Bank of England could raise interest rates next spring, says MPC member

MPC member Ian McCafferty says market expectations rates could rise in the second quarter of 2015 are 'not unreasonable'

A Bank of England policymaker has reinforced expectations that the first rise in interest rates will come as soon as next spring, in remarks that pushed up the pound.

Ian McCafferty, a member of the monetary policy committee, said that market expectations that the Bank of England will start to raise rates in the second quarter of 2015 are "not unreasonable". He told news agency Reuters in an interview that wage deals in coming months would be "quite critical" as policymakers watch for inflation risks.

Under governor Mark Carney, earlier this month the Bank overhauled its forward guidance policy on when rates would rise from their record low of 0.5%. At the time it said a view in markets that rates could rise in the second quarter of 2015 was consistent with its goal of keeping inflation close to the government-set 2% target. McCafferty told Reuters: "In that sense, you'd have to say that that market curve is not unreasonable.

"The exact timing of course is going to depend on events that have yet to unfold in terms of how the recovery proceeds over the course of the next six to 12 months or so."

Following his remarks being published, the pound rose to session highs against the dollar and euro.

McCafferty, a former chief economic adviser to business group CBI, said he was watching for pressures on inflation from pay deals negotiated in coming months. After years above its target inflation has now fallen below 2%, to stand at 1.9% in January.

"I suppose my view would be if anything, the risk I am watching for, because I think it fits with our mandate, is were we to see inflation risks or inflation behaviour start to develop," he said. "At the moment, that seems to be well under control.

"If we did see some inflationary pressure – more than we currently expect in our central case – that would if anything, I suspect, lead the committee to consider slightly earlier rate rises."

The policymaker said another factor to watch was the strength of the pound, which last week strengthened to a four-year high against the dollar.

"Were it to continue to rise, I would get more worried," McCafferty said, and indicated further strengthening could delay a rate hike.

"It's clearly a consideration in terms of total monetary conditions in the economy so we would need to take it into account when determining what the appropriate monetary stance would be going forward," he said.

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HSBC hands allowances to hundreds of bankers to avoid EU bonus cap

Britain's biggest bank awards staff 'fixed pay allowances' to side-step restriction on bonuses imposed by Brussels

A defiant HSBC is handing its chief executive, Stuart Gulliver, allowances worth £32,000 a week – on top of his £1.2m salary – to get around the EU's cap on bonuses, in a move that is expected to be replicated by the other high street banks.

HSBC became the first UK bank to reveal how it will sidestep the pay restrictions imposed by Brussels, as it further fuelled the debate over City pay by also revealing that 239 of its bankers received more than £1m last year. Gulliver, the boss of Britain's biggest bank, hit out against the new rules, which restrict bonuses to 200% of salary even with shareholder approval, but the TUC accused HSBC of "soaraway boardroom greed".

The £1.7m "fixed pay allowance", paid in shares every three months on top of Gulliver's salary, will ensure he is paid a minimum of £4.2m a year, up from £2.5m now. Similar allowances, in shares that cannot be sold for five years, are being handed to 111 top bankers at HSBC, while another 554 are to be handed extra payments in cash.

The move prompted Labour to call for a repeat of its bonus tax while the Robin Hood Tax campaign said the payments bolstered its argument for a tax on financial transactions.

"HSBC haven't so much circumvented rules on bonuses as driven a coach and horses through them. The only way to rein in bankers' remuneration is to make banks pay their fair share to society," a Robin Hood Tax campaigner said.

The TUC general secretary, Frances O'Grady, said: "It would be great if banks put the same effort into lending to small businesses and investing in infrastructure as they do to getting round EU rules on boardroom bonuses."

HSBC's response to the Brussels bonus cap was contained in its annual report, which showed profits rose 9% to $22.5bn (£13.6bn) in 2013, when its bonus pool for staff rose 6% to $3.9bn.

A year ago HSBC made $20.6bn profits and paid 204 of its staff more than £1m, although its shares were among the biggest fallers in the FTSE 100 index of blue chip shares on disappointment that the profit rise was not greater.

However, the rise in bonuses at HSBC was in contrast to Barclays, which increased them by 10% even though its profits fell 32%. HSBC said its dividends to shareholders were up 11% while staff costs were down 6%. Barclays is among the banks – including the bailed-out Lloyds Banking Group and Royal Bank of Scotland – that are expected to follow HSBC by handing out allowances to top staff as they respond to the EU cap on bonuses, which affects payouts to be made this time next year.

The disclosures by HSBC came as the pay-setting committee of RBS prepared to meet to confirm the bonus pool for its 120,000 staff. The size of the pot, expected to be £500m, will be announced on Thursday, when the 81% taxpayer-owned bank is expected to report losses of £8bn.

