Businesses are still unwilling to bet on recovery after a worrying plunge in investment spending during the final quarter of last year, official figures showed today.
The Office for National Statistics' initial estimates of a 0.2% slide for the wider economy during the period were left unchanged but experts blamed debt turmoil in Europe for the 5.6% fall in business spending to £28.7 billion over the quarter.
Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said: "The climate of uncertainty has caused firms to sit on their cash and, even after this week's deal for Greece, it's difficult to envisage this situation changing significantly in the short-term."
There were some positives, however, as desperate price-cutting by retailers to open shoppers' wallets during the autumn helped household spending rise 0.5% - the first growth since early 2010. Rising exports combined with weakening imports - attributed to slower manufacturing growth in the second half of last year by the ONS - also saw a positive trade contribution adding 0.6 percentage points to growth. Despite gloom over the plunge in business spending, firms built up stockpiles at a far slower rate than in the previous quarter, dragging on overall growth. This is welcome because it raises the chances of avoiding a double-dip with higher production in the current quarter.
Samuel Tombs, UK economist at Capital Economics, warned that the difficult economic backdrop remained: "Households are unlikely to be able to keep increasing their spending as unemployment rises, credit constraints tighten and inflation continues to erode their real spending power."
Courtesy of Russell Lynch / 24th Feb 2012 / London Evening Standard
Monday, 27 February 2012
OFT launches probe into payday-loans industry
The payday-loans industry - which makes short-term loans to those unable to get credit from banks - is being investigated by the Office of Fair Trading.
It will examine 50 major payday lenders and accusations that these high-cost, short-term lenders are irresponsible, handing out loans without checking whether borrowers can afford to repay them.
It will also look into evidence that suggests payday loan firms target the vulnerable, such as the unemployed or those on benefits.
Finally it will focus on the practice of rolling over loans, so that those who don't repay on time quickly end up with unaffordable rising debt.
David Fisher, OFT director of consumer credit, said: "We are concerned that some payday lenders are taking advantage of people in financial difficulty."
Joanna Elson, chief executive of debt charity the Money Advice Trust, said: "Payday lenders are aggressive in how they collect debts, often refusing to listen to proposed repayment plans and demanding full and final settlements that represent huge profits for the payday lender based on the money originally given out."
Courtesy of:Simon Reid / 24th Feb 2012 / London Evening Standard
It will examine 50 major payday lenders and accusations that these high-cost, short-term lenders are irresponsible, handing out loans without checking whether borrowers can afford to repay them.
It will also look into evidence that suggests payday loan firms target the vulnerable, such as the unemployed or those on benefits.
Finally it will focus on the practice of rolling over loans, so that those who don't repay on time quickly end up with unaffordable rising debt.
David Fisher, OFT director of consumer credit, said: "We are concerned that some payday lenders are taking advantage of people in financial difficulty."
Joanna Elson, chief executive of debt charity the Money Advice Trust, said: "Payday lenders are aggressive in how they collect debts, often refusing to listen to proposed repayment plans and demanding full and final settlements that represent huge profits for the payday lender based on the money originally given out."
Courtesy of:Simon Reid / 24th Feb 2012 / London Evening Standard
Monday, 28 November 2011
"£10bn 'credit easing' plan on way"
The Government is to underwrite billions of pounds of bank lending to business in an attempt to get credit flowing to Britain's cash-strapped small firms.
Chancellor George Osborne will set out details of his much-heralded "credit easing" scheme - described as a "game changer" by Treasury sources - when he delivers his autumn statement on the economy on Tuesday.
Under Mr Osborne's plan the Government will underwrite the banks' borrowing on the commercial money markets, enabling them to borrow more cheaply.
The banks will then pass on the savings to the firms they lend to in the form of lower interest rates.
The scheme - said to be similar to the former Labour government's credit guarantee scheme launched in the wake of the 2008 credit crunch - is aimed at helping small and medium enterprises (SMEs).
For a firm currently taking out a £5 million loan at a typical interest rate of 5%, it would mean they would instead be able to borrow at 4%, saving £50,000 a year in interest payments.
Ministers hope to get the scheme up and running by the beginning of next year, with the intention that it will run for the next two years.
Because the loans are not being made directly by the Government they will not appear on the national balance sheet and taxpayer will only become liable if the banks fail to pay their debts.
A Treasury source said: "We all know that the cost of finance for smaller businesses has risen following the financial crisis. It's a problem people have been trying to solve since 2008, which is why these new schemes are much more radical than anything that has gone before. They should be a game changer for credit for small companies by cutting the cost of finance and over time opening up new options for how it is raised."
