UK construction sector growth remains strong, survey says

Growth in the UK's construction sector remained strong in December, a survey suggests, with work on commercial projects seeing a sharp rise.

The latest Markit/CIPS purchasing managers' index (PMI) for the sector recorded a level of 62.1 last month.

While this was below November's six-year high of 62.6, it was still well above the 50 level that marks the divide between growth and contraction.

On Thursday, the PMI manufacturing survey also showed strong growth.

Wider recovery

Markit said the latest survey indicated that the construction industry had now seen output grow for eight months in row.

House building remains the fastest growing area of construction last month, although the pace of growth has slowed slightly from November.

However, Markit said that the construction sector was now seeing a broader recovery, with commercial building work rising at the fastest pace since August 2007.

The industry has also seen jobs increase for seven months in a row.

"The improving UK economic outlook is helping boost private sector spending patterns, meaning that the construction recovery has started to broaden out from housing demand and infrastructure projects to include strong growth in commercial building work," said Tim Moore, senior economist at Markit.

The survey is further evidence that the UK's economic recovery is continuing.

On Thursday, Markit said that its PMI survey for manufacturing in December showed the sector's recovery remained "on track". The PMI survey for the services sector is due to be released on Monday.

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FCA stands by decision to sanction Paul Flowers as Co-op Bank chairman

Regulator's Clive Adamson refuses to concede to MPs that appointment of now-disgraced Methodist minister was mistake

The regulator who authorised Paul Flowers's appointment as chairman of the Co-operative Bank faced intense criticism from MPs on Tuesday after he insisted he stood by the decision to allow the now disgraced Methodist minister to take on the role after a 90-minute interview in 2010.

Clive Adamson, head of supervision at the Financial Conduct Authority (FCA), met with incredulity among MPs on the Treasury select committee when he initially refused to concede that the appointment of Flowers – branded a "financial illiterate" by the committee's chairman, Andrew Tyrie – had been a mistake.

Under often hostile questioning, Adamson was asked if he and others were right to stay at the regulator, which has taken over from the Financial Services Authority. "You clearly did get it terribly wrong," he was told by Andrea Leadsom.

The Co-op Bank is now 70% owned by its bondholders, led by US hedge funds, and only 30% by the mutually owned Co-op Group of supermarkets, pharmacies and funeral homes, after a rescue operation to inject £1.5bn into the bank. The committee is examining the aborted attempt by the Co-op to take over 631 Lloyds Banking Group branches and questioning the merger of the bank with Britannia Building Society in 2009.

Tyrie said the regulator's decision to approve Flowers – who was exposed buying illegal drugs last year – was "a negligent decision, a very poor decision". He said Adamson's evidence exposed flaws in the so-called approved persons regime, under which officials are authorised to work in the City. "These flaws contributed to the appointment of a man with no knowledge of finance and no experience of running the board of a major corporation as the chairman of Co-op Bank in the immediate aftermath of the financial crisis," Tyrie said after the hearing.

Tyrie called for the entire approved persons regime to be torn up. "[Adamson] told us that, in the FCA's view, the reforms being applied to banks should also apply across the rest of the financial services industry," he said.

Towards the end of the two-hour hearing, Adamson eventually conceded that the appointment of Flowers – who chaired the bank from mid-2010 and left in June 2013, just as the £1.5bn capital shortfall was identified – was wrong, but said it had been the right decision at the time.

He insisted that the Flowers he authorised was a "more cogent individual" than the one who appeared before the committee last year, when the chairman was unable to give the size of the bank's balance sheet.

Adamson stressed that nothing in the rules at the time required him to interview Flowers. "I didn't think it was a mistake given the information I had at the time," Adamson said. Flowers, he said, was appointed to chair an "unruly" board of 22 individuals, and two deputies were appointed – Rodney Baker-Bates and David Davies – to counter his lack of banking knowledge.

"Do I regret what subsequently happened? Yes I do," Adamson said, conceding that Flowers would not be authorised now. Mark Garnier MP declared himself "almost speechless" after Adamson admitted Flowers had been approved after an hour-and-a-half interview and without his references being taken up. Flowers had disclosed a spent conviction for gross indecency from 1981, but it was not deemed relevant.

Sitting in the public area of the committee room was Lord Myners, who was last month appointed as a non-executive of the Co-op Group and will head the review of its governance. As Myners looked on, Adamson said: "I stand by the decision" to appoint Flowers.

Baker-Bates visited Adamson in 2012 to warn that the takeover of the Lloyds branches was a "step too far", but the negotiations were allowed to carry on for another nine months before they collapsed in April 2013.

Baker-Bates "had blown the whistle", said Labour MP Pat McFadden and, along with the other vice-chairman, Davies, had voted against this so-called Verde transaction. Both have now left the board.

Adamson was also facing questions about the Co-op's merger with Britannia Building Society in 2009, which is now blamed for many of the problems at the bank but for which the FSA's authorisation was not officially required. Adamson said there was no political interference, but there had been support for the co-operative movement.

