A drop in the oil price, partly due to worries about a demand shortfall if global economic growth slows, EU sanctions on Russia, talk of a possible US Federal Reserve rate hike sooner than the market expects and - in the UK - the continuing uncertainty over the Scottish referendum all combined to send European markets lower, writes Nick Fletcher. The pound slipped below $1.61 as the yes vote continued to put in a strong showing in the polls, while Spanish ten year bond yields rose 12 basis points to 2.192% on talk that any Scottish independence victory could strengthen other separatist movements, not least in Spain’s wealthy Catalonia region. Overall the final scores showed:

• The FTSE 100 finished 5.77 points or 0.08% lower at 6829.00
• Germany’s Dax dipped 0.49% to 9710.70
• France’s Cac closed down 0.5% at 4452.37
• Italy’s FTSE MIB fell 0.68% to 21,149.80
• Spain’s Ibex ended 1.36% down at 10,951.6 (presumably the Catalan effect)

In the US, the Dow Jones Industrial Average is currently down 58 points or 0.34%.

On that note, it’s time to close up for the evening. Thanks for all your comments, and we’ll be back again tomorrow.

Britain’s recovery has slowed over the summer, according to the latest growth forecast from the National Institute of Economic and Social Research.

NIESR estimated that GDP grew by 0.6% in the three months to August. And it has also lowered its estimate for growth in May-July, to +0.5%.

That suggests that growth in the third quarter of 2014 will not match the 0.8% expansion recorded in the second quarter, unless activity accelerates in September.

On an annual basis, NIESR reckons the UK economy has grown around 2.9% since August 2013.

The Scottish independence battle is having an impact on the rest of Europe, fuelling speculation that other regions could seek sovereignty.

The prospect that Catalonia could renew its push for independence has pushed down the value of Spanish government debt today. This sent the yield on its 10-year bonds jumping to 2.21%, from 2.08% last night.

Mark Carney, governor of the Bank of England, has just told the Trades Union Congress in Liverpool that an independent Scotland could not have a currency union with the rest of the UK and also enjoy full sovereignty.

He was asked by a delegate whether an Scotland could keep the pound in a currency union if it votes for independence next week.

Carney replied by reminding the TUC of the speech he gave in Edinburgh in January, in which he outlined the Bank’s position on this issue.

There are three components of a successful currency union, he says:

First, you have to have free movement of capital and labour and goods and services, trade, across the various parts of the currency union.

Secondly, you need a banking union. You need the same regulation, the same supervision, the same standards in the banking sector, and very importantly you need the same institutions that stand behind those banks. The lender of last resort, which is a central bank, and a deposit guarantee scheme that is credible. You need all those institutions.

And thirdly, you need some form of fiscal arrangement. You need tax, revenues and spending flowing across those borders to help equalise, to an extent, some of the inevitable differences [across the Union].

We only need to look across the Channel to see what happens if you don’t have all of those components in place, the governor says.

That’s just the economics of it.

Carney then concludes:

We take note of the positions of all the major Westminster parties to rule out a currency union between an independent Scotland and the rest of the UK.

In that context, a currency union is incompatible with sovereignty.

<polite applause from the TUC>

A question on tax evasion, and whether the tax system should be more redistributive?

Mark Carney declines to comment directly on fiscal policy - he can’t give views on taxation.

But he does signal that pay inequality is a major issue for the Bank of England.

The shift of wage growth - faster at the top end, and tepid (or worse) at the low end, affects monetary policy and we need to understand that, says Carney.

It comes back to “who has the debts in the economy, who has the ability to service those debts”, and what does that mean to the recovery.

And he pledges that the BoE will do what it can do to ensure durable wage growth for all.

The first questions to Mark Carney focus on the public sector pay freeze - what impact will weak wage rises in the public sector have on economic stability?

The Bank of England governor says it is a very important issue.

It is one of the reasons why we are very conscious about the pace and degree of potential interest rate increases, he tells the TUC.

This is something that we are taking very seriously. It is one of the reasons we acted on housing earlier this year.

In an environment of low wage growth, strong house price inflation could store up problems in the future, Carney adds. Thus the new affordability measures brought in by the Bank.

