UK exports at their highest since recession, say firms

• Survey finds growing confidence as sales rise
• Official data expected to show growth accelerating

UK exports are at their highest since the recession, according to a survey out on Tuesday that will fan hopes the economic recovery is picking up pace.

Activity has picked up, exporters are more confident about sales growing and more expect to hire staff this year, according to a report from the British Chambers of Commerce (BCC) and postal group DHL. The news comes ahead of official data on Thursday expected to show overall economic growth accelerated in the second quarter of the year to 0.6%, from 0.3% in the first three months.

Tuesday's report suggests exporting activity is at its strongest since the BCC/DHL trade confidence index began in autumn 2007.

That will bring some cheer to George Osborne. The chancellor has been espousing a rebalancing of the economy towards manufacturing and exports but the official data has yet to show any evidence of such a shift.

The BCC said that for the first time its survey results were positive "across the board" and that manufacturers and services firms were enjoying rising demand.

"Export sales and orders have gone up, confidence is high and expectations around profitability have increased. Even more businesses have taken on staff this quarter, with many expecting to hire again next quarter," said the BCC director general, John Longworth.

The survey of more than 1,700 businesses suggested export orders for services firms were growing at a record pace while manufacturers were enjoying their strongest orders growth for more than a year.

The BCC calculates its exporting activity index from the volume of export documents it issues to businesses and said the measure had risen 2.8% from the first quarter and was 2.9% higher than in the same quarter last year.

More than half of exporters (51%) believe that their profitability will increase this year, and 60% believe they will see an increase in turnover.

In its latest release on UK trade, the Office for National Statistics said the value of UK exports had remained flat since mid-2011.

Most economists said the official data showed little sign of the desired rebalancing toward net trade.

Longworth said that despite the BCC's findings there was still more the government could do to help companies sell overseas, including giving more support to those going to trade shows.

"We mustn't take our foot off the gas. We still need more companies to take the plunge on international trade and for those who export already to try to diversify into new markets," he said.

A container ship leaves Southampton: the survey of more than 1,700 businesses suggested export orders for services firms were growing at a record paceWhile the official GDP data this week is expected to show some pick-up in growth, economists have warned that the second quarter news from manufacturers was mixed, while the squeeze on incomes is likely to have weighed on consumer spending and will continue to do so over the rest of the year. Inflation has outstripped average wage growth for more than three years.

But business surveys have generally been upbeat and the Bank of England did not feel the need this month to step in with more quantitative easing.

A separate report on Tuesday suggests fewer businesses are struggling to stay afloat, with the number of insolvencies falling in June. The measure recorded an annual fall for the second month running to 1,560, down from 1,675 in the same month last year, according to credit data specialist Experian.

The majority of UK regions -- eight out of 11 -- showed continued improvement with a drop in their insolvency rate and Scotland had the lowest rate overall. Small to medium sized businesses, which suffered the most during the recession, performed well in June, Experian said.

"This is good news overall – we've already seen several months of low but level insolvency rates and the fact they have come down further indicates that firms are operating with more confidence than in recent years. However, as businesses start to think about growth and companies start to restock and rehire, the insolvency rate could well go up as cash flow becomes an issue," said Max Firth at Experian business information services.

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

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Barclays fights US electricity price manipulation fine through the courts

Bank intends to 'vigorously defend' $470m fine for allegedly manipulating electricity prices

Barclays has pledged to fight a $470m (£300m) penalty for allegedly manipulating electricity prices in California by taking the case through the US judicial system.

Faced with an order by the federal energy regulatory commission (Ferc) to pay a $435m fine and hand $35m of profits to low-income households, Barclays insisted that its trading activities had been legitimate and did not break any laws.

"We intend to vigorously defend this matter in federal court, where the Ferc will have the burden of proving its allegations and we will be able to present a balanced and full presentation of the facts," Barclays said.

The penalty from Ferc is based on allegations about Barclays' trading of electricity for two years to December 2008. It was first mooted in October and late on Monday was upheld by the Washington-based regulatorwhich gave the bank 30 days to pay the fine or appear in court. The proposed penalty is being levied at a time when the bank's new management team, led by chief executive Antony Jenkins, is attempting to rebuild its reputation following the £290m fine for rigging Libor which led Jenkins' predecessor Bob Diamond to quit the troubled bank.