The tenure of Graeme Hardie as a non-executive director on the Co-op board was also questioned after he took the role despite having been involved in approving Flowers' position as chairman when he was an adviser to the regulator. Richard Pym, chairman of Co-op Bank, said Hardie was doing a first-rate job and should not resign.

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Co-op Bank execs face BoE investigation

The Bank of England and the Financial Conduct Authority have confirmed they will launch investigations into the near collapse of the Co-op Bank

Former senior managers of the Co-op Bank are to be investigated by Britain’s two financial regulators over their role in the near failure of the troubled lender that last year discovered a £1.5bn capital shortfall.

The Prudential Regulation Authority (PRA), the Bank of England-run bank supervisor, and the Financial Conduct Authority (FCA) have confirmed they have begun an “enforcement investigation” into the Co-op Bank that will look at the actions of the lender’s “former senior managers”.

The launch of the investigation follows a two-month-long joint inquiry by the PRA and the FCA into the circumstances that led to the Co-op Bank’s troubles that will see the lender’s parent, the Co-op Group, give up control of the business to its bondholders.

The investigation could lead to former manager being fined, suspended and possibly banned from working in the financial services industry. The investigation could also lead to criminal action should the officials find any evidence of wrongdoing by individuals, though this would require a separate police investigation.

The Reverend Paul Flowers, the former chairman of the Co-op Bank, is already the subject of a police investigation into his alleged drug-taking, but will now face a probe into his professional conduct while at the bank, along with other former directors and executives.

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UK interest rates to stay at 0.5% in 2014 - economists

Interest rates in the UK are unlikely to rise this year, according to a snapshot of views of the UK's top economists from the BBC.

An overwhelming majority, 93% of the 28 economists polled, think rates will still be 0.5% at the end of 2014, with more than half predicting the first rise in the second half of 2015.

More than 40% believe unemployment will fall to 7% in 2014, from 7.4% now.

Two-thirds also think wage increases will overtake inflation this year.

Some observers have suggested recent rises in house prices could force the Bank of England to raise rates sometime in 2014, but the majority of economists used by the Treasury and polled by the BBC rejected this view.

Almost 80% think rates will begin to rise in 2015, with 15% saying they will not increase until 2016. Only 7% of those polled think rates will rise in 2014.

The unemployment rate of 7% is significant because this is the level the Bank has said needs to be breached before it considers raising interest rates.

The snapshot suggests there is less certainty in the City about unemployment levels than there is about interest rates.

Although more than 40% think the jobless rate will hit 7% this year, exactly half think that will not be until 2015. Just 8% think it will not be until 2016.

Three respondents actually believe rates will rise before unemployment falls to 7%, which would mean the Bank abandoning its forward guidance on interest rates.

But some economists warn about getting too fixated on the 7% unemployment rate. Kate Barker, a former member of the Monetary Policy Committee, says unemployment could fall and wages could rise, without raising concern over inflation.

"The real question for the economy this year is not just about interest rates. It's actually about what is going to happen to productivity, if we see productivity start to recover we could see wages pick up quite a bit without any damage to inflation - so there are more things to look at other than employment," she said.

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UK manufacturing tipped for strongest growth in Europe

EEF predicts sector will grow 2.7% this year, compared with 1.6% in Germany and 0.7% in France

Britain's manufacturers will enjoy faster growth than those in Germany or any other western European economy this year from rising demand at home and abroad, according to a report.

In its annual survey of companies, manufacturers' organisation EEF found 70% of firms forecast an improvement in the economy in 2014, while just 5% thought conditions would deteriorate. The balance of 65% compares with the sombre outlook at the same time last year when the reading was just 7%.

The balance expecting a good year for manufacturing is 52% – up from zero this time last year.

"Manufacturers are telling us they expect to make a greater contribution to growth, investment and jobs this year," said EEF's chief executive Terry Scuoler.

The EEF, along with the thinktank Oxford Economics, has forecast that the British manufacturing sector, which accounts for 10% of the economy, will grow 2.7% this year. That puts it ahead of all other western European countries in the thinktank's forecasts. German manufacturing is expected to pick up by 1.6% with France at just 0.7%, level with Spain and just of Greece at 0.4%.

Austria and Belgium are also expected to pick up strongly with growth of 2.4%

Manufacturers' caution at the start of last year now appears justified however with the sector now forecast by the EEF to have contracted 0.1% during 2013. The sector is still some 9% below its pre-recession level, said the group's chief economist Lee Hopley. "We are not yet where we want to be," she said. "There is still lots to do."

But the evidence from the sector was more positive for this year, including signs the pick-up in momentum was broad-based, she said.

"The sectoral difference is not as stark as a year ago. We were quite reliant on the transport sector to do a lot of the heavy lifting for the manufacturing sector over 2013... This year it should be more evenly spread," she said.

But the manufacturers' group also warned of risks from many sides as the sector strives to make up for the sharp contraction in recent years. The survey of 200 senior executives said uncertainty had become the "new normal" after the shocks of recent years when demand dwindled in the UK's key export market, the eurozone.