Mark Carney finished his speech, as flagged up earlier, by declaring that UK firms and workers must deliver skills and productivity improvements “so that the British people get the pay rise they deserve.”

Now onto questions....

Mark Carney’s speech to the TUC runs to 12 pages, plus charts. And Congress is running late, so it’s not started yet.

But his key point is that Britain’s workers need a pay rise, but they’ll need to deliver improved productivity to deserve it:

Here’s his conclusion:

We are under no illusions. The Great Recession was a calamity. Britain’s workers have borne many of the consequences.

Our job is to ensure the economy achieves its potential and to maintain price and financial stability, for sustainable growth in jobs and incomes.

But monetary policy cannot do it alone.

Others – including trade unions, government and businesses – will determine the potential of this economy. You will ultimately determine the size of Britain’s pay rise.

Those in work need to be able to seize new job opportunities in a world where technology and globalisation cause labour markets to shift rapidly.

Skill levels need to be raised continually. That is of course first and foremost about education. But crucially it also means access to lifelong learning, both on and off the job, available to all.

The TUC’s engagement with the UK’s skills agenda is a major contribution to realising that imperative. In the past year alone, unionlearn, has supported over 200,000 people to invest in their skills.

Such investments are crucial for the durability of this economic expansion and for Britain’s future. They will help to deliver long-term productivity – so that the British people get the pay rise they deserve.

And here are some charts:

Mark Carney has also given the TUC a clear signal that UK interest rates could start to rise next spring, to meet the Bank of England’s mandate of ensuring price stability.

He says that TUC members “can expect interest rates to begin to increase”, even though there are few signs of inflationary pressures now.

With inflation at 1.6%, continuing downward pressure from the appreciation of sterling, and with slack remaining, the current inflation environment is benign.

But it will not remain benign if we do not increase interest rates prudently as the expansion progresses. Our latest forecasts show that, if interest rates were to follow the path expected by markets – that is, beginning to increase by the spring and thereafter rising very gradually – inflation would settle at around 2% by the end of the forecast and a further 1.2 million jobs would have been created.

In other words, we would achieve our mandate.

That has given the pound a little lift, to $1.613 against the US dollar.

Over in Liverpool, Bank of England governor Mark Carney is due to begin speaking at the Trades Union Congress.

His speech has just been released, and the first piece of news is that the Bank of England aims to become an accredited Living Wage employer within the year. That means all staff will receive at least £7.65 per hour, or £8.80 per hour in London.

Carney says a living wage is an issue of “human dignity”:

The growth and distribution of jobs and incomes matter to everyone.

Employment does much more than provide the means to support workers and their families; it is essential to personal fulfilment and human dignity.

Part of that dignity is being paid a living wage.

Over the past year, the Bank of England has ensured that its pays all of its 3,600 staff at least the living wage.

And we have recently brought all our contracted service staff in central London up to the London living wage.

We are in the process of our final review. But I can announce today the Bank’s intention to become an accredited Living Wage employer by the time of the next TUC conference.

More to follow...

The head of Thales Group, one of Britain’s largest defence suppliers, has warned that jobs and investment on both side of the border could be hit if Scotland votes to leave the United Kingdom.

Jean-Bernard Levy, CEO of France’s Thales, has told Reuters a ‘yes’ vote could fuel uncertainty.

Speaking at a defence conference in southwest France, Levy said a yes vote would “inevitably” mean an investment freeze. An “amputated Britain” without Scotland would raise questions, he added.

Levy told Reuters that:

“It is very difficult to make any sort of predictions, (but) it is clear that if it is cut off from Scotland, the rest of Great Britain will have fewer resources to devote to defence and this will inevitably lead us to re-examine our industrial framework,”

”There would be questions over the capabilities we keep in the UK and there would also be questions over the facilities we maintain in Scotland,”

Thales is Britain’s second-largest defence contractor, with 7,500 employees. That includes around 500 at Govan, Glasgow, where it makes submarine periscopes for the Royal Navy.

Back to the Scottish independence vote.

And over in Parliament, the head of the Financial Conduct Authority has told the Treasury Committee that “contingency plans” are underway in case the pro-independence side win on September 18.

Disappointing news on UK trade, again.