The penalty from Ferc is larger than the Libor rigging fine and led to some concern among bank analysts that it could have an impact on the complex legal agreements struck by Barclays with regulators at the time of the interest rate manipulation case a year ago.

Sandy Chen, banks analyst at Cenkos, said the Ferc fine could trigger a review of the non-prosecution agreement with the department of justice from last July. He cited two elements of the agreement which stated that for two years the bank would "commit no United States crime whatsoever … and bring to the fraud section's attention all criminal or regulatory investigations, administrative proceedings or civil actions brought by any government authority in the US by or against Barclays or its employees that alleges fraud or violations of the laws governing securities and commodities markets".

Barclays to fight US power fine in the courtsThe allegations by the Ferc date back to 2008 so it was not immediately clear if they fell under the terms of the Libor agreement with the DoJ. Barclays said the allegations by the Ferc were one-sided and did not provide a "balanced and full description of the facts or the applicable legal standard".

Four former Barclays employees, Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith, are required to pay fines – $15m in the case of Brin and $1m each for the others – for building positions in the electricity market to manipulate index prices. In an 85-page document Ferc used emails between the four to set out its case, in which they talked about "propping up" an electricity index. In another Connelly is alleged to have "laughed" at suggestions he risked being reported to the commission about his activities.

Barclays argued that the correspondence had been "cherry picked".

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

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Severn Trent spent £19m fending off takeover approach

Water company says higher prices across economy and 'quasi taxes' will push up its operating costs

Severn Trent has revealed that it ran up a £19m bill – almost 9% of this year's pre-tax profits – fending off a takeover approach.

The water company rejected a third and final offer in June from LongRiver Partners, a consortium of Canadian, British and Kuwaiti infrastructure investors.

Severn Trent's board decided that the proposed £5.3bn offer, at £22 a share, undervalued the future potential of the business, although LongRiver argued it was "a full and fair price" for the company, which supplies water and sewerage services to 4.2 million households in the Midlands and Wales.

In a trading statement, Severn Trent said the saga cost it £19m in "advisory, legal and other services". This is almost 9% of the pre-tax profits of £215m the company earned in the year ending 31 March.

Severn Trent's advisers included Rothschild, Citi, Barclays, Morgan Stanley and the financial PR firm Tulchan.

Severn Trent customers' bills rose by 2% on 1 April, which the company attributed to rising inflation. The statement said higher prices across the economy and "quasi taxes" would push up its operating costs.

Water companies are seen as an attractive investment because they are regulated industries with a constant demand for their services.

The failed LongRiver consortium was led by Borealis Infrastructure Management, the infrastructure investment arm of a Canadian local authority pension fund. The other members were the UK's University Superannuation Scheme and the Kuwait Investment Authority, a sovereign wealth fund.

Takeover rules bar the consortium from making a fresh bid for at least six months.

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

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Bank experts back Mark Carney on not expanding QE as recovery takes hold

Policymakers seeking alternative ways to encourage growth after unanimous vote to keep QE programme at £375bn

Bank of England policymakers swung behind Mark Carney, the new governor, and voted unanimously against extending quantitative easing at this month's monetary policy committee meeting, amid signs that economic recovery is becoming "more firmly established".

David Miles and Paul Fisher, the two MPC members who had repeatedly backed Carney's predecessor Sir Mervyn King's calls for an extension of the deflation-busting policy, decided instead to switch their votes and support Carney's plan of leaving the size of the QE programme unchanged at £375bn.

The Bank's apparent retreat from QE under Carney's leadership came as Ben Bernanke, Federal Reserve chairman, used an appearance before the House of Representatives to reassure financial markets that his own plans to scale down monetary stimulus were not "on a preset course", and would depend on the health of the economy.

Bernanke sparked a sharp sell-off in financial markets and a spike in bond yields in May when he suggested that the Fed would start to "taper" its $85bn a month in bond purchases as the US recovery gathers pace. But in yesterday's hearing the chairman said: "Markets are beginning to understand our message and the volatility has obviously moderated."

The minutes of the Bank of England's July MPC meeting, published on Wednesday, suggested that with the recovery still fragile, rather than halting stimulus, it was examining the idea of using a different approach to try to kick-start growth.

By August, when the chancellor has asked the Bank to decide on whether it wants to alter its policymaking remit, the MPC aims to establish "the quantum of additional stimulus required and the form it should take".