"We don't want to do this at all," said Gulliver, whose total pay and bonuses in 2013 were £8m, up from £6.3m the previous year. He stressed his maximum potential pay each year would fall to £11.4m from £13.8m to counteract the rise in the fixed part of his pay. Gulliver, who started his career at HSBC more than 30 years ago as a currency dealer, also receives £79,000 for the use of cars in Hong Kong and accommodation there worth £229,000.

George Osborne is taking legal action against the Brussels cap and Gulliver said the bank would revert to its previous schemes if this was successful.

"We had a compensation plan here that the shareholders liked but sadly because of the EU directive we've had to change. This isn't something we would have wanted to do … It's much more complicated," Gulliver said.

The Bank of England's Andrew Bailey has warned the cap could lead to a £500m rise in fixed salary costs at the big banks and make them riskier. Andrew Tyrie, the chairman of the Treasury select committee who also chaired the parliamentary commission on banking standards, said: "A crude bonus cap does nothing to incentivise higher standards. What we need is a fundamental reform of the bonus culture including much longer deferral and much greater scope for clawback, as the banking commission proposed."

HSBC – which after a £1.2bn fine in 2012 is subject to tough restrictions imposed by the US authorities – risked further controversy over pay by revealing that its chairman, Douglas Flint, who in the past has not received bonus payments, is line for new share awards because of his role in "intense regulatory change". The move could allow Flint to receive maximum pay of £4.6m a year, up from £2.4m.

Gulliver has taken the axe to costs since being promoted to chief executive three years ago, cutting 40,000 roles and pulling out of 63 countries or businesses. The bank – one of the highest dividend payers in the FTSE 100 – said that the government's bank levy on its balance sheet had cut its dividend by $0.05 per share as it had cost $904m last year, while it had set aside another $395m for misselling payment protection insurance and products to small businesses. From the start of this year, the bank has changed the way it pays the staff in its retail division to remove the link between sales and bonuses, with a view to cutting misselling bills.

Despite the controversy over the cap, Gulliver gave a clear commitment to remaining in the UK, although the bank generates less than 10% of its profits here. Some 70% of its business is generated in Hong Kong and the Asia-Pacific region, and Gulliver said that 208 bankers in London would receive the three-monthly allowances compared with 395 outside the UK. It employs 254,000 people, 46,000 of them in the UK.

In total the bank has 1,318 employees whose bonuses must be capped under the new rules – those regarded as taking and managing risks – but just over 650 will receive no extra allowances.

In more than 600 pages of documents, the bank also gave further breakdowns of staff pay, revealing for the first time the number of staff paid more than €1m – some 330 – and that 192 bankers defined as key staff received an average pay deal of $1.5m (£900,000).

Barclays has told staff affected by the cap that they will receive the payments, called role-based allowances, each month alongside their salaries but has yet to disclose how much its chief executive, Antony Jenkins, will receive. Jenkins has turned down a potential bonus of £2.7mon top of his £1.1m salary but still stands to receive at least £4m from long-term share plans due to be released next month.

The new boss of RBS, Ross McEwan, has waived his payout. António Horta-Osório, the boss of Lloyds, is receiving a £1.7m bonus on top of his £1m salary, a £500,000 pension contribution and a payout from a long-term incentive plan that could total £2.9m – half the potential sum – when it is formally revealed next month.

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UK unemployment rate ticks up, underlines steady stance on rates

Britain's unemployment rate unexpectedly edged up in the three months to December to mark a first rise in almost a year, underlining a message from the Bank of England that it is in no rush to hike borrowing costs.
The jobless rate edged up to 7.2 percent in the three months to December compared with 7.1 percent in November, the Office for National Statistics said on Wednesday.

That was the first rise since the three months to February 2013 and was higher than the unchanged reading forecast by economists in a Reuters poll.

But the number of claimants of jobless benefits - a narrower category than those who are deemed unemployed - fell for the 15th consecutive month, while wage growth accelerated.

That suggested a mixed picture for the labour market, adding weight to last week's shift of emphasis by the central bank to a broader range of measures of slack in the economy when considering changes to monetary policy.

The BoE was forced last Wednesday to overhaul its previous forward guidance policy that hinged on a 7.0 percent unemployment rate threshold, a level almost reached in the three months to November.

It also said it was in no rush to hike rates.

The minutes from the BoE's last meeting, also released this Wednesday, showed policymakers had no disagreements about major changes to the central bank's forward guidance policy.

"(With) weaker inflation below target, the unemployment rate tantalisingly moving away from their threshold, it helps to take the pressure off the BoE for early rate increases," said Brian Hilliard, economist at Societe Generale.

