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Monday, 30 December 2013

Britons less inclined to pay down mortgage debt

Britons were less inclined to use savings to pay down mortgage debt in the third quarter, data showed on Monday, adding to signs of improving consumer confidence as house prices rise and the job market recovers.Homeowners put 10.4 billion pounds of equity into their homes in the quarter, the Bank of England figures showed - more than two billion pounds less than in the previous quarter and the lowest since the fourth quarter of 2009.Britons have paid down their mortgages on a net basis for the past four years, reversing the trend towards higher debt levels that dominated from late 1999 until the financial crisis.

Borrowing against the rising value of property was a key driver of the consumer boom of the last decade, and while the Bank of England may welcome a return of that "feelgood" factor, it will be wary of a recovery that is heavily reliant on household spending and cheap credit.

Data earlier this month showed households saved just 5.4 percent of their disposable income in the third quarter, down from 6.2 percent in the second. Household spending, meanwhile, rose an annual 2.5 percent, faster than growth in the economy overall.

Keeping property price gains in check without crimping growth in the rest of the economy is shaping up to be the biggest challenge facing the central bank in 2014.

While inflation in the broader economy has come within a whisker of the BoE's 2 percent target, house prices are rising six times as fast in the capital and almost four times as fast nationwide.

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Sunday, 29 December 2013

UK government could sell off Lloyds bank stake in 2014 - Telegraph

The British government could sell off all of its 18.4 billion pound stake in the Lloyds banking group in 2014, the Daily Telegraph reported, citing unnamed sources.

The newspaper reported that the entire government holding could be sold off in the next 12 months in a combination of retail and institutional offerings.

"Post-results is when a further institutional offering would make most sense. After that, the thinking is an autumn sale, combining an institutional and a retail segment, is a realistic prospect," a source was quoted as saying by the newspaper.

The UK government has already sold off 6 percent of its stake in the partly nationalised bank, raising over 3.2 billion pounds in September this year.

The government currently holds around 33 percent of the bank, five years after Lloyds and rival Royal Bank of Scotland were bailed out by the government at the height of the credit crunch.

Shares in Lloyds closed at 78.84 pence on the London Stock Exchange on Friday, valuing the group at 56.5 billion pounds.

Tuesday, 17 December 2013

Car insurance premiums too high, Competition Commission says

Motor insurance premiums are unnecessarily high for all drivers owing to the complex chain of claims, the Competition Commission has said.

The higher premiums come from the cost of replacement cars and repairs which is paid by the insurers of at-fault motorists.

The Commission discovered that post-accident repairs were often shoddy.

It also raised concerns about difficulties for motorists trying to identify the best value products.

Repairs and replacements

The Commission has been studying the £11bn private motor insurance market for more than a year, following a referral from the Office of Fair Trading (OFT).

It agreed with the OFT that the system was not working well for motorists.

It found that premiums were pushed up because the insurer of a driver who was not at fault in an accident arranges for a replacement car or repair, but the at-fault driver's insurer foots the bill.

"This separation of control and liability creates a chain of interactions which result in higher costs for replacement cars and for repairs being passed on to at-fault insurers," it said.

"The Commission estimates the extra premium costs to be between £150m and £200m a year.

"There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem."

The Commission will now consider ways to fix the market, with a final report published by September 2014.

The options include a cap on the cost of replacement vehicles, or making an insurer of the not-at-fault driver responsible for providing the replacement vehicle.

Alternatively, the insurer of the at-fault driver could manage the claim.

Worries

Other concerns raised by the Commission, affecting drivers of 25 million privately registered vehicles in the UK, include:

"Too many" substandard repairs following an accident
Limited information about add-on insurance products, making it difficult to identify the best-value offers on the market
Price-parity contracts between price comparison websites and insurers, which mean that the policy is not offered more cheaply elsewhere.

The Commission will consider the idea of compulsory audits of repairs and the requirement of clearer information on price comparison websites.

"[These] possible remedies are a further step along the road to getting a market that enables insurers to deliver fully for consumers," said James Dalton, of the Association of British Insurers (ABI).