In a further move, Mr Osborne will announce that regulated rail fares - such as peak fares and season tickets - will rise by 6.2% next year (RPI inflation of 5.2% +1%) rather than the planned 8.2% (RPI +1%) increase.
Courtesy of London Evening Standard
Chancellor George Osborne will set out details of his much-heralded "credit easing" scheme - described as a "game changer" by Treasury sources - when he delivers his autumn statement on the economy on Tuesday.
Under Mr Osborne's plan the Government will underwrite the banks' borrowing on the commercial money markets, enabling them to borrow more cheaply.
The banks will then pass on the savings to the firms they lend to in the form of lower interest rates.
The scheme - said to be similar to the former Labour government's credit guarantee scheme launched in the wake of the 2008 credit crunch - is aimed at helping small and medium enterprises (SMEs).
For a firm currently taking out a £5 million loan at a typical interest rate of 5%, it would mean they would instead be able to borrow at 4%, saving £50,000 a year in interest payments.
Ministers hope to get the scheme up and running by the beginning of next year, with the intention that it will run for the next two years.
Because the loans are not being made directly by the Government they will not appear on the national balance sheet and taxpayer will only become liable if the banks fail to pay their debts.
A Treasury source said: "We all know that the cost of finance for smaller businesses has risen following the financial crisis. It's a problem people have been trying to solve since 2008, which is why these new schemes are much more radical than anything that has gone before. They should be a game changer for credit for small companies by cutting the cost of finance and over time opening up new options for how it is raised."
In a further move, Mr Osborne will announce that regulated rail fares - such as peak fares and season tickets - will rise by 6.2% next year (RPI inflation of 5.2% +1%) rather than the planned 8.2% (RPI +1%) increase.
Courtesy of London Evening Standard
Thursday, 17 November 2011
"Billions more likely in QE as Mervyn King sounds new alert"
The Bank of England is gearing up to pump billions more into Britain's economy amid further dire warnings from Governor Sir Mervyn King over the health of the recovery.
Today's quarterly forecasts underlined worsening gloom for the UK as a result of Europe's debt crisis, paving the way for more quantitative easing to kick-start a stalling economy, possibly as soon as next month.
The Bank is already pumping an extra £75 billion into the economy after its latest round of QE last month. But it now reckons prospects are so poor inflation will still come in below its 2% target in two years' time. The latest forecasts signal growth of just 1% next year, with inflation falling rapidly from the current 5% to about 1.2% by 2013.
Interest rates have been at their current 0.5% record low since March 2009, when the Bank launched its first £200 billion round of QE.
Capital Economics economist Samuel Tombs said: "The report both endorses market expectations that rates will stay on hold for the foreseeable future and suggests that more policy loosening will yet be needed.
"What's more, even the MPC's [Bank of England monetary policy committee's] downgraded growth forecasts still look optimistic to us - we expect zero growth next year. We had pencilled in another £75 billion of QE in February, but if the economic news over the next couple of weeks remains weak, the MPC might feel compelled to announce extra support as soon as next month."
The Governor again underlined that Europe remains the UK's biggest threat as the woes of the nation's biggest export market hamper efforts at recovery. He stressed today that the Bank's forecasts do not fully factor in any substantial escalation of the crisis, implying that there could be even worse pain ahead for the UK economy
"The uncertainty that has been created in the European and world economy by recent events must have, or is likely to have, some potential impact on the pace at which businesses will make investment projects - will they postpone projects - and on the pace of household spending. That is almost impossible to forecast, but it is something that we shall watch very carefully," King warned.
The eurozone managed growth of just 0.2% between July and September, but is set to fall back into recession in the final quarter with a knock-on impact on the UK.
Markit economist Chris Williamson warned: "There is clearly a significant risk of a contraction in the final quarter of this year and early next year, with a steep downturn possible if the problems in the euro area worsen."
Courtesy of London Evening Post
Today's quarterly forecasts underlined worsening gloom for the UK as a result of Europe's debt crisis, paving the way for more quantitative easing to kick-start a stalling economy, possibly as soon as next month.
The Bank is already pumping an extra £75 billion into the economy after its latest round of QE last month. But it now reckons prospects are so poor inflation will still come in below its 2% target in two years' time. The latest forecasts signal growth of just 1% next year, with inflation falling rapidly from the current 5% to about 1.2% by 2013.