Britain’s deficit of goods with the rest of the world has widened unexpectedly in July, to £10.2bn. That’s up from £9.4bn in June, worse than expected.

And although Britain recorded a £6.8bn surpluses on services, that wasn’t enough to prevent the trade deficit widening to £3.3bn in July 2014, from £2.5bn in June.

Imports rose by £1.3bn, outpacing the £500m increase in exports, dashing hopes that Britain’s economy might be rebalancing.

The ONS reports that trade in goods with non-EU countries accounted for the majority of the increase in exports and imports in July 2014, suggesting that demand from the eurozone was weak.

Details and reaction to follow...

Just in : UK industrial production has posted its biggest rise since February.

Industrial production rose by 0.5% month-on-month in July, a stronger reading than the 0.2% which economists had expected.

The manufacturing sector also grew its output by 0.3%, the Office for National Statistics reported, broadly as forecast.

City investors are dashing to insure themselves against losses from the pound’s volatility over the next month.

The cost of hedging against further sterling weakness just hit its highest since late 2011 on Tuesday, following the latest polls showing the independence race is too close to call.

• STERLING/DOLLAR ONE-MONTH IMPLIED VOLATILITY HITS 10.105 PERCENT, HIGHEST SINCE NOV 2011, ON SCOTLAND WORRIES
  

There is another gloomy assessment of the world’s jobs market this morning.

The International Labour Organisation, the World Bank and the Organisation for Economic Co-operation and Development (OECD) have produced a labour market update for the G20 employment and labour ministers’ meeting in Melbourne, my colleague Katie Allen reports.

It highlights that “large employment gaps remain in most G20 countries”, referring to grouping of the world’s biggest developed and emerging market economies.

The authors also worry that “the quality of employment remains a concern” and that “the deep global financial and economic crisis and slow recovery in many G20 countries has resulted not only in higher unemployment but also in slow and fragile wage gains for G20 workers.”

The paper concludes:

“Seven years after the onset of the global financial and economic crisis, the economic recovery may be strengthening but remains weak and fragile. The employment challenges across most G20 countries are still very sizeable both in terms of a persistently large jobs gap and low quality of many available jobs.

The current growth trajectory, if unchanged, will not create enough quality jobs – giving rise to the risk that the jobs gap will remain substantial, underemployment and informal employment will rise, and sluggish growth in wages and incomes will continue to place downward pressure on consumption, living standards and global aggregate demand. Underlining these challenges is the fact that income inequality continues to widen across the G20 countries.

“The G20 commitment to boost GDP by more than 2% by 2018 over and above the baseline projections is certainly a welcome step, although it will be important to ensure that this additional growth is job-rich and inclusive.”

Full story here: G20 handed gloomy jobs market report

Elsewhere in the currency markets, the euro has fallen to its lowest level against the US dollar since July 2013, at trading at $1.2860.

The euro has been weakening since last Thursday, when the European Central Bank cut interest rates and announced a new asset-purchase scheme to fight deflation.

The pound has fallen to a fresh 10-month low overnight as the prospect of Scotland voting for independence next week sends reverberations around the financial markets.

Sterling fell as low as $1.6066 in early trading today, down from the $1.6137 set at 5pm yesterday at the end of a dramatic day’s trading.

The selloff was fuelled by a new opinion poll, released at midnight, which found that the two sides in the Scottish referendum are neck-and-neck.

TNS reported that the no side’s support has slipped to 39%, down from 45% last month.Yes’s support has surged to 38%. from 32%. And among those certain to vote, “No” and “Yes” are tied on 41% each.

The poll puts new pressure on companies and investors to draw up contingency plans in the event of a “Yes” vote next week.

As Michael Hewson of CMC Markets puts it this morning:

Any increase in political or economic uncertainty is always likely to make investors nervous, and a Scottish “Yes” vote would create this in spades, which suggests we will continue to see further market weakness, due to the numerous unknowns, if the polls continue to move in the “Yes” camps favour.

The TNS poll was taken before Gordon Brown weighed into the battle with a promise to offer new powers to Scotland if it rejects independence. That pledge, though, hasn’t yet given the pound any relief.

Reaction to follow...