"We look forward to continuing to engage with the Competition Commission as it carries forward its work and we hope that this will lead to further improvements in the market and lower premiums for customers."

Thursday, 12 December 2013

House price rises realise bubble fears, says economist

Economics professor says three-quarters of properties in the UK are overvalued, as Zoopla reports property price growth across the country

The average UK home has seen its value rise by £10,329 over the past year, or by £28.30 a day, according to figures from property search engine Zoopla.

This follows research from a leading economics professor that around three-quarters of properties in the UK are overvalued, with a 93% probability that London is already in the grip of a house price "bubble".

"The results raise the risk – although not the certainty – that house prices will fall," said professor James Mitchell, the head of economic modelling and forecasting at Warwick Business School. "But a bubble it appears to be, and we should all – householders, business people and policymakers alike – be alert to this risk."

After London, Wales was the most likely region to be in the middle of a house price bubble with an 83% probability, followed by the north-west at 80%. Only Northern Ireland, Scotland and the east of England do not have over-inflated house prices, according to Mitchell's research, which is based on house price and salary data from the UK's largest mortgage lender the Halifax.

The city that experienced the greatest increase in value over the past year was Newcastle, according to Zoopla's figures, where prices have surged by 10.1% or £16,712. This defies the assumption that the capital sees the largest percentage rises, where average values rose by 10%, or £46,398, to £510,457.

Other cities in the north in the top 10 include Barnsley, Glasgow, Dundee, Aberdeen and York, with rises of more than 6.5% during 2013. The worst performing city was Rotherham where properties fell by 0.1%.

In England overall, semi-detached houses have seen the biggest increase in value, up 6.42%. .

Lawrence Hall from Zoopla said: "This year saw a host of new government initiatives that are now helping the property market to gain stability and set the foundations for a sustainable recovery. As a result, 2013 has witnessed property price growth across most of the country and particularly at the entry level of the market.

"With confidence in the market increasing, 2014 could see further price growth as transaction levels pick up, construction continues and more property comes to the market."

The news comes after concerns were raised by the Royal Institution for Chartered Surveyors about the pace of rising property values. It called on the Bank of England to restrict house price rises to 5% annually amid fears that the market is overheating.

However, Capital Economics said the level of demand, which is stoking the price boom, may ease in 2014 if it becomes clear that large numbers of buyers hoping to access the government's Help to Buy scheme are failing affordability tests.

Thursday, 28 November 2013

Tesco planning same-day delivery as it battles rivals

Move would see the UK's biggest online grocer competing with Ocado and Asda

Tesco is preparing to offer same-day delivery for online groceries as it fights to shore up its struggling UK business and take on rival services by Waitrose, Morrisons and Asda.

The move would see the UK's biggest online grocer competing with Ocado, the company which delivers Waitrose groceries and is set to offer the same service for Morrisons shoppers in Warwickshire early next year. Bigger rival Asda is also planning to introduce same-day grocery deliveries next year.

Tesco is already trialling same-day deliveries of food in Mansfield, Nottinghamshire, under which shoppers can order goods by midday for delivery by 6pm. Simon Belsham, managing director of grocery home shopping, said: "The trial is working successfully and we are looking to roll that out further."

The news emerged as Tesco opened a 120,000 sq ft centre near Erith, south east London, its sixth dedicated online distribution centre for food. The supermarket uses the "dark stores" – so called because they are not open to the public – in addition to picking groceries for online shoppers from 300 stores. Belsham said Tesco, which controls 47.5% of all online grocery sales in the UK, needed to build capacity because online sales were growing faster in London than elsewhere.

Tesco continues to increase market share online, despite losing ground in its stores. A flurry of notes from City analysts earlier this week suggested the supermarket was set to reveal another set of poor underlying sales next week, putting pressure on boss Phil Clarke, who is trying to turn the business around.

The Erith centre, which will be able to process up to 4,000 orders a day when it is running at full capacity, uses hi-tech warehouse technology to enable it to offer 30,000 different items, 50% more than the average store and 16% more than the five other dark stores.

