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Tuesday, 15 October 2013

Royal Mail profits expected to result in 'halo effect' in runup to Christmas

Market research firm Verdict says share profits will contribute to increased spending as shoppers feel that 'things are improving'

Windfall profits collected by hundreds of thousands of people on theirRoyal Mail shares are expected to lead to an extra spending splurge in the runup to Christmas.

The market research firm Verdict said profits on Royal Mail shares together with compensation payments from mis-sold payment protection insurance would lead to a "halo effect" – making consumers think that "at last things are getting better".

Maureen Hinton, Verdict's director of research, said shoppers were expected to spend an extra £1.9bn on Christmas compared with last year. Spending in the last three months of the year is expected to come in at £88.4bn, compared to £86.5bn in the same period last year.

The forecast 2.2% rise in spending would be the strongest since the recession began.

Verdict predicted that online sales would jump 12% to £11.6bn, with Amazon named as the biggest beneficiary.

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

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Monday, 14 October 2013

50,000 consumers switch suppliers after energy price rise, claim experts

Other 'big six' firms hold back from upping prices hoping to win over SSE customers after last week's 8.2% increase

More than 50,000 energy consumers have switched their suppliers and many more are expected to follow on Monday in the aftermath of the 8.2% price increase levied by SSE last week, experts say.

Other "big six" energy firms are believed to be temporarily holding back their own plans to raise bills in the hope they soak up new customers opting to leave SSE.

The mass switching will be welcomed by the government, which had urged consumers hit by the price rise to find cheaper options rather than passively accept an increase in the cost of living.

Paul Green, the marketing manager at Energyhelpline, said that at the end of last week his switching company had had six times the activity seen on normal days.

"I would think that around 50,000 people overall have switched their energy providers – not necessarily all from SSE – following the price rise. We would expect to see more activity on Monday ," he explained.

Green said any price rise triggered a frenzy of activity as customers reviewed their energy bills and considered whether their providers would raise prices.

"If British Gas had raised its prices the peak in activity would have been even higher because it is by far the largest supplier but SSE is the second largest so it was bound to be significant."

Often suppliers quickly raise their prices once a rival has taken the first step. While Energyhelpline expected others to follow suit, it believed there might be a delay as rivals try to win those customers who have bailed out of SSE or have just decided to leave their own provider.

But other City experts said companies such as British Gas were holding back increases in the hope that the government would come up with ways of removing some responsibilities and costs, such as the ECO energy company obligation to provide lagging and other measures for poorer homes. Downing Street confirmed last Friday that the government was considering ways of cutting financial support in a bid to reduce overall fuel bills.

Energy companies including SSE have been campaigning for environmental measures to be taken off bills and put on to generation taxation while others want them scrapped completely.

The SSE price rise – the first to be announced by one of the big six this winter – will take effect from 15 November and force up the cost of living for more than 7 million customers.

SSE blamed government policy charges and green levies for the increase, which it insisted equated to an average rise of just £2 a week on most bills.

Michael Fallon, the energy minister, encouraged people to consider switching to one of the company's rivals."The best answer here is more competition. I would encourage customers to look at the tariffs they are on, and see if they can switch. That competition is best," he argued.

But the Labour leader, Ed Miliband, made an impassioned attack on SSE, accusing it of ripping off customers and said the latest "scandal" showed why the government needed to act.

But David Cameron responded by saying the proposal to freeze energy prices, first unveiled by Miliband at the Labour conference two weeks ago, was a "con" because the increases were driven by international pressures and a moratorium would not help.

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

Nobel prize in economics: will financial crisis adjustment theory win the day?

Those in the know hope Nobel committee makes choice in 2013 that reflects the seismic changes of the past five years

After five years in which many of the pillars of economic theory have been swept away by a financial hurricane that went largely unpredicted by the majority of practitioners of the dismal science, it may be hard to believe anyone deserves to crowned with a Nobel prize in the subject.

But the winner of the Sveriges Riksbank prize in economic sciences in memory of Alfred Nobel, as it is officially called, is due to be announced on Monday, and bookmakers have come up with a packed field of runners and riders.

Yales's Robert Shiller has been high up the list for some years. He wrote a prescient book, Irrational Exuberance, published in 2000, about the stock market bubble, and followed it up with a second edition in 2005, which took the then unfashionable view that US housing looked dangerously overvalued. "If I was a betting man, I would think it had to be Shiller," said TUC economist Duncan Weldon.

