Back in the markets, Wall Street has hit another record high on hopes of a US-China trade deal.

The Dow has surged by 261 points, or almost 1%, at 27,754, after Beijing’s commerce ministry said the two sides had agreed to lower some tariffs as part of a Phase One deal.

The White House hasn’t confirmed the move, but traders are optimistic that the talks are heading towards a breakthrough.

David Madden of CMC Markets explains:

The trade tensions of late August and early September seem like a distant memory now as there is chatter of undoing the levies. Neither side wants to appear weak, but the tariffs are clearly hurting each other, so a joint de-escalation would be an easy way out.

If President Trump is being reasonable with China, he is less likely to turn up the heat on the EU, which is helping stocks on this side of the Atlantic.

Here’s our economics editor Larry Elliott on today’s Bank of England forecasts, and interest rate decision:

The chances of a cut in interest rates have increased after two members of the Bank of England’s key policy body responded to a growth downgrade inspired by Brexit and a trade war by voting for cheaper borrowing.

In the first split vote on Threadneedle Street’s monetary policy committee (MPC) since June 2018, the Bank voted 7-2 to keep official interest rates on hold at 0.75%, but two of the outside experts the government appointed to the committee , Jonathan Haskell and Michael Saunders, said the weakness of the economy warranted an immediate reduction.

The Bank thinks the short-term prospects for the economy have improved because the risk of a no-deal Brexit has diminished, but it expects the level of national output – gross domestic product – over the next three years to be 1% lower than it had anticipated in August.

It said three-quarters of the downgrade had been because of changes in asset prices and a gloomier global outlook since the summer, while the rest came from changes to the Bank’s Brexit assumptions offset by the impact of the boost to public spending announced by Sajid Javid in September. The Bank believes the chancellor’s measures will increase the level of output by 0.4%.

The Bank’s latest monetary policy report for the first time included precise Brexit assumptions based on the withdrawal agreement the prime minister struck with the EU. It believes leaving the EU will lead to the economy growing more slowly but had previously been basing its forecasts on the average impact over 15 years. Threadneedle Street says Boris Johnson’s deal means it is now possible to quantify the effects up until the end of 2022.

The TUC is disappointed that the UK economy is now expected to be 1% smaller in 2022 than the Bank thought back in August (under those new growth forecasts).

TUC Head of Economics Kate Bell blames the austerity programme implemented since 2010, saying:

“This is the Conservatives’ economic legacy. Their decade of cuts and under-investment has put growth in the slow lane.

“When Britain needed rebuilding, they chose austerity and tax breaks for wealthy corporations. And they have damaged confidence in our economy by threatening a reckless no-deal.

“We need leaders who will put working families first, not their rich mates and donors.”

Both chancellor Sajid Javid and shadow chancellor John McDonnell have outlined plans to borrow and spend more if they win next month’s general election:

The economics press pack then make a final attempt to pin Mark Carney down about Brexit, and the impact of Boris Johnson’s deal. But it’s not too successful.

Q: Just to clarify.... is the Bank saying that the economy will grow faster under the Brexit deal than if we’d not voted to leave, or not?

That’s not a question that we have to answer, Mark Carney replies.

The BoE doesn’t have the “remit, mandate, or the luxury of comparing it to a parallel situation” he adds.

Q: What will happen to your forecasts after the election if Britain doesn’t leave the EU?

They will change, Carney smiles, moving his hands back and forth. But he won’t guess how.

Q: Will Brexit uncertainties rise if Britain doesn’t leave the UK on 31 January next year?

It depends how businesses react, says Carney. We’ll adjust accordingly.

It also depends how much progress is made towards defining the ‘deep free trade deal’ that both side want, he continues.

That’s the end of the press conference. I’ll post a summary and reaction next.

Q: How do you think the UK economy fared in the last quarter?

Mark Carney says the Bank predicts growth of 0.4% for Q3 2019.

We’ll find out if he’s right on Monday, at 9.30am, when the latest GDP figures are released.

If the economy grew, then Britain will have avoided a recession (GDP fell by 0.2% in April-June).

Q: Would you extend your term beyond its end date of 31 January 2020 if the government asked you?