Belsham said that would allow Tesco to offer more specialist ethnic foods and upmarket lines helping it to appeal to a broader range of shoppers in London.

Meanwhile Tesco is also piloting a collection service at its small Express stores for groceries ordered online. The service is run out of a Tesco delivery van parked behind stores in Datchet and Harrow. Belsham said that combining stores and online services was an important part of Tesco's future.

Article Source : http://www.guardian.co.uk
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Sunday, 24 November 2013

RBS accused of pushing small businesses to the edge to boost profits

Dossier claims business assets were seized cheaply amid call to end turnaround arm's 'conflict of interests'

City regulators have been handed a dossier of evidence compiled by an adviser to Vince Cable which claims that Royal Bank of Scotland was deliberately wrecking viable small businesses to make profits for the bailed out bank.

The business secretary – a long-time critic of the banking industry's lending practices – said some of the allegations were so serious that he had handed the report, compiled by businessman Lawrence Tomlinson, to the regulators and the bank. It has also been given to Sir Andrew Large, a former deputy governor of the Bank of England, whose report on lending failures by RBS will also be released on Monday.

Tomlinson, appointed by Cable as "entrepreneur in residence", has compiled evidence from hundreds of businesses which have approached him after ending up in the bank's global restructuring group (GRG), and subsequently had their properties sold to its specialist property arm, West Register.

"There are many devastating stories of how RBS has wrecked good businesses and the ruinous impact this has on the lives of the business owners," said Tomlinson.

His redacted report, which removes the names of the businesses, also calls for RBS and Lloyds Banking Group to be broken up into six banks with a 10% market share to foster competition on the high street.

The accusations centre on the reasons businesses are referred to the GRG arm, run by the veteran banker Derek Sach, and the process by which West Register ends up taking control of some of the properties.

RBS argues that most of the businesses that end up in GRG are successfully turned around. It has promised to review the allegations made by customers.

Tomlinson, who initially posted requests for ideas on lending on the professional networking site Linked-In, cited "shocking examples of business owners being confronted with last minute demands for information and money" that forced businesses into financial difficulty. One business said dealing with GRG had cost them £256,000 while another claims it had to hand over £40,000 immediately to carry on borrowing from the bank.

These claims have yet to be confirmed. Businesses found themselves referred to GRG because the bank considered the value of their property had fallen or because of technical breaches of loan terms, such as late filing of information.

"The profit-making nature of GRG significantly undermines its position as a turnaround division, in which good businesses should be restructured and returned to normal banking. The temptation to get hold of assets and take additional profit from these businesses to boost GRG's balance sheet is clear," said Tomlinson, a Leed-based entrepreneur.

"From the cases I have heard, it is clear that a perception has arisen that the intention is to purposefully distress businesses to put them in GRG and subsequently take their assets for the West Register at a discounted price. This needs to be addressed and the conflict of interest removed," he said.

Cable, who did not commission the report, said: "Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken. I am however confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium sized businesses."

Stephen Hester, who ran the bank for almost five years after its £45bn bailout, left in October and was replaced by New Zealander Ross McEwan. The bank said on Sunday: "In the boom years leading up to the financial crisis, the over-heated property development market became a major threat to the UK economy RBS did more than its fair share to fuel this and commercial property lending was one of the key drivers of our near collapse as valuations rapidly plummeted."

Thursday, 21 November 2013

Investors: AT&T and Verizon must say how much customer data goes to NSA

Phone companies' customers could switch networks if they feel their privacy is being compromised, say investment funds

Big investors in America's two largest mobile phone companies have demanded they disclose how much customer data they hand over to the US and foreign governments. Documents from the NSA whistleblower Edward Snowden show AT&T and Verizon have installed equipment to copy, scan and filter large amounts of the traffic that passes through their networks.