Sterling fell to a session low against the dollar and the euro while gilt futures extended gains after the data.

The ONS said the number of people claiming jobless benefits fell by 27,600 in January, compared with a forecast for a decline of 20,000 in a Reuters poll.

Wage growth has lagged inflation over the last years, and the squeeze on incomes is a key battleground of next year's general election.

Average weekly earnings rose by 1.1 percent in the three months to December 2013 compared with the same period in 2012 - its highest since July last year, although still below the inflation rate.

Excluding bonuses, average weekly earnings rose by 1.0 percent by the same comparison.

The annual inflation rate was 1.9 percent in January - below the BoE's target for the first time in over four years.

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UK inflation falls below Bank of England's 2% target

Rate dropped to 1.9% in January, the first time it has dipped below target in more than four years

Inflation fell below the Bank of England's 2% target for the first time in more than four years in January, brightening the outlook for Britain's squeezed consumers.

The annual rate of inflation dipped to 1.9% last month from 2% in December, according to the Office for National Statistics, driven lower by prices of furniture and other household goods, alcohol and tobacco, DVDs and tourist attraction entry costs.

It was the first time since November 2009 that inflation has fallen below target. Economists said the figures reflected particularly aggressive discounting this year as retailers competed in the January sales.

Inflation has been falling steadily in recent months after reaching a peak of 5.2% in September 2011. It finally returned to the 2% target for the first time in four years in December.

Economists said inflation was likely to fall further in the coming months, boosting the chance that wage growth will outpace inflation in 2014 for the first time in years, easing the pressure on household budgets.

Wage growth was just 0.9% in the latest available data for the three months to November, still less than half the inflation rate.

"There is a good chance that CPI inflation will fall to as low as 1% by the end of this year and remain subdued thereafter," said Samuel Tombs, UK economist at Capital Economics.

"This should enable real earnings to rise for the first year since 2007 and allow the [Bank's] monetary policy committee to keep interest rates on hold until well into next year."

Despite a backdrop of falling inflation and economic growth, the Bank of England made it clear last week it is in no hurry to raise interest rates – which have been at an all-time low of 0.5% since March 2009 – suggesting there would be no rise until after the general election next year.

The Bank's governor, Mark Carney, said its policymakers would not take risks with this recovery, which is as yet "neither balanced nor sustainable".

The retail prices index, historically used to calculate wage rises, rose to 2.8% in January from 2.7% in December, driven higher by insurance, air fares and fuel prices.

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Former Barclays bankers charged over Libor allegations

The three men are the first former or existing Barclays staff named in criminal proceedings linked to interest rate fixing allegations

Three former Barclays bankers have been charged in relation to allegations of a conspiracy to manipulate Libor interest rates.

The Serious Fraud Office said the men were charged in connection with an allegation of conspiracy to defraud between 1 June 2005 and 31 August 2007.

The bank was fined £290m by US and UK regulators two years ago for a "serious, widespread" role in trying to manipulate Libor rates. There was no admission of criminal liability but the scandal ultimately led to the departure of the chief executive, Bob Diamond.

Although Barclays was the first of several banks to reach a regulatory settlement of Libor allegations, neither existing nor former employees had been named in criminal proceedings until Monday.

The focus of criminal proceedings until now has been a former Citigroupand UBS trader, Tom Hayes, who is charged with conspiracy to fix Libor with employees at eight other financial firms including Royal Bank of Scotland, JP Morgan Chase, Deutsche Bank, Icap, Tullett Prebon, Rabobank RP Martin and HSBC.

It is thought that the latest charges brought against former Barclays staff relate to a separate alleged conspiracy, unrelated to the alleged plots between August 2006 and September 2010 involving Hayes.

The three former Barclays bankers are Jonathan Mathew, who worked in the bank's treasury unit in London and left this position in September 2012, Peter Johnson, who is thought to have been a senior dollar Libor submitter in London, and Stylianos Contogoulas, a former trader at Barclays who moved to Merrill Lynch in July 2006 and left there in September 2011.

Barclays declined to comment.

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House price boom brings new wave of sellers into the market

Property website Rightmove says shortage of homes and buying frenzy have driven asking prices to record level

Surging house prices have prompted a wave of sellers to put their homes on the market, according to Britain's biggest property website, Rightmove, but it added that near-frenzied buying activity is sending asking prices to record levels.

The average asking price on the site jumped by £8,103 in January, equal to £261 a day, with the typical property now costing £251,964. Rightmove also said it had its 10 busiest days ever in January, with house hunters looking at 50m property pages a day for the first time, or about 500 a second.

The number of potential buyers sending emails to inquire about properties was also up around one-fifth compared with January last year and there was "firm evidence that interest is serious and being followed up", it said.