Mark Carney says its “entirely understandable” that his successor hasn’t been appointed yet. He’s sure that once the election is concluded, the process will be completed.

We’ll make sure that the transition is smooth and orderly, he jokes.

So, he’s not ruled out staying longer, if asked....

[Carney has already agreed to extend his term twice, due to Brexit]

Bank of England governor Mark Carney begins his press conference by warning that the global economic outlook has darkened.

Carney says that the world risks slipping into “a low growth, low inflation rut”.

But Britain now has the chance to break out of this rut, the governor adds. A Brexit deal creates the possibility of a pick-up in growth.

The world economy is now expanding at its slowest rates since 2009, Carney continues. A broad-based expansion has turned into a widespread slowdown, and trade tensions are a significant cause.

The Bank of England is holding a press conference now to discuss its new forecasts.

You can watch it live here:

The Bank of England’s forecasts are now based on the revised Brexit deal agreed by Boris Johnson last month.

That’s significant, as the Bank has now lowered its growth forecasts for the next few years.

The BoE now expects the UK economy will only grow by 1.2% this year, down from 1.3% previously. It’s 2021 forecast has been cut sharply too, from 2.3% to 1.8%.

Sky’s economics editor Ed Conway explains:

The Bank of England has risked accusations of intervening in the election campaign as it published its first formal forecast of the impact of Boris Johnson’s Brexit deal.

In its Monetary Policy Report, the Bank forecast that over the course of the next three years the Conservative government’s deal could leave the economy slightly weaker than it previously forecast.

However the Bank added that there would be a near-term boost as uncertainty lifted and companies and households invested more.

The Bank had previously stopped short of incorporating Theresa May’s deal into its economic forecasts, choosing instead to forecast on the basis of a range of probabilities over a Brexit deal.

But today it said it was now forecasting on the basis of Mr Johnson’s recently-negotiated deal with Brussels, which passed its second reading in the House of Commons.

The upshot, it said, was that it was now forecasting that uncertainty would lift in the near term but that the deal, which implied customs checks and regulatory divergence with European trading partners, would then come to weigh on the economy.

The Bank of England is also gloomier about the UK’s growth prospects.

It now expects the UK to grow by 1% less over the next three years, compared to its August forecasts.

In its latest Monetary Policy Report, just released, it says:

Growth in the UK economy has been volatile this year in part because of Brexit preparations.

Looking through those ups and downs, growth has slowed.

We expect growth this year to be roughly half that in 2018.

That is partly because growth in other countries has also slowed.

Lower growth elsewhere has reduced the demand for the goods and services that the UK sells abroad.

The minutes of the Bank’s meeting show that Jonathan Haskel and Michael Saunders pushed for lower interest rates to protect the UK from the weakening global economy, and Brexit uncertainty.

The Bank says:

Two members preferred a 25 basis point cut in Bank Rate at this meeting.

The UK economy already had a modest but rising amount of spare capacity, and core inflation was subdued. The headline unemployment rate was likely to be a lagging indicator of labour market tightness; other indicators, including vacancies and short-term unemployment, suggested that the labour market was turning.

There were downside risks to the MPC’s projections from a weaker world outlook and from more persistent Brexit uncertainties affecting corporate and household spending. As a result, these members judged that some extra stimulus was needed now to ensure a sustained return of inflation to the target.

Newsflash: The Bank of England has left UK interest rates unchanged, at its last monetary policy committee before the general election.

But there were two dissenters! Michael Saunders and Jonathan Haskel both voted to cut rates back to 0.5%.

But the other seven members of the MPC outvoted them, to leave BoE base rate at 0.75%.

More to follow.....

The EC has also cut its growth forecasts for many largest European economics, but raised its forecast for the UK.

Germany is now expected to grow by just 0.4% this year, down from 0.5% expected six months ago. German GDP is now tipped to rise by 1% in 2020, down from 1.4% previously.

France’s 2019 growth forecast has been trimmed to 1.3%, from 1.4%, for 2019, but maintained at 1.3% in 2020.