AT&T and Verizon Communications, which owns Verizon Wireless, will face votes at their annual shareholder meetings following formal requests from one of New York's biggest public sector pension funds and a large private investment firm. The $161bn New York State Common Retirement Fund, which manages the pensions of more than 1 million state workers, and Trillium Asset Management, a Boston-based investment management firm with $1.3bn under management, havelodged demands with both networks to publish the number of requests they receive for customer information every six months.

The investors said customers could switch to other networks if they think their privacy has been compromised.

AT&T has also been warned that its willingness to co-operate with state-sponsored surveillance could hamper its ambitions to expand its business into Europe. The company is reported to be considering a bid for Vodafone, the British-based mobile network with outposts across Europe, Africa and Asia.

The Verizon chief executive, Lowell McAdam, when asked about the company's legal obligations, recently stated: "We are the largest telecommunications provider to the United States government, and you have to do what your customer tells you."

A Verizon spokesman said: "We've received the proposal and we're currently evaluating it." A spokesman for AT&T stated: "As standard practice we look carefully at all shareholder proposals but at this point in the process we do not expect to comment on them."

Wednesday, 20 November 2013

JP Morgan Chase agrees record $13bn settlement charges over toxic mortgages

Bank acknowledges it made serious misrepresentations to the public over the sale of numerous mortgage-backed securities

JP Morgan Chase, the biggest bank in the United States, agreed a record $13bn settlement with regulators on Tuesday, ending months of tense negotiations with the Justice Department over a string of investigations into its risky mortgage deals.

The fine, the biggest civil settlement with any single company, ends several investigations and lawsuits brought by the US authorities related to the sale of home loan bonds between 2005 and 2008. It is more than four times the previous record $4bn fine the US levied against BP for the Deepwater Horizon oil spill.

Settlement talks have been fraught and lengthy. JP Morgan chief executive Jamie Dimon went to the US Justice Department to personally negotiate with attorney general Eric Holder in September, a personal summit that led some critics to claim that Holder was giving the bank special treatment. Tuesday’s agreement staves off a costly and potentially embarrassing trial.

As part of the settlement, JP Morgan acknowledged it made serious misrepresentations to the public – including to investors – about numerous transactions relating to residential mortgage-backed securities. The deals collapsed in 2008 when the housing market plunged and the scale of the risks was exposed, and the resulting financial tumult led to the biggest crisis since the Great Depression.

The admission was a major victory for the Justice Department. Banks have fought shy of such statements fearing yet more legal actions from investors. The settlement leaves open the possibility of potential criminal charges.

“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown,” said Holder. “JP Morgan was not the only financial institution during this period to knowingly bundle toxic loans and sell them to unsuspecting investors, but that is no excuse for the firm’s behavior.”

“The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over. No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability,” Holder said.

The settlement was negotiated through the residential mortgage-backed securities (RMBS) working group, a joint state and federal initiative formed in 2012 to investigate wrongdoing in the mortgage-backed securities market prior to the financial crisis. Holder said the group’s investigations were “ongoing”.

John Coffee, a Columbia law school professor, said the fine was in marked contrast to the $1.9bn penalty Holder brought against HSBC for money laundering last December. “In that case he seemed to suggest some institutions were ‘too big to jail’,” said Coffee. In this case, Coffee said, Holder was still looking to bring charges against individuals in the future.

Coffee said the US authorities had so far struggled to charge senior individuals over the excesses of the financial crisis. “But the government is still looking. We may yet see another shoe drop,” he said.

JP Morgan sailed through the financial crisis relatively unharmed, but has been beset by legal woes in the crisis's aftermath. The fine is the latest, and largest, in a series that has led for some shareholders to call for Dimon’s resignation despite the bank's financial success and its solid share price:

• Earlier this month, the bank paid $4.5bn to settle allegations it has mis-sold mortgage bonds to pension funds and other institutional investors.

• In September, the company paid $920m to settle US investigations into the “London Whale” trading scandal.

• In the same month, JP Morgan paid another $390m in refunds and $80m in settlement for billing credit card customers for identity theft protection they did not receive.

• In July, the bank paid $410m in penalties and repayments related to alleged manipulation of California and midwest electricity markets.