Sir Tony Atkinson, of Nuffield College, Oxford, who has long worked on inequality and income distribution – seen as increasingly relevant in recent years – is also frequently mentioned. Inequality has also been a consistent concern of another much-mentioned Brit, Angus Deaton.

A more mainstream choice for the judges might be Robert Barro, of Harvard, who is in the mould of classic, free market, anti-big state economics.

But those who have been fighting for a revolution in the way economics is taught in schools and universities would like to see the Nobel committee make a choice that reflects the seismic changes of the past five years.

Wendy Carlin, of University College London, who is working on a project to shake up the economics curriculum in Britain, favours South Korean-born Hyun Song Shin, of Princeton, for example. Even before the crisis, Shin was studying the importance of leverage in the global financial system.

Carlin said there were encouraging signs that economists were adjusting to changing times. "There's a feeling that at least the occasion of the crisis has led people to think that we should be teaching economics differently," she said.

While physicists can pelt particles around the Large Hadron Collider in search of the Higgs boson, economists have to test their theories by watching messy events and unpredictable human beings in the real world.

Diane Coyle, of consultancy Enlightenment Economics, said in the light of the battering many of their prized theories have taken over the past five years or so, economists needed to switch from building big, mathematical models, to "microeconomics", which studies how firms, individuals and particular markets behave. "Let's confess that we just don't know how the macroeconomy works, and we need to have a bit of a think about that," she said.

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

George Osborne opens doors to rich Chinese with new visa system

British chancellor moves to improve relations with Beijing after rift over David Cameron's meeting with Dalai Lama

George Osborne has heralded the "next big step" in Britain's relationship with Beijing, unveiling a new visa system to make it easier for Chinese business leaders and rich tourists to visit the UK.

In a sign of Downing Street's determination to reset relations with Beijing, which unofficially downgraded Britain's status after David Cameron met the Dalai Lama last year, the chancellor told an audience in the Chinese capital that no country in the west is more keen to attract Chinese investment than Britain.

Osborne, who began a five-day trade mission to China at the weekend, told students at Beijing University: "I don't want us to try to resist your economic progress, I want Britain to share in it.

"And I want, this week, us all to take the next big step in the relationship between Britain and China. Because more jobs and investment in China mean more jobs and investment in Britain. And that equals better lives for all."

As a first step the chancellor announced Britain will make it easier for Chinese business leaders to visit the UK by introducing a 24-hour "super priority" visa service.

In the biggest step, a separate pilot scheme will allow selected Chinese travel agents to apply for UK visas simply by submitting the application form used for the EU Schengen visa.

The scheme is aimed specifically at the high-end tourism market, after figures showed that wealthy Chinese tourists are not bothering to apply for a UK visa after applying for a Schengen visa, which allows them to visit 22 out of the 28 EU member states plus Iceland, Liechtenstein, Norway and Switzerland.

Ministers were understood to be alarmed when one study found that Chinese tourists were buying vastly higher numbers of expensive designer handbags in Paris than in London. The chancellor said: "These changes will streamline and simplify the visa application process for Chinese visitors, while ensuring the system is strong and secure. This is good news for British business and tourism."

The Foreign Office has no difficulty with the relaxed visa system, which will be administered through its embassy in Beijing and consulates in Shanghai and other high-growth cities.

But concerns have been voiced to the chancellor and the prime minister from within the Foreign Office that Britain needs to tread with care in the light of China's human rights record and its aggressive cyber-attacks.

Cameron is understood to have heard the Foreign Office's concerns with sympathy. But he is determined to open a new chapter in Britain's relations with China after declaring that the "Bric" countries – Brazil, Russia, India and China – would be a priority. He has led two trade missions to India but has visited China only once as prime minister, three years ago.

Ed Davey, the energy and climate change secretary, who has recently returned from Beijing, spoke of a "massive Chinese investment" worth tens of billions of pounds in nuclear power and other sources of energy in Britain.

Davey told the Andrew Marr Show on BBC1 that there would also be major energy investments from Japan and South Korea. The China General Nuclear Power Group has been in talks with EDF Energy about taking a stake of up to 49% in the deal to build a nuclear power plant at Hinkley Point.

Osborne's trip – in which he is being accompanied in part by the London mayor, Boris Johnson, and four other government ministers – is designed to pave the way for a long-awaited trade mission to China by the prime minister.