The booming market has provoked a big increase in the number of sellers, with 18% more properties being listed than a year ago. But Rightmove said it is yet to affect the supply shortage, as the number of homes being snapped up and removed from the site has risen in tandem.

Estate agents said they were also seeing more sellers come to the market. Haart, which is part of the largest estate agency group in the UK, said the number of properties advertised in its windows had increased by 10.6% over the past year. Its chief executive, Paul Smith, said: "It's good news that stock levels are increasing. However, new buyer registrations are up 41.2% annually so the market is still out of kilter."

The conventional approach to buying a home - where someone finds a house they like, then puts theirs up for sale – is breaking down in many local markets, where estate agents are not interested in prospective buyers unless they have sold already and can proceed immediately.

"Especially in the south, agents report that buyers with a property yet to sell are losing out to buyers able to proceed with speed," said Miles Shipside, a director and housing market analyst for Rightmove.

But bubble-like conditions in some parts of the country are making first-time buyers stretch themselves too far, warned the government-backed Money Advice Service. It researched 1,000 first-timers who had bought over the past two years, and found that one in five wished they had bought somewhere cheaper.

More than half admitted that the running cost of their first home was also more than expected, prompting the service to warn buyers: "You can afford your mortgage, but can you afford your home?"

Affordability is most stretched in London and the south-east. Haart said that over the past year, the average property it sold in London went up by 18.4% to £448,800, a rise of £69,784 over the year, double the average salary of a Londoner.

A Guardian/ICM poll last week found a growing exhaustion with rising house prices among the general population. Only 14% of people want house prices to continue to rise, while 63% would prefer they remain stable and 20% want prices to fall.

When asked to name the biggest problem in housing, 29% said it was buyers priced out of the market, a quarter said it was the lack of council housing, and 15% said it was excessive private rents.

But despite their despair over prices, most households expect them to continue to rise this year. A sentiment index produced by the upmarket agents Knight Frank found that households in every region of the UK perceive that the value of their home will rise over the next 12 months.

Expectations that rising interest rates may puncture a potential property bubble were dashed last week by the Bank of England governor, Mark Carney. He said he was comfortable with the City's view that interest rates would not rise before the spring of 2015 and then rise gently to 2% by 2017.

Figures from the Office for National Statistics suggest that higher house prices are also provoking a building boom. Figures released late last week revealed that in 2013 there was 1.3% annual growth in construction output, but it was "almost solely" attributed to house building, which jumped by 10.4% (£2.1bn) year on year.

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Lloyds in £1bn tax dispute with HMRC over Irish losses

Bank reveals it is in a £1bn tax dispute with HMRC over the way it has used losses from its Irish buisness to cut its tax bill

Lloyds Banking Group faces a £1bn tax demand from HMRC related to billions of pounds of loss taken in Ireland by the state-backed lender as it wound down its defunct Irish subsidiary.

The lender revealed it was warned in the second half of last year that the UK tax authorities were not happy with its treatment of Irish losses to offset its tax bill, prompting a legal dispute between Britain’s largest retail bank and HMRC.

If the case is decided in HMRC’s favour, Lloyds has said its tax bill will rise by £1bn, with the bank forced to pay a further £600m of tax, as well as write off a £400m deferred tax asset that it would currently be able to write off against future profits.

In a statement to investors the bank said: “The group does not agree with HMRC’s position and, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due.”

The disclosure of the tax dispute came as Lloyds published its full-year results, which showed the lender had made a pre-tax statutory profit of £415m, reversing a loss in 2012 of £606m.

On an underlying basis, which strips out provisions such as the £3.1bn set aside for payment protection insurance compensation costs, the bank made a profit of £6.2bn.

The profit is the bank’s first in three years and led Antonio Horta-Osorio, chief executive of Lloyds, to confirm he would accept a £1.7m all-share bonus for 2013. The bonus will be deferred until 2019 and will be subject to several performance hurdles linked to the future performance of the business.

As well as Mr Horta-Osorio’s own bonus, Lloyds confirmed it had put aside an overall staff bonus pool worth £395m, equating to an average payout to each of the bank’s staff of £4,500.

Sir Win Bischoff, chairman of Lloyds, said the payment of the bonuses was “proportionate and fair”, adding that the payouts at the bank were “lower than anyone else”.

In an unscheduled update this month, Lloyds pre-released its underlying profit and PPI provision figures as they differed materially from market expectations.

Mr Horta-Osorio said Lloyds had been transformed into a “normal bank”, five years on from its state-funded rescue that saw the taxpayer take a 39pc stake in the bank, since reduced to 33pc.

