Azure Global : 09/17/13

Tuesday 17 September 2013

UK inflation dips as rise in cost of fuel and clothing eases

CPI inflation fell to 2.7% in August as prices for petrol, diesel and clothes rose by less than they did in August a year ago

nflation eased down to 2.7% in August thanks to smaller price rises for petrol and new autumn fashion ranges but the cost of living continued to outstrip pay rises.

The UK's headline consumer price measure of inflation (CPI) has now been above the 2.0% government-set target for 45 months. Economists expect it to continue on a downward path but have warned there could be a short-term spikes upwards along the way because of volatile oil prices.

In August, the fall to 2.7% marked the second month inflation had eased and was in line with the consensus forecast in the City. CPI was 2.8% in July.

The fall came as prices for petrol, diesel and clothes rose by less than they did in August a year ago, the Office for National Statistics said. That was partially offset by upward pressure on prices from furniture, household appliance, toys and food.

Economists said the slowdown in inflation would bring relief to Bank of England policymakers. They have said they will keep rates low until unemployment falls further unless certain "knockouts" are triggered, including a rise in inflation 2.5% or above in 18 to 24 months' time.

Samuel Tombs at Capital Economics commented: "We continue to think that CPI inflation is likely to fall back to the 2% target within the next few months – a development that would help to ease the squeeze on households' real earnings and cool fears in the markets that one of the inflation knockouts to the MPC's forward guidance is likely to be breached."

But Howard Archer, an economist at Global Insight, said inflation could rise again. "Looking ahead, consumer price inflation is likely to hover close to 3.0% in the near term, and there remains a risk that it could yet reach 3.0% if oil prices spike up anew," he said.

The news on the other closely watched measure of inflation was slightly less reassuring. The retail price index (RPI) rate, which includes housing costs and is used for many pay negotiations, rose to 3.3% from 3.1% in July and was slightly ahead of forecasts for 3.2%.

Both cost of living measures outstrip average pay growth of 1.0%, meaning that many workers' incomes contiunue to fall in real terms.

The Treasury said that CPI inflation was now nearly half its peak of 5.2%, but said it was aware of the continuing strain on households.

"The economy is turning a corner, but the recovery is in its early stages and risks remain," a spokesperson said.

"The government knows that times are tough and that is why we have taken action to help with the cost of living including increasing the tax-free personal allowance, introducing tax-free childcare and freezing fuel duty and council tax."

But the debt charity StepChange said the basic cost of living is becoming increasingly difficult to meet for millions of British households.

"The fall in inflation is welcome, but while wage growth remains anaemic family budgets will be increasingly stretched by spiralling living costs, leaving many vulnerable to debt," said the charity's head of policy, Peter Tutton.

He added that the impact of low wage growth and rising costs is reflected in the growing numbers of StepChange debt charity clients with arrears on essential household bills. Between 2011 and 2012 the number of its clients with arrears on at least one household bill rose from 27% to 35%, while the average arrears on household bills rose from £2,134 to £2,258 over the same period.

Economists highlighted the strain on consumer spending as the wage squeeze continues.

"Weekly earnings are up only 1.1% year-on-year and have been undershooting inflation for much of the past five years meaning that households have been financing real-term increases in spending through borrowing and the running down of savings," said James Knightley at ING Financial Markets.

"Nonetheless, we are hopeful that the ongoing increases in employment and the strengthening economic environment will result in a gradual increase in wages and with inflation trending lower we can start to see positive real wage growth next year. This would give us greater confidence in the UK economic rebound continuing."

Article Source : http://www.guardian.co.uk

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Federal Reserve begins two-day meeting as stimulus taper looms

Speculation mounting that chairman Ben Bernanke is preparing to announce cuts on economic stimulus programme

The Federal Reserve began a two-day meeting Tuesday as speculation mounted that chairman Ben Bernanke is preparing to announce cut-backs on the US's $85bn-a-month economic stimulus programme.

Bernanke will hold a press conference Wednesday to discuss the Fed's plans. The event comes amid speculation that he will announce his resignation: Bernanke has made clear he will not seek a third term as chairman and Barack Obama is now assessing replacements.

The Fed's third round of bond buying, known as quantitative easing, was announced last September and has so far pumped about $800bn into the bond markets in an attempt to kick-start investment and keep interest rates down. In June, Bernanke announced some "tapering" of policy could begin later this year if the economy continued to improve.

The Federal Reserve's open markets committee (FOMC), however, is split on QE with some concerned about the unintended consequences of the massive programme. In previous FOMC meetings some members have made clear they want an early end to the programme.

On Monday, stock markets reacted positively to news that former Treasury secretary Larry Summers had withdrawn from the race to succeed Bernanke. Janet Yellen, the Fed's vice-chairman, is now seen as the most likely successor. Summers was seen as being more critical of QE while Yellen has backed Bernanke in his support of the programme on the FOMC.