Cameron was forced to abandon a visit to China earlier this year when Beijing punished him for meeting the Dalai Lama, the spiritual leader of Tibet, at St Paul's Cathedral in May 2012 with Nick Clegg.

The prime minister abandoned tentative plans for a trip to China in April after Beijing indicated that he was unlikely to be granted meetings with senior figures. The UK government said no plans had been finalised and the new Chinese leadership, which only took over in March, needed time to bed down.

The Osborne and Cameron trips, which have been pencilled in for the autumn for some months, have been the subject of intense negotiations in Whitehall. The chancellor is said by some ministerial sources to be adopting a gung-ho approach and is keen to explore every opportunity to boost trade links with China. "With George it all comes to pounds, shillings and pence at the end of the day," said one ministerial source.

Britain's nervousness about the Dalai Lama was highlighted when Johnson declined on five occasions on Sky News to say whether he would like to meet Tibet's spiritual leader. On the fifth occasion an exasperated mayor told Dermot Murnaghan: "This is the fifth time, I'm coming up for air again, Dermot, I'm just repeating that it's not my job as mayor to insert myself into controversial areas of international dispute. My job is to promote the interests of the city."

In his speech Osborne said: "There are some in the west who see China growing and they are nervous. They think of the world as a cake – and the bigger the slice that China takes, the smaller the slice that they will get. I totally and utterly reject that pessimistic view. If we make the whole cake bigger, then all our peoples will benefit. That should be the basis of our relationship with China."

In addition to Beijing Osborne will visit Shenzen, Guangzhou and Hong Kong.

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

Friday, 11 October 2013

IMF piles pressure on US to reconcile differences and prevent debt default

Shares and oil prices rise in hope of six-week extension as OECD warns US deadlock threatens world economy

Shares and oil prices rose strongly on Thursday amid hopes that policymakers in Washington were buckling under the global pressure for them to settle their differences and prevent a US debt default.

The International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) both issued sharply worded warnings to Republicans and Democrats amid signs that America's Asian creditors were becoming alarmed at the potential consequences of the impasse.

Reports in Washington that the Republicans would agree to a six-week extension of the debt ceiling from next week's 17 October deadline led to a 323-point rise in the Dow Jones average. Brent crude was up by $2 a barrel and the FTSE rose by 92 points as the Republican leader in the House of Representatives John Boehner said it was time for meaningful talks with President Barack Obama.

After discussions with Republican leaders on Thursday night, the White House said Obama had held a "good meeting" but that they failed to reach an agreement to end the budget crisis despite earlier hopes that a deal may be in sight. Ninety-minute discussions between Obama and Boehner broke up with little apparent progress or press announcement, although there was a marked change in tone on both sides that suggested a deal may still be close.

Speculation about a deal had emerged after Jack Lew, the US Treasury secretary, said there would be chaos if the US defaulted – a message rammed home by IMF managing director Christine Lagarde and the OECD's secretary general Ángel Gurría.

Lagarde said there would be very dangerous consequences for the US economy and elsewhere if the default was not prevented.

She distanced herself from the infighting in Washington, noting: "The IMF does not make recommendations about how, politically, this can be resolved. We don't take a political view. We just look at the economic consequences.

"When it affects the largest economy in the world, we are bound not only to look at the immediate domestic consequences but at what happens elsewhere, so that we can have a dialogue with our members to help them prepare.

"I hope we will be able to look back in a few weeks and say what a waste of time that was. But we have to look at the risks no matter how unlikely they are to materialise."

Lagarde said there were two channels through which a debt default in the US would spread to the rest of the world. "One would be the trade channel, caused by a reduction in economic activity in the US from the third quarter onwards.

"The second would be the financial channel – the result of uncertainty and material issues. We are likely to see volatility, uncertainty and consequences for the rest of the world."

Lagarde said some of the warning signs of stress in financial markets – such as the VIX index of volatility and the price of insuring financial instruments – were flashing. "It's not helping the US to have this uncertainty and protracted way of dealing with fiscal and debt issues."

Gurría said: "The current political deadlock in the US is needlessly putting at risk the stability and growth not only of the US but also the world economy."

He added there was a risk that the west could be plunged back into recession by a default. "If the debt ceiling is not raised – or, better still, abolished – our calculations suggest that the OECD region as a whole will be pushed back into recession next year, and emerging economies will experience a sharp slowdown. The magnitude of further possible negative feedback effects can only be guessed at."