Interest rates have been at their current 0.5% record low since March 2009, when the Bank launched its first £200 billion round of QE.
Capital Economics economist Samuel Tombs said: "The report both endorses market expectations that rates will stay on hold for the foreseeable future and suggests that more policy loosening will yet be needed.
"What's more, even the MPC's [Bank of England monetary policy committee's] downgraded growth forecasts still look optimistic to us - we expect zero growth next year. We had pencilled in another £75 billion of QE in February, but if the economic news over the next couple of weeks remains weak, the MPC might feel compelled to announce extra support as soon as next month."
The Governor again underlined that Europe remains the UK's biggest threat as the woes of the nation's biggest export market hamper efforts at recovery. He stressed today that the Bank's forecasts do not fully factor in any substantial escalation of the crisis, implying that there could be even worse pain ahead for the UK economy
"The uncertainty that has been created in the European and world economy by recent events must have, or is likely to have, some potential impact on the pace at which businesses will make investment projects - will they postpone projects - and on the pace of household spending. That is almost impossible to forecast, but it is something that we shall watch very carefully," King warned.
The eurozone managed growth of just 0.2% between July and September, but is set to fall back into recession in the final quarter with a knock-on impact on the UK.
Markit economist Chris Williamson warned: "There is clearly a significant risk of a contraction in the final quarter of this year and early next year, with a steep downturn possible if the problems in the euro area worsen."
Courtesy of London Evening Post
Wednesday, 2 November 2011
"Greece fears and UK data put markets into tailspin"
Panic over a nightmare Greek default gripped global stock markets today as dire news from Britain's manufacturers threatened to derail the recovery.
Premier George Panpandreou's shock decision to put Greece's latest bailout to a referendum triggered fears that the beleaguered nation could default and crash out of the euro if the deal is rejected by the people.
The potential collapse of the rescue sent markets into a tailspin with London's FTSE 100 benchmark falling 2.8%, and France's CAC 40 and Germany's Dax both tumbling by 4%. The news came as data showed the UK achieved growth of 0.5% between July and September. However, the figures also revealed the biggest slump in manufacturing for more than two years, stoking fears that the UK's fragile recovery could crash again in the final quarter of the year.
European leaders agreed a second €130 billion (£112 billion) bailout for Greece ¬- including a 50% hit for private bond investors - last week. But the bailout also spells more pain for the hard-pressed population and a recent poll signalled some 60% of Greeks could spurn the deal in what will effectively become a referendum on their membership of the single currency.Greece is already dependent on funds from the 'troika' of the European Central Bank, IMF and European Union to prevent a catastrophic default.
If the nation votes no, Citigroup analyst Jurgen Michels warned: "Greece is likely to run out of funding quickly and would probably move into a disorderly default procedure.
"As Greek banks would run out of collateral, they would also lose the funding of the ECB. As a consequence, Greece would probably be forced to leave the Monetary Union."
The fresh eurozone chaos sent the borrowing costs of debt-laden Italy soaring to fresh records today, triggering more bond-buying from the ECB.
The impact of the crisis was felt again by British manufacturers in October, according to the Chartered Institute for Purchasing and Supply's latest survey. The index, where a score over 50 indicates growth, plunged to 47.4 as new orders shrank at their fastest pace since March 2009 and export orders shrank for the third month in a row.
Markit chief economist Chris Williamson warned of aggressive job cutting from manufacturers to come as fears over Italy and a Greek referendum intensify Europe's woes. He said: "The UK economy faces a significant risk of contracting in the final quarter of the year."
Courtesy of London Evening Standard
Premier George Panpandreou's shock decision to put Greece's latest bailout to a referendum triggered fears that the beleaguered nation could default and crash out of the euro if the deal is rejected by the people.
The potential collapse of the rescue sent markets into a tailspin with London's FTSE 100 benchmark falling 2.8%, and France's CAC 40 and Germany's Dax both tumbling by 4%. The news came as data showed the UK achieved growth of 0.5% between July and September. However, the figures also revealed the biggest slump in manufacturing for more than two years, stoking fears that the UK's fragile recovery could crash again in the final quarter of the year.
European leaders agreed a second €130 billion (£112 billion) bailout for Greece ¬- including a 50% hit for private bond investors - last week. But the bailout also spells more pain for the hard-pressed population and a recent poll signalled some 60% of Greeks could spurn the deal in what will effectively become a referendum on their membership of the single currency.Greece is already dependent on funds from the 'troika' of the European Central Bank, IMF and European Union to prevent a catastrophic default.