Paul Dales, senior US economist at Capital Economics, said the Fed was likely to announce some tapering of QE. "It will be a close call but I think it's more likely than not," he said. "It will depend on whether the Fed believes the labour market has improved enough in the last months, and for the right reasons."

Last month the US unemployment rate dropped to 7.3%, down from 8.1% a year ago. But the pace of job recovery remains slow and part of the drop was due to people leaving the workforce. The labour force participation rate slumped to 63.2%, its worst reading in 35 years.

Dales said it was clear that some members of the committee were becoming increasingly alarmed by the scale of the QE programme. "They are not too sure what the costs are," he said. "Perhaps further asset bubbles or destabilizing the financial markets. They have never done before."

Bernanke has ducked questions about his future at previous press conferences. He will not hold another scheduled FOMC press conference until December. His term is due to expire at the end of January. Despite the tight timetable economists expect him once more to focus on economic policy rather than his future and the appointment of a successor.

Article Source : http://www.guardian.co.uk

Slumping car sales underline fragility of eurozone economy

The UK is the only major European market to record more new passenger car registrations in 2013 than last year

Slumping car sales across the EU in August have underlined the fragility of the eurozone economy, with the cumulative figures for the year to date at a record low.

The UK remained the only major European market to record more new passenger car registrations in 2013 than last year, with 10.9% more sales this August than last.

Across the EU, sales dropped to 653,872 vehicles in August – traditionally a slow month but a figure that still remains 5% lower than in 2012. For 2013 so far, the total stands at just 7,841,596 – the lowest figure since the European Automobile Manufacturers' Association (ACEA) started compiling them in 1990.

After a slight rise in July, the trend continued downwards outside the UK, with what is set to be a sixth straight year of falling sales. Sales slid further in France, Italy and Germany. In Cyprus sales this year are down 40%. ACEA said: "The downturn prevailed across significant markets."

The PSA Group, manufacturer of Peugeot and Citroën cars, continued to lose ground to rivals, with an 18% drop in registrations, while market leader Volkswagen Group's sales fell 11% in August. VW-brand vehicles alone were down 17.3% year on year – a statistic the German manufacturer partly attributed to freak weather that damaged thousands of vehicles ahead of delivery.

Despite the downward trend, analysts believe the picture could soon improve for car manufacturers. Mark Fulthorpe, an automotive analyst at IHS, said: "The general sense we get is that we are now bumping along the bottom. At least in the car market, the rate of decline has slowed.

"There have been some positive developments in France and Germany in recent months, but not enough to offset problems in the periphery – but we may get a more neutral picture ahead."

He pointed to the experience of Britain and the US to argue that car sales in Europe could pick up before a full economic recovery. "The age of vehicles on the road is increasing, and servicing costs and repair costs for older vehicles will give many drivers reason for a newer car when consumer confidence returns at all.

"That has been the impetus for the turnaround we've seen in the American market, where many purchases were deferred in the darkest days of the crisis."

He added: "It's only in last few weeks that commentators in the UK have really thought that the economy has turned, but you can see from the last year's figures that people were already making those big-ticket purchases here."

The UK has now seen 18 months of consecutive rises, with the market for new cars in August up to 65,937 units. Although September's figures will be more significant, the summer continued the trend of double-digit rises.

The Society of Motor Manufacturers and Traders ascribed the growth to increasingly confident consumers being offered attractive terms, including a surge in sales of alternative fuel cars. Mike Hawes, SMMT's chief executive said: "Buyers are clearly capitalising on attractive deals and new technologies against a backdrop of increasing economic confidence."

Article Source : http://www.guardian.co.uk

Lloyds boss in line for bigger bonus as government makes £60m on share sale

António Horta-Osório could be in line for more than £2.2m as chancellor claims part selloff is sign of improving economy

António Horta-Osório the boss of Lloyds Banking Group, is in line for a bigger than expected bonus after the government sold off the first tranche of its stake in the bailed-out bank for a £60m profit.

The Lloyds chief executive stands to collect more than £2.2m if the shares stay above 73.6p – the price paid by taxpayers for their stake during the 2008 bank bailouts – for 30 consecutive days or if the government sells off a third of its stake above 61p, the price the shares were trading at during the bailouts.

His bonus, when it was awarded in March, was originally worth £1.5m but it has steadily increased in value as the 3m shares he was awarded have risen from 49p to 74.65p – the level they closed at on Tuesday night after the government sold off 15% of its holding. He will receive the shares in 2018 if the requirements are met.