Lloyds is in the process of preparing a prospectus for a second sale of the state’s holding in the bank that is expected to see the Treasury authorise a further disposal of the shares within months, including a first offer of the stock to the general public.

Mr Horta-Osorio said: “We have continued to improve the bank and the price [of the shares] is substantially above the price at which the first tranche was sold in September, 75p, and the bank is ready to sell another tranche, but it is absolutely up to the UK Treasury to decide when and how to do it.”

Shares in Lloyds fell on Thursday, closing the trading session down 2.72pc at 81.26p, valuing the bank at £41.2bn. However, even at this share price the stock is well above the Treasury’s break even point of 73.6p.

As part of the continuing turnaround of the lender, Mr Horta-Osorio said work had begun on an updated strategy for the bank that will map out its objectives for the next three years. The Lloyds chief said the plans would be published before the end of the year.

“Over the last three years we have reshaped, strengthened and simplified our business to create a low-risk efficient retail and commercial bank that is focused on our customers and on helping Britain prosper. This progress has seen the Group return to statutory profit in 2013 and despite our legacy issues, further strengthen our capital position,” said Mr Horta-Osorio.

He added: “As a result we expect to apply to the regulator in the second half of the year to restart dividend payments. This will be another important milestone on our journey to rebuild trust and confidence in our Group”

Lloyds will in the summer launch the £1.5bn float its 631-branch TSB subsidiary through a listing on the London market.

However, after spending £1.6bn to create the business as part of a European Commission ordered disposal necessitated by its 2008 bailout the sale is not expected to generate a profit for the bank.

The TSB business, previously known as Project Verde, had originally been expected to be sold to the Co-op Bank, but the troubled lender was eventually forced to pull out of the deal as the extent of its own capital problems became clear.

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Barclays cull to clear out senior bankers

Barclays is planning to cut 820 managing director and director-level staff, of which about half are expected to come from its investment banking arm, as part of an effort to reduce costs

Hundreds of senior Barclays investment bankers and managers face being made redundant this year, along with thousands of ordinary staff, as the lender looks to cut as many as 12,000 jobs.

Barclays is planning to cut 820 managing director and director-level staff, of which about half are expected to come from its investment banking arm, as part of an effort to reduce costs across the bank.

UK-based staff will bear more than half of the overall job cuts, with Barclays set to make about 7,000 British staff redundant as it increasingly uses IT to replace jobs and accelerates the closure of branches.

At present, Barclays employs almost 140,000 staff in offices and branches across the world.

Officials from the Unite union yesterday held talks with the bank at its London headquarters to discuss the cuts, which come as the country’s other major high street banks all continue to look for further cost savings

The job losses came as Barclays said it would increase the size of the average bonus paid to its investment bankers by 10pc to £60,100, despite a 37pc fall in the division’s profits last year.

The fall was largely caused by a slowdown in trading activity in the final three months of last year, which led the investment bank to record a loss for the period of £329m.

The Institute of Directors said: “[It] cannot be right in any business for the executive bonus pool to be nearly three times bigger than the total dividend payout to the company’s owners.”

It added: “We would like to see shareholders take a more aggressive role in the governance of the bank.”

Shareholder dividends for 2013 will total £859m, compared to a total staff bonus pool for last year of £2.38bn. This equates to a dividend-to-compensation ratio of 2.77, a slight improvement on last year’s figure of 2.98, when the bank paid out £733m to its investors, but £2.17bn in bonuses.

Andrew Tyrie MP, chairman of the Treasury select committee, questioned Barclays’ decision to defer bonuses by just three years amid a push to extend deferral periods out to at least five years.

“Barclays’ bonus deferral, at three years, looks too short. Shareholders also need to make up their minds whether aggregate remuneration is justified by the return on equity,” said Mr Tyrie.

Fears over the bank’s performance led its shares to trade down more than 7pc at points during yesterday’s session, but the stock rallied to close down 2.17pc at 269.03p, valuing the lender at £43.4bn.

Among the disappointments in Barclays’ results was its continuing inability to generate a return on shareholder equity which, measured on a statutory basis, is just 1pc – while the bank’s cost of equity is put at 11.5pc.

Antony Jenkins, chief executive of Barclays, said he hoped to improve returns so that by 2016 the business would be making a return greater than its cost of equity and defended the bank’s bonuses.

“We need to recruit people from Singapore to San Francisco. We need the best people in the bank to drive long-term sustainable returns for our shareholders,” said Mr Jenkins.

“I understand that there will be some (people) who feel that this decision is the wrong one for Barclays. But it is the decision of the board and myself that this entirely is the right decision for the group and in the long-term interests of shareholders,” he said.

“At Barclays we believe in paying for performance and paying competitively. Ensuring that we have the right people in the right roles serving our customers and clients effectively in a highly competitive global environment is vital to our ability to generate sustainable shareholder returns.”