Italy’s 2020 growth forecast has been almost halved, to 0.4% from 0.7%. The EC still expects growth of just 0.1% this year.

The UK, though, is expected to grow by 1.4% in 2020, up from the 1.3% expected in the Spring forecast. Growth in 2019 is still forecast at 1.3%.

Here are the full forecasts for this year and next:

Just in: The European Commission has cut its growth forecasts, and warned that Europe’s economy faces ‘growing headwinds’.

In its new autumn forecasts, the EC warns that the European and world economy have weakened over the past year.

Europe has seen a sharp slowdown in external demand and a contraction in manufacturing, which is starting to spill over to other parts of the economy. While the solid performance of the labour market has helped to sustain private consumption and domestic demand, GDP growth is unlikely to rebound swiftly.

The fact that growth is no longer expected to rebound meaningfully in the next two years is a major shift compared to previous forecasts and is based on the assessment that many features of the global slowdown will be persistent.

The EC now expects the eurozone to grow by 1.1% this year, down from a previous estimate of 1.2%.

The growth forecast for 2020 has been cut to 1.2%, from 1.4%.

Commissioner Pierre Moscovici warns that Europe faces ‘increasingly strong headwinds’, including trade disputes, Brexit, and structural changes in the car industry (towards electric vehicles and self-driving cars).

More to follow....

German industrial giant Siemens has warned that the global economy faces a tough year.

It told investors this morning (before the latest trade developments):

We expect global macroeconomic development to remain subdued in fiscal 2020, with risks particularly related to geopolitical and geoeconomic uncertainties.

We assume a moderate decline in market volume for our short-cycle businesses.

CEO Joe Kaeser added that “The weakening of the global economy accelerated clearly during fiscal 2019”.

Siemens still managed to grow orders by 7% in the year, but net profits fell to €5.65bn, from €6.12bn.

Every European stock market is higher this morning, driven by the prospect of the US and China rolling back some tariffs.

Here’s the situation after 90 minutes of upbeat trading, following Beijing’s comments that trade levies could be removed in a Phase One deal.

Michael Metcalfe, global head of macro strategy at State Street Global Markets, says there are clear signs of progress:

“Markets are showing themselves sensitive to the precise timing of the talks and risk of delay.

But progress is apparently being made and hopes that there will be partial reversal in tariffs hikes is a clear positive for equity markets. We’ve had several false dawns on the trade war this year, but any agreement to start reversing prior to hikes, even in stages, is way more constructive than anything we’ve seen so far.”

The Stoxx 600 index of European companies is at a four-year high, but only up 0.4% today.

Russ Mould, investment director at AJ Bell, suggests the reaction is a little muted:

One might have expected the market to spike on this news which suggests the agreement isn’t clear cut. Indeed, talk of ‘phase one’ of the agreement implies this could be a long drawn-out process, hence only a muted market reaction.

A trade deal can’t come soon enough for German factories.

Industrial production across Germany shrank by 0.6% in September, new figures show, worse than the 0.4% decline expected. That follows a 0.4% rise in August.

On an annual basis, industrial production was 4.3% lower than in September 2018.

This decline further fuels concerns that Germany’s economy shrank in the third quarter of 2019, following a small contraction in Q2. That would put Germany into a recession.

We learned yesterday that industrial orders rose in September, so industrial production could pick up in the coming months. But the picture isn’t great:

Newsflash: We’re not going to get a new healthcheck on the UK economy today after all.

The independent Office for Budget Responsibilities has been blocked from publishing its updated forecast, by Britain’s top civil servant.

These forecasts would have outlined the likely path of UK public finances, including how much needs to be borrowed in the coming years.

Cabinet Secretary Sir Mark Sedwill has ruled that it would have breached election rules (which prevent civil servants from doing anything political that would breach impartiality)

European stock markets have jumped to their highest level since July 2015.

The news that China and the US have (apparently) agreed to roll back some tariffs has sparked a rally in Frankfurt, Paris, Milan and Madrid, as well as London.

This lifts the pan-European Stoxx 600 index to 406 points, a four year high.

Industrial groups, miners and technology companies are all gaining ground.

Germany’s DAX is leading the way, up 0.7%, to its highest since January 2018.