The share sale, which leaves the taxpayer with a 32.7% stake, down from 38.7%, prompted George Osborne to claim the economy had turned a corner and to insist he would get back the entire £65bn of taxpayers' money ploughed into the banks to keep them afloat in 2008- 2009.

The share sale came five years to the day after Lloyds TSB rescued HBOS to create the enlarged group. UK Financial Investments, the government body that looks after the stakes in the bailed-out banks, said the 6% stake – some 4.2bn shares, worth £3.15bn – was placed with major investors at 75p a share. Some £45bn of the £65bn bailout cash was used to prop up Royal Bank of Scotland but a sale of the taxpayer's 81% stake is being delayed by a review of whether to hive off a bad bank.

Osborne tweeted: "Confirm have sold 6% of Lloyds shares at 75p. Profit for taxpayer & important step in plan to get their money back and repair economy."

He later spent part of the day with Horta-Osório at one of Lloyds' operations in Birmingham. "If you look at what has happened over the last 12 hours with Lloyds, you have investors from around the world investing in a British bank. That is a sign the British economy is turning a corner," he said.

"Five years ago the previous government forced British taxpayers to put a huge sum of money into bailing out the banks. That was a big ask of the British public. I have been determined ever since I became chancellor to get that money back for taxpayers."

The chancellor said the money would be used to reduce the national debt by £586m, based on the 61p value of the Lloyds stake in the nation's accounts.

Ian Gordon, banks analyst at Investec, said the government may now be able to sell off its entire stake before the May 2015 general election.

He said: "Many aspects of government/Bank of England policy – [such as] the 'Funding for Lending' scheme, which caused the collapse of retail savers' interest rates, and overt support for the housing market through the 'Help to Buy' scheme – have been distinctly positive for Lloyds".

The biggest block of buyers for shares was saidHalf the shares are understood to have been sold to UK investors, with 30% going to the US and 20% to other international buyers.

The government has promised not to sell off any more Lloyds shares for 90 days and there is little expectation of a quick sale of RBS while the review into whether to a create a bad bank is under way.

But analysts at Jefferies reckoned it might yet be possible. "UKFI's sale of 6% of Lloyds in a simple manner is unequivocally positive for that bank and also for RBS, in our view."

Article Source : http://www.guardian.co.uk

Barclays loan customers could be in line for windfall after paperwork errors

Bank could face costs of £100m to repay interest to customers whose statements did not comply with Consumer Credit Act

As many as 300,000 Barclays personal loan customers could be in line for a windfall after the bank uncovered "errors" in its paperwork.

Barclays said it was "implementing a plan to return interest payments to customers as swiftly and efficiently as possible" after reviewing the documentation sent to customers in past years.

The bank did not disclose the size of the bill but could face costs of £100m to repay interest to customers who should not have been charged during the period because their statements did not comply with the Consumer Credit Act.

The error appears to be similar to one that led to the taxpayer having to pick up a £270m bill for windfalls to 152,000 people who have, or had, a personal loan with Northern Rock. That blunder was disclosed in December 2012.

The Barclays disclosure was contained in the prospectus accompanying the bank's £6bn cash call. The bank said that a provision of an undisclosed size had been made for these costs and also revealed that it was now reviewing all its businesses – Barclaycard, Barclays Wealth and Barclays Corporate – to assess them for similar problems.

A Barclays spokesman said: "Barclays has proactively reviewed information it has historically sent to its customers relating to interest charges where we have found technical documentary errors. As a result, Barclays has identified certain issues with the information contained in some statements and arrears notices relating to consumer loan accounts."

He added that as a result of these errors, interest was not due on some accounts during the period that the bank made this mistake.

"While no one has been mis-sold to, customers are entitled to have their interest payments returned. No customer will pay more than they were ever contractually expected to," said the spokesman.

"Barclays has notified the Office of Fair Trading, which is responsible for consumer credit issues, and is implementing a plan to return interest payments to customers as swiftly and efficiently as possible. Barclays is undertaking a review of all its businesses where similar issues could arise to assess any related issues."

Any affected customer would be contacted by the bank and customers do not need to take any action, said the spokesman.

The Northern Rock error involved some customers with certain types of loan not being given all the information in their statements they were entitled to by law. As a result, interest payments on these loans were not legally enforceable.

The statements had failed to include the original amount borrowed. The Consumer Credit Act requires such statements to contain the sum borrowed, plus the opening and closing balance. Borrowers are not liable for interest relating to a period when a lender has not provided the information.

In the case of Northern Rock, most people had their loan account balance "corrected" to reverse the consequences of them being charged interest during the period when the paperwork did not meet the legal requirements. However, if the loan had already been paid off, they received a cash refund.