The release of the results followed two unscheduled announcements in the past two weeks of various financial figures by Barclays. Last month, the bank published a surprise update pointing to its progress on hitting its cost targets and the size of fourth-quarter charges for litigation and financial penalties.

This was followed on Monday by a second announcement following the apparent leak of sensitive financial data that forced Barclays to publish its pre-tax profit figures one day ahead of schedule, which showed it had made a statutory pre-tax profit of £2.9bn and £5.2bn after adjusting for one-off items.

Barclays is the first major British lender to report its full-year results and will be followed tomorrow by Lloyds Banking Group.

In the case of Lloyds, the bank has already published its pre-tax profits after its own unscheduled update this month where it said it had made an underlying profit for last year of £6.2bn.

Concerns were also raised over the fall in the bank’s Tier 1 core capital ratio, which fell from 9.6pc at the end of the third quarter to 9.3pc by the end of last year.

The fall was driven by larger-than-expected regulatory capital requirements and highlighted the increased capital costs the bank will face as it attempts to improve returns.

Filippo Alloatti, a senior analyst at fund manager Hermes, warned that Barclays executives faced a “conundrum”. He said:

“The much-maligned investment bank is still generating more than 60pc of group profits, helping to slowly expand its capital base and pay a dividend. However, the very same investment bank is, considering Basel [III capital] requirements and the Financial Stability Board’s mandate, limiting the strategic options for Barclays.”

Mr Jenkins said banking was going through a “100-year transformation” as technology and cost pressures reshape the industry, and he was optimistic that Barclays was well set for a “pivotal” 2014.

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Bank of England launches inquiry into forex manipulation claims

Senior currency trader says Bank officials condoned information sharing between traders under investigation

The Bank of England has launched an internal inquiry into allegations that its officials endorsed sharing of information between traders in the foreign exchange market, the central bank's deputy governor told MPs.

The inquiry will examine claims that at a meeting between Bank officials and senior currency traders last April the officials said it was permissible for traders in different banks to share information about clients' positions ahead of the setting of a benchmark rate in the foreign exchange market.

Andrew Bailey told the Treasury select committee: "The governors of the Bank have taken the claims about the meeting with the Bank's officials extremely seriously since we first heard about these allegations. Just so you know, we first heard about them in October.

"The governors immediately initiated a full review into it led by the Bank of England's legal counsel but also supported by external legal counsel and also in close collaboration with the FCA [financial conduct authority]."

Bailey, who is in charge of supervising financial firms, said the Bank had found no evidence that officials had endorsed sharing of information but added: "We do not regard that review as over."

Bloomberg News reported last week that a senior currency trader had informed the financial conduct authority that Bank staff at the April meeting had condoned information sharing. Alleged collusion in setting benchmark rates in the foreign exchange market is at the centre of allegations of market manipulation that could be as big as the Libor scandal.

Bailey said the Bank's inquiry had not yet seen the anonymous trader's notes from the meeting.

Bailey agreed with committee member Pat McFadden that if true the allegations would be "extremely damaging" to the Bank's reputation.

"I agree with you on that. That is why we have set up this investigation and this process," Bailey said. "The governors take the whole question of the reputation and integrity of the central bank extremely seriously. It's the most important thing we have."

The benchmark in question is used to price a wide variety of financial products and is the subject of regulators' attention amid allegations that traders at rival banks were sharing information about their orders from clients to manipulate the price.

A record of the April meeting released by the Bank showed it was chaired by Martin Mallett, its chief currency dealer, and included an entry entitled "extra item". The record says: "Processes around fixes. There was a brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks around the main set-piece benchmark fixings."

Martin Wheatley, chief executive of the FCA, which is in charge of stamping out market abuse, told MPs last week that the allegations were "every bit as bad" as those surrounding Libor. Banks have been fined billions of pounds over the Libor scandal.

The meeting was between senior traders at investment banks and a subcommittee of the Bank's foreign exchange standing committee. Bloomberg was told that during a 15-minute conversation about currency benchmarks traders said they used chat rooms to match buyers and sellers ahead of the one-minute period when rates were fixed to avoid trading at a volatile time.

The officials are alleged to have said the practice might benefit markets because it made them more stable.

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Barclays hikes bonuses amid warning on jobs and fall in profits

Bonuses for investment bankers rise to £1.6bn despite fall in profits and warning of up to 12,000 job cuts this year

Barclays stoked the row over City pay on Tuesday by announcing a 32% fall in profits but a rise of 10% in the bonus pool for its 140,000 staff around the world.