The latest fine stems in large part from allegations of mis-selling of “toxic” mortgage securities by Bear Stearns and Washington Mutual, two firms JP Morgan purchased during the 2008 financial crisis at the behest of the government.

Of the $13bn resolution, $9bn will be paid to settle federal and state civil claims by various entities related to RMBS.

The heavily trailed agreement appears to have been delayed by arguments over the consumer-relief component of the pact that constitutes the remaining $4bn of the deal. That money will be used to reduce urban blight in areas such as Detroit, where the sub-prime crisis worsened an already struggling housing market and left many homes abandoned. They money will also be used to offer lower rate loans to low-income home buyers.

About $1.4bn will go to the National Credit Union Administration. “Today’s announcement by the Justice Department is extraordinary, and will greatly benefit credit unions that have been paying for the losses caused by the financial institutions covered by this settlement,” NCUA chairman Debbie Matz said.

Brian Kettenring, executive director of the Campaign for a Fair Settlement, said the size of the settlement was a “show of progress toward holding banks accountable for repeatedly breaking the law.”

“Criminal prosecution is still needed to deter future crimes. But more and likely better relief for struggling homeowners is a hard-earned victory for people across the country who have spoken out—and even gone to jail—demanding an end to Wall Street impunity,” he said.

Deborah Castillo, a member of pressure group Home Defenders League who lost her home to foreclosure said: “JPMorgan Chase should halt foreclosures while the settlement is implemented and make a good faith work with the homeowners in our communities who need fair modifications. I hope that funds from this settlement will quickly get to homeowners, who have waited far too long for relief, and are really used to help the families who are struggling and prevent the crime of more empty houses in our communities.”

While this agreement ends a troubled chapter for the bank, other issues remain. A criminal investigation of the bank over mortgages will continue. The bank is also under scrutiny for its hiring practices in China, its massive “London Whale” trading losses and its relationship with Bernie Madoff, the Ponzi scheme fraudster.

Sunday, 17 November 2013

Manufacturers urge George Osborne to cut energy costs for business

Lobby group EEF calls on chancellor to scrap green taxes as part of series of measures which it says will support recovery

Britain's manufacturers have called on the chancellor to cut business energy costs to support the economic recovery.

Energy prices for UK businesses are rising faster than in other countries, squeezing manufacturers' margins and threatening to choke off investment, the EEF manufacturing group said.

The lobby group said increased costs not borne by competitors in other countries could determine whether companies invest in workers or materials and whether they do so in Britain or elsewhere.

The warning from business comes as figures show household finances suffering their biggest squeeze since April after a series of large price rises by energy suppliers.

In its submission before George Osborne's autumn statement next month, EEF urged the chancellor to sweep away planned green taxes in the name of economic growth.

EEF called for support for energy-intensive industries to be extended from the financial year 2015-16 to 2020-21.

It also said the carbon price floor – a tax on fossil fuels used to generate electricity – should be frozen and then reduced and that increases to the carbon price and the climate change levy should be scrapped.

Its chief executive, Terry Scuoler, said: "With government policies on climate change set to add as much as 50% to the electricity prices paid by industry by 2020, it must act now to stop planned rises in energy taxes and set out a long-term commitment to compensate energy intensive industries. Without this, we risk losing out on the investment in new technology and jobs that our economy desperately needs."

Energy costs have risen to the top of the political agenda after the Labour leader, Ed Miliband, pledged to freeze prices and reorganise the market if his party wins the next election. With incomes barely rising and business margins squeezed, rising energy bills threaten to be a drag on spending and investment.

The Markit household finance index for November showed a sharp drop in households' available cash as prices for essential spending rose faster than stagnant wages. The outlook for household budgets also worsened with 42% of those surveyed expecting to be worse off in a year.

Tim Moore, an economist at Markit, said: "November's survey highlights yet another setback for UK household budgets as weak pay trends and energy price rises appeared to overshadow recent positive news about labour market conditions. With pay falling further behind living costs, households saw the fastest fall in their cash available for discretionary spending since April."

