expects the compilation of LIBOR to cease at the end of 2021 and for it to be replaced by the Bank of England-compiled Sonia rate. UK Finance has produced guidance for business customers on the discontinuation of LIBOR.

GOVERNMENT BORROWING REACHES FIVE-YEAR HIGH

Government borrowing increased to a five-year high for October according to the latest monthly data from the Office for National Statistics (Financial Times, p2, £; The Times, p50, £). Public sector borrowing rose to £11.2 billion last month, up £2.3 billion on the previous year and the highest October level since 2014. Spending on government goods and services was the main driver of the increase, rising £2.3 billion in the month.

Meanwhile the Organisation for Economic Co-operation and Development (OECD) has said that governments across the world need to take ?urgent? action in order to improve the global economy as it predicted continued weak growth for the next two years (Daily Telegraph, B8, £; Financial Times, p8, £). The OECD recommended stimulus efforts, such as investing in energy technologies and digitalisation, to boost growth. The think-tank upgraded its forecast for UK growth this year to 1.2 per cent, although warned that it will slip back to one per cent even if a ?no-deal? Brexit were to be avoided (The Times, p50, £).

NEWS IN BRIEF

311,400 homeowners switched product with their existing provider in the third quarter of 2019, an increase of 7.5 per cent year-on-year and representing £43.5 billion of mortgage borrowing, according to the latest product transfer data from UK Finance.

European banks could need to hold up to ?400 billion in capital in order to comply with new Basel III requirements, according to a study commissioned by the European Banking Federation (Reuters).

Christine Lagarde is set to make her first policy speech as the President of the European Central Bank today (Bloomberg).

Only £1 in every £5 of household income is put in to a joint account, with one in six couples having entirely separate finances, according to a survey for AIG Life (Daily Mail, p29).

Dame Helena Morrissey has ?appeared to rule herself out? as a possible candidate of the position of governor of the Bank of England as she accepted a new position yesterday, The Times (p43, £) suggests.

WHAT THE COMMENTATORS SAY

While there are predictions that artificial intelligence (AI) will lead to job losses, Gillian Tett, writing in the Financial Times (p13; £) says it also offers opportunities for workers by replacing the ?peripheral? work that does not bring them 'success or happiness?. AI will also create new roles, although it is not yet clear where the balance will lie, and Ms Tett concludes that workers will ?embrace innovation? if they feel they have some control over it.