If the nation votes no, Citigroup analyst Jurgen Michels warned: "Greece is likely to run out of funding quickly and would probably move into a disorderly default procedure.
"As Greek banks would run out of collateral, they would also lose the funding of the ECB. As a consequence, Greece would probably be forced to leave the Monetary Union."
The fresh eurozone chaos sent the borrowing costs of debt-laden Italy soaring to fresh records today, triggering more bond-buying from the ECB.
The impact of the crisis was felt again by British manufacturers in October, according to the Chartered Institute for Purchasing and Supply's latest survey. The index, where a score over 50 indicates growth, plunged to 47.4 as new orders shrank at their fastest pace since March 2009 and export orders shrank for the third month in a row.
Markit chief economist Chris Williamson warned of aggressive job cutting from manufacturers to come as fears over Italy and a Greek referendum intensify Europe's woes. He said: "The UK economy faces a significant risk of contracting in the final quarter of the year."
Courtesy of London Evening Standard
Wednesday, 12 October 2011
"UK recovery weak, warns think-tank"
A leading think-tank has warned the economic recovery in the UK is the weakest of any since the end of the First World War.
The warning came as the National Institute of Economic and Social Research (NIESR) said its monthly estimates suggest gross domestic product (GDP) grew at 0.5% in the three months to September, compared to a revised 0.4% in the quarter to August.
NIESR said the level of GDP in the period is still 4% below the pre-recession peak - suggesting the recovery is the weakest since 1918.
The figures for the third quarter may surprise some economists who have forecast near stagnant growth between July and September.
The figures come amid deepening fears over the health of the country's recovery and after the Bank of England announced plans to pump an extra £75 billion in to the economy to stimulate growth.
If NIESR's estimate is correct, the third quarter growth of 0.5% would represent a solid bounceback from the 0.1% recorded between April and June. The third-quarter GDP figure will be confirmed by the Office for National Statistics on November 1.
The think-tank still warned growth had been "anaemic" in the UK over the last year.
A Treasury spokesman said the figures supported the Government's case for its deficit-busting austerity measures.
He said: "These figures show that, while the UK cannot isolate itself from what is happening to our major trading partners, the action being taken by the Government to tackle the deficit and rebalance the economy is helping the UK economy to continue to grow.
"Other data published today similarly shows that the economy is recovering but that the financial turbulence in the Eurozone and the weaker outlook for global growth will mean that the recovery will be choppy."
Courtesy of The Evening Standard
The warning came as the National Institute of Economic and Social Research (NIESR) said its monthly estimates suggest gross domestic product (GDP) grew at 0.5% in the three months to September, compared to a revised 0.4% in the quarter to August.
NIESR said the level of GDP in the period is still 4% below the pre-recession peak - suggesting the recovery is the weakest since 1918.
The figures for the third quarter may surprise some economists who have forecast near stagnant growth between July and September.
The figures come amid deepening fears over the health of the country's recovery and after the Bank of England announced plans to pump an extra £75 billion in to the economy to stimulate growth.
If NIESR's estimate is correct, the third quarter growth of 0.5% would represent a solid bounceback from the 0.1% recorded between April and June. The third-quarter GDP figure will be confirmed by the Office for National Statistics on November 1.
The think-tank still warned growth had been "anaemic" in the UK over the last year.
A Treasury spokesman said the figures supported the Government's case for its deficit-busting austerity measures.
He said: "These figures show that, while the UK cannot isolate itself from what is happening to our major trading partners, the action being taken by the Government to tackle the deficit and rebalance the economy is helping the UK economy to continue to grow.
"Other data published today similarly shows that the economy is recovering but that the financial turbulence in the Eurozone and the weaker outlook for global growth will mean that the recovery will be choppy."
Courtesy of The Evening Standard
Friday, 7 October 2011
"Banks and building societies hit by Moody's downgrades"
Britain's beleaguered banks and building societies were dealt another blow today after a debt agency said the decreased likelihood of Government backing made them less credit-worthy.
Lloyds Banking Group, Santander UK, Royal Bank of Scotland, Co-operative Bank, Nationwide and seven smaller building societies saw their credit ratings slashed by Moody's Investor Service.
The move - which triggered a fall in banking shares on the London Stock Exchange - means the cost of borrowing for the affected financial institutions is likely to increase.
RBS, which saw its shares drop more than 3%, also came under pressure after a report in the Financial Times suggested it could require a further bailout from the Government.