The gloomy outlook followed a report by the government's National Audit Office that predicted household energy costs would increase faster than inflation for 17 years.

In its other recommendations to the chancellor, EEF called for a stronger national infrastructure plan with commitments to specific projects and more investment to unclog Britain's most congested roads. It also urged Osborne to boost funding for apprenticeships and to delay any new legislation and regulation until 2015 to give businesses a break from red tape.

EEF said the measures were needed to make further progress "rebalancing" the economy towards exports and making physical goods and away from domestic consumption – a goal Osborne set himself when he pledged to support a "march of the makers".

Recent official figures showed manufacturing output increasing faster than expected though the loss of 1,800 shipbuilding jobs cast a cloud over the news.

Scuoler said: "We are now seeing signs of a stronger recovery and industry is becoming more ambitious on investment and exports. But we are still some way off from securing the balanced and sustained recovery we need to generate lasting improvements in prosperity and living standards."

Thursday, 7 November 2013

UK regulator urges banks to speed up swaps mis-selling compensation

Banks have so far handed out only £15.3m of the £3bn set aside for compensation, the Financial Conduct Authority says

Britain's financial regulator has written to the bosses of the country's biggest four banks to tell them to speed up the process of compensating small firms mis-sold complex hedging products.

Banks have paid out only a tiny fraction of the £3bn they set aside for compensation, data from the Financial Conduct Authority (FCA) showed on Thursday.

The banks have so far handed out £15.3m, with 125 offers accepted by customers. The regulator ordered a review of nearly 30,000 cases in May, having identified serious failings in the way the products were sold.

The FCA said on Thursday that progress in paying out compensation had been slower than expected but that there had been a significant pick-up in October.

"We gave the banks six to 12 months to complete their reviews from the start of the process and are frustrated that they are all expecting to meet the lower end of our expectations," the FCA said on its website.

The regulator said current trends suggested banks would not meet the deadline, so it has written to the bosses of Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC to make its expectations clear and agree practical ways to speed up the process.

The interest rate swaps were designed to protect smaller companies against rising interest rates, but when rates fell, they had to pay large bills, typically running to tens of thousands of pounds. Companies also faced penalties to get out of the deals, which many said they had not been told about.

Tuesday, 29 October 2013

Rabobank faces £600m fine as Libor scandal resurfaces

Dutch mutual expected to become fifth financial institution to face huge penalty for attempting to rig benchmark interest rate

The Libor rigging scandal could be reignited on Tuesday when Dutch mutual Rabobank is expected to become the fifth financial institution to be hit with a huge fine for attempting to rig the benchmark interest rate.

The bank is thought to be facing fines of more than £600m from regulators on both sides of the Atlantic, who are continuing their investigations into alleged manipulation of the key interest rate.

London's Financial Conduct Authority (FCA) and regulators in the US are thought to be poised to levy larger than expected penalties on Rabobank, a co-operative-style institution whose roots lie in financing agriculture and which escaped the financial crisis without a taxpayer bailout.

The bank has been warning that it faced a fine for Libor rigging since the summer when it revealed it had made a provision of an undisclosed sum in preparation for the regulatory action.

The Libor scandal was first exposed in June 2012, when Barclays was fined £290m for its role in attempting to manipulate the rate; its top management was subsequently forced out. Since then Royal Bank of Scotland, Swiss bank UBS and the money broker Icap have been fined. UBS received the highest penalty of £940m.

Rabobank said last week that details of its punishment were getting closer to publication. "Various authorities have almost completed their investigation into Rabobank's role in the Libor and Euribor setting process," the bank said. "Rabobank expects to be able to enter into settlements with these authorities within the next two weeks. Rabobank is not yet in a position to comment on possible settlement amounts."

When it took a provision for Libor, it said it had been named as defendant in civil litigation in the US and that it would defend itself against any such claims.

At the time of the fine against Barclays City regulators said they were investigating seven other potential cases, which appears to indicate there are still three outstanding.

The regulator declined to comment on Monday night and Rabobank declined to elaborate on its previous statements.