That suggests that Miles and Fisher may simply have decided to wait for next month's meeting before pushing for a fresh round of QE – or backing an alternative, such as a public promise to keep rates low until the economy meets specific targets, an approach known as "forward guidance". , which the Canadian governor is known to favour.

"An expansion of the asset purchase programme remained one means of injecting stimulus, but the committee would be investigating other options during the month, and it was therefore sensible not to initiate an expansion at this meeting," the minutes said.

Simon Wells, UK economist at HSBC, said: "We expected unanimity next month, when the MPC assesses the merits of forward guidance, but Mark Carney has already got it."

The MPC made a first foray into forward guidance at its meeting a fortnight ago, taking the unusual step of issuing a statement to financial markets warning them that interest rates were unlikely to rise.

When Carney was governor of the Canadian central bank, he pledged to keep interest rates low for 12 months, helping to calm fears in financial markets that borrowing costs were about to rise.

The minutes show that MPC members were concerned by the "surprising" rise in UK government bond yields that followed Bernanke's statement in May. In April markets had not been expecting UK interest rates to go up until late 2016; by the time the MPC met, that had been brought forward to mid-2015.

"UK developments, while broadly positive, had not been enough to warrant such an upward move in the near-term path of bank rate," the minutes said.

Bank of England governor Mark Carney plans to leave the size of the QE programme unchanged at £375bnPersistently weak real income growth – with high inflation more than outweighing paltry pay deals – was highlighted as a risk to the recovery by MPC members: "Real income growth had remained weak … and it was unlikely that consumption growth could continue at its current rate without some rise in real incomes."

However, the MPC said, "developments in the domestic economy had generally been positive", and broadly in line with the moderately upbeat picture presented by King at his final inflation report press briefing. For "most members", therefore, "the onus on policy at this juncture was to reinforce the recovery by ensuring that stimulus was not withdrawn prematurely", – subject to keeping inflation on track to hit the government's 2% target.

IMF boost for Osborne

George Osborne won a propaganda victory on Wednesday night as the IMF's powerful directors rejected its own economists' recommendations that the UK should slow the pace of spending cuts to boost recovery.

When the IMF announced the initial findings of its annual check-up of the UK economy in May, it caused a political storm by urging the chancellor to bring forward £10bn of infrastructure spending to avoid austerity becoming too much of a drag on growth.

But at a meeting on Monday, a big majority of the IMF's 24 directors – delegates from its member countries – spoke out against that proposal.

A statement released on Wednesday with the IMF's full findings on the UK, known as an Article IV, said: "Most directors underscored the importance of keeping fiscal consolidation on track to preserve credibility, not least in light of the persistent weakness of the fiscal position." However, Krishna Srinivasan, the mission chief for the IMF's UK assessment, said staff stood by their recommendations, despite the board's scepticism.

A Treasury spokesman said: "We thought they were wrong then, we still think they're wrong, and now it turns out most of the board agree with us."

But the IMF's report insisted that, "the economy remains a long way from a strong and sustainable recovery".

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

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US energy regulator orders Barclays to pay £299m fine

Penalty for attempting to manipulate electricity market comes hours after Tushar Morzaria is appointed as financial director

Barclays and four of its power traders have been ordered to pay a total of $453m (£299m) in fines by the US energy watchdog, which accuses the bank of attempting to manipulate the US electricity market.

The fines were announced just hours after the bank had named a new finance director. First announced last October, the fine by the Federal Energy Regulatory Commission (FERC) relates to allegations for the two years to December 2008.

The FERC told Barclays it had to pay a $435m fine to the US treasury within 30 days; one of its traders must pay a $15m fine, and three other traders $1m each, according to an 86-page order issued on Tuesday night. The bank must also give up $34.9m in profits which will to be distributed to low-income homeowners in California, Arizona, Oregon and Washington to help them pay their energy bills, it said.

"If Barclays and the traders do not pay the penalties assessed by FERC, then FERC may seek affirmation of the penalties from a federal district court," the regulator said.

Barclays said: "We are disappointed by the action FERC took today. We believe the penalty assessed by the FERC is without basis, and we strongly disagree with the allegations made by FERC against Barclays and its former traders in the FERC's order assessing civil penalty. … We believe our trading was legitimate and in compliance with applicable law. The Order Assessing Civil Penalty is by its very nature a one-sided document, and does not reflect a balanced and full description of the facts or the applicable legal standard. We have cooperated fully with the FERC investigation, which relates to trading activity that occurred several years ago. We intend to vigorously defend this matter."