The bank said it was "disappointed" that Moody's had not acknowledged its progress in strengthening its finances since 2008.
Moody's stressed its review did not reflect a deterioration in the financial strength of the banking system or the Government.
The move reflects a shift in Government policy to transfer risk from taxpayers to creditors, rather than deepening problems within the banks.
Elisabeth Rudman, senior vice president of the financial institutions group at Moody's, said: "Moody's has lowered the amount of support it incorporates into the institutions' ratings to reflect the overall weakening support environment."
Moody's said the downgrade comes after Government support was removed for the seven small institutions, which include the Norwich & Peterborough, Principality and Yorkshire building societies.
Elsewhere, support was reduced for the larger "more systemically important" institutions including Lloyds and RBS.
While the Government is "likely to continue to provide some level of support" to those banks, it is also "more likely now to allow smaller institutions to fail" if they become financially troubled.
Lloyds, Santander and Co-op Bank have had their ratings downgraded one notch, RBS and Nationwide a two-notch revision, while the seven building societies saw ratings cut by between one and five places.
However, Moody's said on the basis of stand-alone financial strength, five institutions - Co-op, Nationwide, Santander and Yorkshire and Principality building societies - have had their ratings increased.
Taxpayer-backed Lloyds, which is 40.2% state-owned, stressed that its stand-alone rating had not changed.
A Lloyds spokesman said: "It is important to note that both the stand-alone rating and short-term ratings remain unchanged. We believe this change will have minimal impact on our funding costs."
Meanwhile, it is understood RBS, which is 83% owned by the taxpayer, could be liable for another bailout if it fails a rerun of European banking stress tests.
RBS, which received the biggest bailout of the 2008 financial crisis, could see its protective cash buffers fall below regulators' requirements after exposure to eurozone debt is taken into account.
RBS has reduced its exposure to debt-laden nations including Greece and Italy, but it is feared that once so-called "haircuts" - effectively write-offs - are given, the bank will fail to keep up.
Courtesy of London Evening Standard
Lloyds Banking Group, Santander UK, Royal Bank of Scotland, Co-operative Bank, Nationwide and seven smaller building societies saw their credit ratings slashed by Moody's Investor Service.
The move - which triggered a fall in banking shares on the London Stock Exchange - means the cost of borrowing for the affected financial institutions is likely to increase.
RBS, which saw its shares drop more than 3%, also came under pressure after a report in the Financial Times suggested it could require a further bailout from the Government.
The bank said it was "disappointed" that Moody's had not acknowledged its progress in strengthening its finances since 2008.
Moody's stressed its review did not reflect a deterioration in the financial strength of the banking system or the Government.
The move reflects a shift in Government policy to transfer risk from taxpayers to creditors, rather than deepening problems within the banks.
Elisabeth Rudman, senior vice president of the financial institutions group at Moody's, said: "Moody's has lowered the amount of support it incorporates into the institutions' ratings to reflect the overall weakening support environment."
Moody's said the downgrade comes after Government support was removed for the seven small institutions, which include the Norwich & Peterborough, Principality and Yorkshire building societies.
Elsewhere, support was reduced for the larger "more systemically important" institutions including Lloyds and RBS.
While the Government is "likely to continue to provide some level of support" to those banks, it is also "more likely now to allow smaller institutions to fail" if they become financially troubled.
Lloyds, Santander and Co-op Bank have had their ratings downgraded one notch, RBS and Nationwide a two-notch revision, while the seven building societies saw ratings cut by between one and five places.
However, Moody's said on the basis of stand-alone financial strength, five institutions - Co-op, Nationwide, Santander and Yorkshire and Principality building societies - have had their ratings increased.
Taxpayer-backed Lloyds, which is 40.2% state-owned, stressed that its stand-alone rating had not changed.
A Lloyds spokesman said: "It is important to note that both the stand-alone rating and short-term ratings remain unchanged. We believe this change will have minimal impact on our funding costs."
Meanwhile, it is understood RBS, which is 83% owned by the taxpayer, could be liable for another bailout if it fails a rerun of European banking stress tests.
RBS, which received the biggest bailout of the 2008 financial crisis, could see its protective cash buffers fall below regulators' requirements after exposure to eurozone debt is taken into account.
RBS has reduced its exposure to debt-laden nations including Greece and Italy, but it is feared that once so-called "haircuts" - effectively write-offs - are given, the bank will fail to keep up.
Courtesy of London Evening Standard
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