Since the Libor scandal broke regulators have begun to scrutinise the way other benchmarks are set, such as those in the foreign exchange markets.

Earlier this month the FCA began an investigation that is expected to be on the scale of Libor after gathering information on the £3tn-a-day currency markets. The regulators are looking at the way traders may have been able to influence the way currency benchmarks are set and scrutinising the way energy markets operate.

Monday, 28 October 2013

UK economic recovery built on shaky foundations - again

Growth will depend on easy money, rising debt and a temporary fall in inflation from falling food and commodity prices

Cast your mind back to the last year of Tony Blair's premiership. Growth is strong. The City is booming. House prices are rising. Boom and bust has been abolished. The shops are full to bursting.

Yet something is not right. The economy depends far too heavily on private and, to a lesser extent, public borrowing. Growth is heavily concentrated in certain sectors and in the south-east corner of the country, the manufacturing base is shrinking and the trade deficit is growing.

A book published just before Blair left Downing Street described Britain as Fantasy Island. Its thesis was that the economy was built on shaky foundations and that an almighty crash was coming. Full disclosure obliges me to record that I was a co-author of that book, for which the timing could hardly have been better as the financial crisis began within three months of its publication. My colleagues, somewhat harshly, said that even a stopped clock is right twice a day.

Six years on, it's worth asking what – apart from the arrival of a new government – has fundamentally changed. Is the UK in any better shape now than it was six years ago?

Here's the state of the nation. The economy grew by 0.8% in the third quarter of 2013, the fastest pace of expansion in just over three years. All four sectors, from tiny agriculture, which accounts for less than 1% of GDP, to services (77.8%), expanded, providing hope that the long-awaited recovery will be broad-based.

Scratch beneath the surface, though, and a different picture emerges. The service sector has just about regained all the ground lost during the recession of 2008-09, but the same cannot be said of industrial production and construction. After declining gently in the eight years leading up to the recession, industrial production subsequently contracted by 12% and after a double-dip downturn is now 15% below its peak. Construction has shown a similar profile. Activity flat-lined in the four years before the crash, dropped by almost 20% and is still 15% down even after the recent pickup.

As a result, the economy is even more sectorally unbalanced than it was before the financial crisis, and because the service sector is loaded towards the richer parts of the UK, more geographically skewed as well.

There are four ways in which an economy grows. Companies can decide they need new kit (investment); Britain can sell more overseas than other countries sell here (net exports); the state can play a bigger role (government spending) or households can spend more (consumption).

It has been the last of these sources of growth that has driven the rise in GDP since the turn of the year. Prices have been rising more rapidly than earnings, but that has not stopped consumers for going out on a bit of a spree. They have dipped into their savings and started to respond to the offers of unsecured lending, which, after a lull of a few years, have started to drop onto the doormat once again.

Consumer confidence has improved and the housing market has come back to life. Mortgage approvals are up, transactions are up and prices are up. The next thing to look out for is the return of equity withdrawal, borrowing against the rising value of a home.

When he was shadow chancellor, George Osborne used to express grave concern about what he considered Labour's flawed economic model. So did Vince Cable, in even more forceful terms. Accordingly, the strategy of the coalition was double-barrelled: less public and private debt, coupled with a greater reliance on investment and exports.

Things have not gone to plan. Business investment fell by 25% during the slump of 2008-09 and has flatlined ever since. Instead of splashing out on new plant and machinery, companies have employed more cheap labour to meet demand. Britain is a nation of zero-hour contracts and an ageing capital stock.

For the past three decades, UK trade has been the story of a growing deficit in manufactured trade offset by surpluses in oil, services and investment income. This picture has, however, changed in recent years. Oil can no longer be relied upon to balance the books and nor can investment income, which has declined markedly since the start of the financial crisis. A cheaper pound has made a slight dent in the deficit in goods, but weak growth in Britain's main market – the eurozone – has meant that the impact of the depreciation has been far more limited than in the past.

Britain has historically had a comparative advantage in traded services such as banking, insurance, consultancy and law, and runs a quarterly surplus of around £20bn. But this is still not enough to cover the deficit in goods, which runs at around £25bn a quarter.