Antony Jenkins, promoted to run Barclays in the wake of the £290m fine for rigging Libor, defended the decision to increase bonus payouts as he warned that between 10,000 to 12,000 jobs would be cut this year as he races to cut costs. Some 820 senior roles are to go along with 7,000 jobs in the UK.

In a move that sparked the fury of the TUC, which accused the bank of "sticking two fingers up to hard-pressed families across Britain", the bank announced it was paying bonuses of £2.4bn – up from £2.2bn a year ago – across the bank. Within that, the investment bankers enjoyed bonuses of £1.6bn compared with £1.4bn a year ago, even though the investment banking side suffered a loss in the fourth quarter and its annual profits tumbled 37%. The bank as a whole saw its profits fall to £5.2bn from £7bn.

Labour seized upon the numbers to call for a reintroduction of the bonus tax which Cathy Jamieson, shadow financial secretary to the Treasury, said "could fund a paid job for every young person out of work for 12 months or more, which they would have to take up or lose benefits".

The profit figures, announced 24 hours earlier than scheduled, on Monday, because of a fears of a leak, showed that on a statutory basis – including accounting quirks and other one-off items – the profits rose to £2.9bn. This was also the year that the bank tapped shareholders for £5.8bn.

Jenkins admitted that he only discovered the theft of confidential customer files – 2,000 names, addresses, phone numbers, passport numbers and details of personal finances – which is now the subject of regulatory scrutiny, after being informed of the loss by the Mail of Sunday. Only 300 of the 2,000 individuals affected have been contacted by the bank.

Frances O'Grady, general secretary of the TUC, said: "Today Barclays has stuck two fingers up to hard-pressed families across Britain by announcing another multi-billion pound bonus pool". In reference to the EU's cap on bonuses to 100% of salary, O'Grady added: "But rather than tackle the damaging City bonus culture, the Chancellor has been to Brussels to defend their greed".

Jenkin justified the hike in bonuses – despite his pledge to show pay restraint and waiving his own £2.75m bonus – by insisting the bank needed to pay staff in a globally competitive environment. He also insisted the bank was acting within the "spirit and letter" of the law by paying monthly role-based allowanced to key staff who might otherwise take pay cuts as a result of the bonus cap.

"We employ people from Singapore to San Francisco. We compete in global markets for talent. If we are to act in the best interests of our shareholders, we have to make sure we have the best people in the firm," Jenkins said.

"At Barclays we believe in paying for performance and paying competitively. Ensuring that we have the right people in the right roles serving our customers and clients effectively in a highly competitive global environment is vital to our ability to generate sustainable shareholder returns," he said.

"After careful consideration, we determined that an increase of £210m over the prior year in the incentive pool was required in 2013 in order to build our franchise in the long term interests of shareholders."

Even though the bank tapped shareholders for £5.8bn of fresh funds last year under instruction from the Bank of England, the average bonus per staff member was £17,000 up from £15,600 while the average investment banker received £60,100 up from £54,500.

Jenkins, who has set out to make Barclays the "go to" bank, has forced every staff member to embark on ethics training and set out eight new goals against staff will be measured in the future. One of his targets is increasing the number of senior women from 21% to 26% by 2018.

Jenkins regularly describes the changes that technology will impose on the banking industry - he is thought to believe that as many as 40,000 roles could eventually go from the 140,000 workforce - and on Tuesday described a "one in a hundred year transformation" of the industry. Half of the 7,000 of the jobs being axed in the UK have already been announced and branches are eventually expected to close.

He insisted that bonuses were down from 2010 by 32%.

The bank is fighting a £50m fine from the Financial Conduct Authority for discloses it make during the time of a crucial funding raising in 2008 but said this process had now been stayed while the Serious Fraud Office investigated.

The dividend for the year is 6.5p, the same as last year. The shares were down 2% at 269p in early trading.

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UK trade deficit narrows but manufacturing weakens

An increase in oil, chemical and aircraft exports helped the trade deficit in goods to fall by more than £2bn to £7.72bn, the ONS said. Fewer imports of aircraft and ships also boosted the figures, it said.Manufacturing output rose by 0.3% in December, less than the 0.6% predicted. The wider measure of industrial output rose by 0.4% in the month.

However, the ONS said the weaker-than-expected growth was not enough to change the estimate of GDP growth in the fourth quarter of 2013, which was 0.7%.

When services were included, the overall trade deficit narrowed to £1bn in December. This was down from a deficit of £3.6bn the month earlier and also the smallest deficit since July 2012.

'Even picture'
Despite the weaker-than-expected manufacturing figures, Lee Hopley, chief economist at the EEF manufacturers' organisation, remained upbeat.

"Manufacturers had a strong finish to 2013, but more encouraging, are the indicators we've seen since the start of the year which suggest that positive trend has rolled into the early part of 2014.