For the year ahead they are worrying about energy prices, being held back by the prolonged hollowing out of the UK's supply base and pressure for pay rises as skills shortages continue to bite.

The survey also suggested business investment will finally start to grow again this year.

Some 60% of companies said they planned to invest moderately or significantly in the UK. Signs that large companies are ready to start spending some of the cash piles they have been sitting on while smaller firms are prepared to borrow to expand reflect a brighter outlook for sales. Two-thirds of companies expect domestic sales to increase and, 55% of companies expect their exports to increase. The Middle East stands out as an increasingly favoured market for UK manufacturers while they are also more upbeat about the eurozone.

Despite the generally positive outlook painted by the survey and other recent indicators from the sector, the EEF said three quarters of manufacturers believe "economic uncertainty is the new norm".

Manufacturers' general optimism was echoed in a separate report suggesting Britain's biggest companies plan to increase investment and hire more workers in 2014.

The latest poll of 122 chief financial officers by consultants Deloitte also found almost half of respondents – 49% – said Bank of England governor Mark Carney's policies had boosted confidence in the UK's economic outlook. Just 3% said confidence had been dented and the rest saw no effect.

Companies' appetite for risk was the highest since the quarterly survey started six years ago and 70% of those surveyed said they expect businesses to increase hiring in 2014.

Ian Stewart, chief economist at Deloitte, said the survey showed finance chief were starting 2014 "in buoyant mood with a focus on expansion, investment and hiring.". This bodes well for the broad-based recovery policymakers hope to see in 2014."

"Large corporates have good access to capital and CFOs are more positive about financing their business with equity and bonds than at any time in the last six years. But in a sign that banks are lending once again CFOs rate bank lending as the most attractive form of finance for their business for the first time since 2008."

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Inflation slows again in November to four-year low

British inflation edged down in November to its lowest level in four years, giving the Bank of England plenty of breathing space to keep interest rates at a record low even as the economy picks up speed.

Consumer prices rose 2.1 percent on the year in November, the slowest increase since November 2009, as the impact of higher gas and electricity prices had yet to be felt, the Office for national Statistics said. Economists taking part in a Reuters poll had expected inflation to stay at 2.2 percent, its rate in October.

Compared with the previous month, the consumer price index in November was up 0.1 percent, the ONS said. Separately, house prices in Britain rose at their fastest pace in October in just over three years. Annual inflation has exceeded the Bank of England's 2 percent target every month since December 2009, steadily eating into the pay of British workers and making living standards a big political issue ahead of the 2015 elections.

Despite above-target inflation, the BoE's focus remains on nurturing an economy which is growing more quickly than most other industrialized countries but remains smaller than before the financial crisis.

The BoE has said it will only think about raising record-low interest rates once unemployment falls to 7 percent, unless inflation expectations threaten to get out of control.

Figures due on Wednesday are expected to show unemployment stayed at 7.6 percent in the three months to October.

The ONS said on Tuesday that the slowdown in November's inflation figure was partly due to fruit and vegetable prices as well as the later introduction this year of hikes in power tariffs.

An ONS official said last year's increases in utility prices affected inflation in November but were only expected to impact the CPI in December this year.

An underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, rose by 1.8 percent in November compared with the same month last year.

Data also released by the ONS on Tuesday showed that factory gate prices rose by 0.8 percent in annual terms, slower than economists' predictions of a 0.9 percent increase.

Some economists expect inflation pressure to grow in the coming months when the impact of the recently announced prices rises for household heating will be felt.

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UK manufacturing growth remains strong

The UK's manufacturing sector continued to see strong growth last month, according to a closely watched survey.

The latest Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) recorded a level of 57.3 for December.

While this was down slightly from November's near three-year high of 58.1, it was still well above the 50 mark that indicates expansion.

Markit said that the latest figure suggested the manufacturing recovery remained "on track".

"UK manufacturing's strong upsurge continued at the end of 2013, with rates of growth in production and new orders still among the highest in the 22-year PMI survey history," said Rob Dobson, senior economist at Markit.

"On its current track, the sector should achieve output growth of over 1% in the final quarter while filling around 10-15 thousand jobs, continuing its positive contributions to both the broader economic and labour market recoveries."

Recent official data and survey results have indicated that the UK economy is continuing to strengthen.

Last month, the latest unemployment figures showed that the jobless rate had fallen to 7.4%, the lowest rate since 2009.

Price pressures

Markit said that growth in manufacturing output and new orders remained "robust", helped by the strengthening UK economy and an increase in new export orders.

The research firm said manufacturers had seen increasing demand from Brazil, China, Ireland, Russia and the US.

The latest survey also showed signs of inflationary pressures building within the sector, with both average input costs and output charges rising at faster rates last month.

"With headline CPI inflation softening for a variety of reasons, this trend in manufacturing price pressures is not likely imminently to trouble the Bank of England," said David Tinsley, UK economist at BNP Paribas.

"But it does underline that inflation is not dead in the UK, and the economy is likely to sustain a materially higher inflation rate than its peers in 2014."

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