Barclays is also facing another multimillion-pound bill to lure its new finance director, Tushar Morzaria, across the Atlantic from a senior role at a US bank.

Barclays said it was disappointed by the action taken by the FERCMorzaria is to receive a yet-to-be-disclosed relocation fee to move to London from New York to take up the key boardroom role, which could potentially pay the 44-year-old more than £6m a year in salary and bonuses.

In addition the bank, which has embarked on a strategy to become the "go to" bank in the wake of the £290m fine for Libor rigging, will buy Morzaria out of any long-term awards granted by his employer, JP Morgan Chase. Barclays did not disclose the value of the latter but they will be replaced with new awards of Barclays shares that will be disclosed by the bank at a later date and are likely to run to millions of pounds.

The accountant, who was born in Uganda and whose family moved to the UK in 1971, is replacing Chris Lucas who announced his retirement in February and remains under investigation by the City regulator into the way disclosures were made about the bank's 2008 cash call.

Morzaria will receive a salary of £800,000 plus an annual award of shares of potentially 250% of his salary – some £2m – as well as a longer-term bonus scheme under which he can receive up to 400% of his salary – up to £3.2m which would pay out over three years. He will also receive 25% of his salary – £200,000 – in cash in lieu of his pension.

The bank said that deferred and long-term awards which Morzaria forfeits as a result of accepting the role at Barclays "will be replaced with a Barclays share award of equivalent value to the forfeited awards which will vest over the same time period (as closely as possible) as the forfeited awards".

His appointment comes amid an overhaul of the top management team at Barclays in the wake of the Libor-rigging scandal which has led to the departures of the chairman Marcus Agius, chief executive Bob Diamond, chief operating officer Jerry del Missier and the head of the investment bank Rich Ricci.

Antony Jenkins, promoted from running the retail bank after Diamond quit, said he looked forward to working with Morzaria.

"He will bring a welcome new perspective to what is a pivotal role," said Jenkins, who also thanked Lucas for his tenure at Barclays, which began in 2007 just as the banking crisis took hold. Morzaria's experience in investment banking should complement Jenkins's background in retail banking.

Morzaria is expected to start working at Barclays in autumn 2013 but will have a long handover period with Lucas. He will not join the board until January 2014 while Lucas, who has health problems which have not affected his ability to do his job but had a bearing on his decision to retire, will remain in post until the end of February 2014.

At present Morzaria is chief financial officer, corporate and investment banking at JP Morgan Chase, which last year was embroiled in the "London Whale" trading scandal where $6bn (£4bn) of losses were caused by London traders.

Morzaria did not work in the division where the losses occurred. He has worked in various roles since 2005 and been based in New York since 2009. Before that he worked at Credit Suisse, JP Morgan and SG Warburg after starting his career at the accountants Coopers & Lybrand Deloitte.

Morzaria, who has two children, said he was looking forward to returning to the UK. "I am excited at the opportunity to be part of the leadership team which will deliver on the promised change in performance and culture," Morzaria said.

His former bosses at JP Morgan sent a memo to staff praising his "analytical ability, combined with calm, steady demeanour".

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

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Bank of England alerts watchdog over market rigging fears

Traders may have tried to rig price paid for government bonds in a quantitative easing auction, Treasury committee hears

The City watchdog is investigating the possibility that traders tried to rig the price that the Bank of England paid for government bonds in a quantitative easing auction, it emerged on Tuesday.

Paul Fisher, the Bank of England's executive director for markets, revealed in testimony to the Treasury select committee that the Bank had refused to buy one particular government bond – known as a gilt – at one of its regular "reverse auctions" in October 2011, because it feared there had been an attempt to manipulate the market.

"The auction went ahead, but we didn't allocate any purchases to one particular bond that was being offered to us, whose price had gone up very substantially in the market that morning, against the run of the market." He added that the Bank had been sufficiently concerned to refer the case to the Financial Services Authority – which was succeeded in April by the new regulator, the Financial Conduct Authority. News of the investigation follows a series of high-profile scandals over shady practices in the City.

Bank of England refused to buy one particular government bond over concerns there had been an attempt to manipulate the market.Three brokers have been charged over allegations of rigging the key interest rate Libor, while the FCA is also studying claims that energy trading firms sought to rig the wholesale gas market.

Fisher said there had also been several other occasions when the Bank had been sufficiently concerned about the behaviour of certain traders in the market to demand an explanation from them.