"Our expectation is that we see another quarter of 0.6% expansion in the three months to March, with a pretty even picture across sectors.

Ms Hopley added that export demand would "gather pace" through the year, and the official data would follow.

The UK's economy grew last year at its fastest pace since 2007, expanding by 1.9%.

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Barclays blasted over 'catastrophic' theft of thousands of customer files

Barclays is under scrutiny by regulators and could face a hefty fine after thousands of confidential customer files were stolen in a data breach described as catastrophic by an adviser to the business secretary, Vince Cable.

The files, containing details on 2,000 individuals including their names, addresses, phone numbers, passport numbers, mortgages and levels of savings, were allegedly sold for use in boiler-room scams, in which vulnerable savers are snared into fraudulent investments.

"This is catastrophic, just awful," the Liberal Democrat MP Tessa Munt, who is parliamentary private secretary to Cable and has campaigned on mis-selling by banks, told the Guardian. "What protections have Barclays got in place? Are the police going to pursue this, are they going to prosecute, and is someone going to go to jail for this? They should do."

"We are learning not to trust our banks and that is a pretty sad thing. It is a culture of just make money in any way and that probably breeds a contempt among those who are bankers towards those they are meant to serve."

Barclays said it would be writing to the customers concerned. The bank, which claims not all of the individuals named in the files were its customers, has begun an immediate internal inquiry and reported the theft to the police and to regulators.

The Financial Conduct Authority (FCA), which can impose unlimited fines, and the information commissioner, who oversees data protection and can fine organisations up to £500,000, are looking into the matter.

"Barclays have contacted us and we will be working with them to understand exactly what has happened and what steps consumers may need to take," a spokeswoman for the FCA said.

"Consumers rightly presume their data is safe with their bank, and this should serve to remind all firms how important it is they have the correct procedures in place to ensure data is secure and used appropriately. We will continue to investigate the issue with Barclays over the coming days."

The security breach was first reported by the Mail on Sunday, which was approached by a whistleblower who claimed the files were just a sample from a haul of stolen data containing the details of 27,000 individuals. The whistleblower said he was prepared to give evidence to police, and claimed he was given the data to sell on by an unnamed firm of rogue brokers whom he worked with.

The memory stick he handed over also contained national insurance numbers, details on dependants and highly personal information on whether people had undergone surgery or were on medication. Those affected include doctors, scientists, business people, a musician and a cleaner.

They are believed to have been customers of the now defunct Barclays Financial Planning business, which was fined £7.7m in 2011 and ordered to pay up to £59m in compensation for mis-selling investment funds to more than 12,000 customers.

Like those Barclays customers affected by the mis-selling scandal, many of those whose names appear on the stolen files are elderly. The whistleblower said the information was used to scam about 1,000 people, who were persuaded to invest in rare earth metals that did not exist. Between December 2012 and September 2013, a select group of brokers at the firm concerned were given the files, which they used to cold call their victims.

These were customers who had originally sought financial advice from Barclays. As part of consultations with advisers, they filled out questionnaires about their savings, physical health and revealed their attitude to risk using psychometric tests.

"The data is a gold mine for traders because it is so incredibly detailed. It gets them inside the customer's head," said the whistleblower. He added: "This illegal trade is going on all the time in the City. I want to go public to stop it getting bigger."

He described a world in which scammers worked from so-called "spank shops", renting offices and peddling products that were either fraudulent or sold at inflated prices to unsuspecting, often elderly or inexperienced investors.

With interest rates at an all-time low since the banking collapse, people have been withdrawing their money from the comparative safety of savings accounts chasing higher returns on investments. Many of them are seen as soft targets for rogue brokers.

When investors of the firm concerned began to suspect they had been duped, the trading floor was shut. According to the whistleblower, computers were wiped, paperwork destroyed, and the desks cleaned with bleach to remove DNA traces. The whistleblower, a former commodities trader, was asked to sell on the data, which he said could fetch up to £50 a file from those operating boiler room scams.

Barclays said: "Our initial investigations suggest this is isolated to customers linked to our Barclays Financial Planning business, which we ceased operating as a service in 2011. Based on what we have seen, this appears to be data from 2008 or earlier.

"This appears to be criminal action and we will co-operate with the authorities on pursuing the perpetrator.

"We would like to reassure all of our customers that we have taken every practical measure to ensure that personal and financial details remain as safe and secure as possible."

The Information Commissioner's Office, which can fine organisations up to £500,000 for failing to protect private data, said in a statement: "It's crucial that people's personal information is properly looked after. We will be working with the Mail on Sunday this week to get further details of what has happened here, as well as working with the police."
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