Neil Wilson of Markets.com says Beijing’s comments about rolling back tariffs have boosted risk sentiment.

Let’s be clear – this is more of the same kind of pump we see almost daily. But it’s decidedly positive nonetheless.

The question remains whether the White House would be prepared to ditch all tariffs in exchange for some vague commitments on agricultural products and IP and think it can sell that as a win to voters. However, the comments from the Chinese commerce ministry do indicate a path out of the mire.

Bloomberg is also reporting that China and the US have agreed to roll back some tariffs.

It says:

China and the U.S. have agreed to proportionally roll back tariffs on each other’s goods in phases, a Ministry of Commerce spokesman said.

The amount of tariff relief that would come in the first phase, set to be signed in the coming weeks, would depend on the content of that agreement, spokesman Gao Feng said Thursday without giving further details. The two sides had “constructive talks” in the past two weeks, he said.

If confirmed by the U.S., such an understanding could provide a road-map to de-escalate a trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by President Donald Trump, which by now apply to the majority of its exports to the U.S.

Stocks rallied, with Hong Kong’s Hang Seng Index climbing 0.7% and futures on the S&P 500 adding 0.5%.

But.... investors should still be a little cautious, as a Phase One deal still hasn’t been nailed down (let alone a comprehensive trade deal).

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

Hopes of an imminent breakthrough in the US-China trade war are driving Britain’s stock market to a five-week high this morning, as shares rally across Europe.

China’s commerce ministry has pumped up expectations of a deal, by revealing that both sides have agreed in principle to lift tariffs, in stages, as part of a preliminary agreement.

Reuters’ Beijing bureau has the details:

China and the United States must simultaneously cancel some existing tariffs on each other’s goods for both sides to reach a “phase one” trade deal, the Chinese commerce ministry said on Thursday.

The proportion of tariffs cancelled must be the same, and how much tariffs should be cancelled can be negotiated, said Gao Feng, spokesman at the commerce ministry.

Both sides have agreed in the past two weeks to cancel the additional tariffs imposed during their months-long trade war in different phases, Gao said.

Importantly, the two sides are still talking - so they’ve not actually reached a Phase One deal yet.

But there’s relief that both sides are talking about removing some of the hurdles to trade, which have hampered the global economy for more than a year. US stock futures are also pushing higher.

The latest chatter is that Donald Trump and Xi Jinping could sign the Phase One deal in December.

Also coming up today

The Bank of England is setting UK interest rates today, for the last time before the general election. The central bank will also publish new forecasts, which may take a gloomier view of the UK economy.

Howard Cunningham, fixed income portfolio manager at Newton Investment Management, explains:

“The UK market continues to be susceptible to UK politics and as such we would expect the central bank to cut growth and inflation forecasts in its Monetary Policy Report. Regardless of the forecasts in the next report, investors do not expect to see a change to interest rates until we receive some clarity on who will be running the country and their stance on Brexit.

“This said, a poor economic forecast would put pressure on the central bank to introduce easing measures. The loss of momentum may even see previously hawkish members of the Bank of England’s Monetary Policy Committee acknowledge the need for a rate cut, although with just over a month until the next general election we would expect to see little change to policy this week.

Today’s forecasts have been rebranded as the Monetary Report, rather than the Inflation Report.

There’s a flurry of corporate news today. Supermarket chain Sainsbury has posted 1% fall in like-for-like sales, and a 15% drop in profits.

Jet engine maker Rolls-Royce has cautioned that profits this year will come towards the ‘lower end’ of its guidance. due to ongoing problems with its Trent 1000 engine.

Luxury car maker Aston Martin has posted a £13.5m loss for the last quarter. Housebuilders Persimmon and Bovis, fashion chain SuperDry and bookmaker Flutter are also updating the market. More on all that, and more, shortly....

The agenda

• 9am GMT: European Central Bank publishes economy bulletin
• 9.30am GMT: Office for Budget Responsibility publishes updated forecasts on the UK economy
• 12pm GMT: Bank of England interest rate decision
• 12.30pm GMT: BoE governor Mark Carney holds press conference