Andrea Leadsom, the Conservative MP whose questioning prompted Fisher to reveal the investigation, said it would be, "an ultimate irony, not to mention a public outrage," if bankers had tried to fix a process that was partly aimed at stabilising the financial system. Fisher agreed that, "if that was what they were doing, it would be thoroughly reprehensible".

Since QE was launched in March 2009, the Bank of England has bought a total of £375bn-worth of gilts, using electronically-created money, through so-called "reverse auctions", where bondholders such as banks compete with each other to sell their bonds to Threadneedle Street.

The FCA made no comment, but MPs are expected to press the regulator's chief executive Martin Wheatley about the investigation when he appears before the committee in the autumn, if no public announcement has been made by then about the outcome.

Fisher appeared before the committee – with Robert Stheeman, the chief executive of the government's Debt Management Office – to discuss the merits and challenges of QE. Fisher conceded that extricating the Bank from the unprecedented policy would be "the biggest challenge we will have had for 50 or 60 years". But he reinforced market expectations that such a change was some way off.

News on Tuesday that inflation had risen to its highest rate in more than a year posed further challenges for the Bank as it considers whether to extend QE in the face of a fragile economy. Official data showed inflation hit 2.9% in June, less than the 3.1% level that would have forced the governor Mark Carney to write an explanatory open letter to the chancellor, George Osborne. But with wage growth at just 1.3%, the rise in the cost of living means pay continues to fall in real terms.

The TUC said that Britain's workers are suffering the most protracted squeeze on their incomes since the long depression of the 1870s. Its calculations based on Bank of England data suggest real wages have now fallen for 40 months. The only time they fell for a longer was from 1875 to 1878.

The TUC's general secretary Frances O'Grady said the rise was "further bad news for households and the wider economy".

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

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UK unemployment expected to fall as nascent recovery feeds through to jobs

Economists expect claimant count to fall by 8,000, while Bank of England minutes will shed light on MPC's decision making

The number of people out of work and claiming benefits in the UK is expected to have fallen again last month as the economy's nascent recovery feeds through into the jobs market.

Official labour market data due at 9.30am on Wednesday will show an 8,000 fall in the claimant count in June, according to a Reuters poll of economists, while the unemployment rate for May is expected to remain at 7.8%.

Expectations for an improvement, at least on some measures of the labour market, follow a range of surveys suggesting companies are tentatively hiring new staff as the economy show signs of recovery.

Howard Archer, economist at IHS Global Insight, said: "The latest employment and unemployment data show improvement after the jobs market faltered early on in 2013. We expect further labour-market improvement to be evident in the figures out on Wednesday, supported by recently healthier economic activity.

"We now expect unemployment to be broadly stable over the next few months, before starting to edge lower from the end of 2013."

He predicted employment in the private sector would gradually pick up but that would be offset by an expanding labour force and further job losses in the public sector.

The UK unemployment rate is expected to stay at 7.8%. PhotographThe thinktank Capital Economics is less optimistic than the consensus on the drop in claimant count, expecting a fall of 5,000 in June after a fall of 8,600 in May. It is also cautious about earnings growth, forecasting an annual pace of 1.5%, just above the median forecast for 1.4%.

"With unemployment still high and productivity growth weak, underlying wage growth probably remained subdued," it said in a preview of the data.

That wage growth contrasts with a retail price rate of inflation of 3.3%, according to official data on Tuesday, meaning real wages continue to fall. The TUC says workers have now suffered falling real wages for more than 40 months – the longest lasting squeeze since 1875-1878.

Separately at 9.30am on Wednesday, the Bank of England releases the minutes from new governor Mark Carney's first monetary policy meeting, when rates were held at 0.5% and there was no change to quantitative easing (QE). The minutes will sum up the discussion and show how the nine committee members voted.

On the whole, economists expect the vote against more QE in July to have been seven members to two, compared with 6-3 at King's final meeting in June when he joined Paul Fisher and David Miles in calling for £25bn more in asset purchases.

Although Carney's first policy meeting ended as expected with interest rates pegged at their record low and no further QE on top of the £375bn so far, he still surprised markets with a statement alongside the decision.

The MPC used the release to say that there was no need for the recent sharp increase in yields on government bonds, which would indicate that interest rates were due to rise. It was only the sixth time in its 16-year history that the MPC had issued a statement alongside a decision to leave policy unchanged.

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