Recovery begins with the nation's current account in a poor state, and the hollowing out of the UK's industrial base makes it a cast-iron certainty that a consumer-led recovery will suck in imports and crowd out exports.

Over time, these structural weaknesses in the economy will be exposed. In the short-term, however, the economy will continue to grow at a fair old lick. It is quite conceivable that a combination of easy credit, a pickup in investment and a recovery in world trade will lead to growth in excess of 3% next year.

Cheap borrowing will continue. The Bank of England has been surprised by the strength of the economy since its last inflation report in August, and Threadneedle Street is in no hurry to bang up interest rates too quickly, for fear of choking off the recovery.

Investment is the big imponderable. If businesses believe the increase in consumer demand or world trade is for real, they might decide the time is right to invest more. Parts of the corporate sector are cash-rich, so this might happen. But only if firms are sure that the brakes are not going to come on after the general election, when the Bank of England may decide to do something to rein in the housing market.

A big boost from world trade looks unlikely for the time being. Europe has a broken-backed banking system, the US a dysfunctional political system and the expansion of China and some of the other leading emerging nations is starting to slow. Ahead of the financial crisis, the global economy was growing at 5% a year. The new normal is around 3% a year, making an export-led recovery problematic.

Most likely, growth will be dependent on easy money, rising debt and a temporary fall in inflation prompted by falling food and commodity prices. It may take a couple of years before Britain again steams into the harbour on Fantasy Island, but if you look toward the horizon it's easy to see the palm trees swaying in the breeze.

Friday, 25 October 2013

UK car production passes 1.5m amid growing consumer confidence

Almost 10% more cars produced last month than in September 2012, boosted by strong domestic market

Car production in the UK has continued its upward surge with more than 1.5m vehicles built over the past 12 months – a volume unmatched since the financial crisis began.

Boosted by a buoyant domestic market, as well as demand for luxury models in the far east, almost 10% more cars, 140,888, were produced last month than in September 2012.

The month's tally pushes the total for the year to 1,125,433 units, nearly 4% more than were made in the first nine months of 2012.

Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders (SMMT), said: "Boosted by strong domestic demand, September's 9.9% rise in car manufacturing reinforces how the sector is one of the UK's biggest success stories of recent years.

"This year alone, more than £2.6bn has been committed across the UK automotive sector, from the supply chain to global car manufacturing brands.

"This long-term financial commitment and robust demand for UK-built products demonstrate the global appetite for high-quality, desirable products borne of the UK's world-class design, R&D and engineering."

Cheap financing deals and growing British consumer confidence in an economic recovery has seen the UK buck the sliding sales elsewhere in Europe with unparalleled sales growth, helping to drive up the new production figures.

Nissan, the largest manufacturer among the 30 automotive brands manufacturing 70 models in the UK, recently announced that its Sunderland plant would move to 24-hour production in the new year to meet demand. The plant is also the European base for production of the all-electric Leaf car.

Booming exports of luxury brands have also underpinned production, with Jaguar Land Rover, the Tata-owned carmaker whose three UK plants employ 26,000 people, recently reporting sales for the first three quarters of 2013 had already outstripped 2012's annual total.

The car production figures will be a further boost to coalition hopes of sustained recovery, particularly with its stated aim of rebalancing Britain's economy back towards manufacturing.

Last year's car exports, at over £30bn, accounted for 10% of UK exports and that figure looks set to rise. The prime minister's office, @David_Cameron, tweeted: "Great to see a sharp rise in car manufacturing in the UK. More than a million cars have been made so far this year. #GlobalRace".

While car production continued to rise, the SMMT reported that manufacturing of commercial vehicles was down by 27% year-on-year.

Hawes said the "subdued" figures were down to continuing uncertainty in the EU and restructuring of UK operations, adding: "While the overall market is striving against tough conditions, there remains cause for optimism in some areas, with the truck sector outperforming the market in September."
Article Source : http://www.guardian.co.uk
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