Article Source : http://www.guardian.co.uk

Government kicks off Lloyds sale

Announcement after closure of stock exchange marks significant step in returning bailed out bank to private sector

The government on Monday began to sell off its stake in Lloyds Banking Group in a move that marks a significant step in returning the bailed out bank to the private sector five years after the financial crisis began.

The announcement was made just after the stock market closed when the banks advising the government started to approach major investors about buying chunks of the 4.2bn shares – currently valued at £3.3bn – being sold.

About 6% of shares in the group are being sold, which would reduce the government's stake from 38.7% to 32.7%.

The timing, in the midst of the Liberal Democrat party conference, means the Lloyds shares will be sold ahead of the £3bn privatisation of Royal Mail, although the size of the stake being sold is smaller than some City analysts had expected.

After conducting a daily analysis of the Lloyds' share price throughout the summer, UK Financial Investments (UKFI), the body set up to look after the stakes in the bailed out banks, advised George Osborne earlier on Monday afternoon that it is now time to kickstart the privatisation.

Osborne said on Monday night: "Five years ago the previous government used taxpayers' money to bail out the banks and I've been absolutely determined to get that money back for taxpayers so we can pay down debt. Today we have started to do that and it is another step in the long journey to repair what went so badly wrong in the British economy."

The exact price at which the shares are sold was expected to be announced on Tuesday, as the fifth anniversary approaches of the rescue of HBOS by Lloyds TSB to create the enlarged Lloyds Banking Group. The bank was eventually bailed out with £20bn of taxpayer money.

The government is expected to be able to claim it has made a profit – albeit a small one – on the sale which has been the subject of much speculation since the chancellor's Mansion House speech in June when he signalled preparations for the privatisation of Lloyds but played down the prospect of a quick sale of bailed out Royal Bank of Scotland.

In that speech, Osborne signalled that after a sale of Lloyds shares to major institutions, retail investors would be given the chance to buy shares. This option has not been ruled out, and the Policy Exchange thinktank is recommending a sale of the remaining stake through a mass distribution to taxpayers.

Since the speech, major investors have been sounded out by UKFI and its advisers about buying the shares and have already signalled their willingness to buy the stock, which has rallied sharply – in part helped by the government's housing schemes, which have bolstered the mortgage market.

"We want to get the best value for the taxpayer, maximise support for the economy and restore them to private ownership. The government will only conclude a sale if these objectives are met," a Treasury spokesman said.

But Chris Leslie, shadow financial secretary to the Treasury, said Osborne was continuing to duck "serious reform of our banking sector".

"It's vital that taxpayers get their money back and this must be the prime consideration in the sale of the government's stakes in the banks. And as Labour has consistently said any profits from the sale should be used to repay the national debt," Leslie said.

The shares closed on Monday night at 77.3p – above the 73.6p average price at which the government spent £20bn buying the stake. The shares are likely to be sold at a slight discount to that price but still higher than the average price at which they were bought and well above the 61p stated in the national accounts.

The 61p level represents the average price at which the shares were trading on the days the government bought the shares, rather than the actual price paid.

The government had already indicated it regards 61p as its benchmark for the sale and this is the price to which it has linked the £1.5m bonus of the chief executive of Lloyds, António Horta-Osório. He can receive his bonus if a third of its stake is sold above 61p.

Horta-Osório said the sale "reflects the hard work undertaken over the last two years to make Lloyds a safe and profitable bank that is focused on supporting the UK economy".

UKFI – which also announced that James Leigh-Pemberton, son of former Bank of England governor Robin Leigh-Pemberton, is to be its new boss – said it would not place any more shares for 90 days.

Paras Anand, head of European equities at Fidelity Worldwide Investment, said the placing was "a clear sign of confidence that the bank is well on the road to recovery".

RBS sale must wait

The launch of the Lloyds shares sale puts its prospects in stark contrast to those of Royal Bank of Scotland, the other financial institution rescued with taxpayer money.

While Lloyds embarks on its path back into private hands, a sale of RBS – which is 81%-owned by the taxpayer – is clearly further away. Its share price is still well below the level where taxpayers stepped in and George Osborne has commissioned a review by investment bankers at Rothschild into whether it should be broken up into a good bank and a bad bank.

The rescued bank's boss Stephen Hester resigned in June in a move intended to speed up a sell-off of the taxpayer stake, bought for £45bn in 2008 and 2009 to stop the Edinburgh-based bank collapsing.

RBS managementrs have said it could be ready for sale from the middle of 2014 – or even earlier. But the Rothschild review process delays any potential privatisation and the chancellor has said selling the government's stake is "some way off".

The results of the Rothschild review are expected later this month and in the meantime support for a split has been growing.Shares in RBS closed at 366.5p last night, a level that represents a £12bn loss on the money ploughed in by the taxpayer, at an average price of around 500p.

Article Source : http://www.guardian.co.uk