The ongoing political impasse in Washington has sparked fears the US could default on repayments of its bonds, prompting banks and clearing houses to take preventative measures against such an unprecedented event.

In Hong Kong, the body which stands behind trades on the Hong Kong futures and options exchanges has concluded that some US Treasury bonds posted as collateral are more risky than in the past.

The US government needs to be able raise the nation's $16.7tn (£10.5tn) debt ceiling on 17 October otherwise it might not be able to make payments on bonds it has issued in the past, unleashing turmoil in the financial markets. About $120bn of debt needs to be repaid that day with another $200bn before the end of the month.

"Participants should make necessary funding arrangements to cover any shortfall to their margin requirements resulting from the increase in the US Treasuries haircut [discount]," the clearing house, Hong Kong Exchanges & Clearing, said.Neil Shearing, chief emerging markets economist, at Capital Economics said: "This is uncharted territory. Depending on the scale of default and the response of policymakers, regulators and the ratings agencies, substantial financial market dislocation could follow."

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

WH Smith to open 16 more post offices in its stores

CWU fears for job losses after hundreds of staff were made redundant when WH Smith took on initial batch of post offices in 2006

WH Smith has walked into a row with post office workers after signing a deal to operate more outlets in its stores.

The retailer expects to open 16 more post offices in its branches, subject to six-week public consultations, under an agreement revealed alongside its annual results yesterday. WH Smith said it has also renewed a contract to operate 82 post offices in its stores for a further five years.

Chief executive Stephen Clarke, who took over from long-term WH Smith boss Kate Swann earlier this year, said the post offices were part of a plan to make the best use of store space and encourage more shoppers to visit.

However, a spokesperson for the Communication Workers Union (CWU) said: "We have grave concerns over WH Smith taking on a further 16 post offices."

Postal workers have been involved in a series of strikes since plans were revealed to franchise around 70 crown post offices, which are currently run by the government-owned service.

The CWU said the deal with WH Smith put the future of post offices at risk. It cited the case of a post office in Runcorn which has now moved to a Tesco store, while another in Grays, Essex, is being temporarily run from a council building.

The union is also concerned about job losses after hundreds of long-term staff were made redundant when WH Smith took on its initial batch of post offices in 2006. However, WH Smith said all staff would be transferred under rules which protect pay and conditions, and no redundancies were planned.

The row overshadowed another rise in profits, in line with expectations, at WH Smith despite falling sales. Pre-tax profits rose 6% to £108m as the company cut costs, improved efficiency and switched to selling more profitable items such as stationery, as sales fell 5% to £1.2bn. Underlying sales, which strip out the impact of new store openings and closures, slid at WH Smith's high street and travel stores, by 6% and 4% respectively, as sales of its core categories – stationery, books and newspapers/magazines – slipped back.

The company expects to open about 40 outlets a year in overseas airports, hospitals and railway stations. In the next half year it will open 20 outlets including its first stores in Russia and Qatar. The company now has 141 international outlets.

It is often criticised for shoddy looking stores in the UK with one Twitter account devoted to picturing its dirty carpets, but Clarke said WH Smith had spent £12m on improvements in the past year and more updates were in the pipeline.

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

Bank of England holds interest rates and quantitative easing

Governor Mark Carney believes much of the current 2.7% inflation rate can be blamed on one-off shocks

The Bank of England has rejected calls for a rise in interest rates despite a strong run of surveys showing the economy is recovering at its fastest pace since 2010.

In a widely expected decision, the central bank's interest rate setters kept the base rate at 0.5% and the level of its monetary stimulus to the economy, known as quantitative easing, at £375bn.

Some analysts have called for a rise in interest rates in response to the improving economic picture and a recent jump in housing market activity.

However, the bank's monetary policy committee has agreed to maintain its current policy stance until the unemployment rate falls to 7%. It expects to reach this milestone in 2016 after 750,000 jobs have been created.

Governor Mark Carney believes the economy remains weak and much of the current 2.7% inflation rate can be blamed on one-off shocks.

The bank is known to be extremely concerned at the level of business investment, which has continued to fall this year despite the pace of recovery picking up since the spring and many commentators describing it as a well-advanced and sustainable expansion of economic activity. Without a return to healthy rates of business investment, senior Bank staff fear the economy will be forced to rely on consumer spending to maintain growth.

Philip Shaw, UK economist at Investec, said the positive momentum of the economy made more QE unlikely.

"The key question surrounds the possible timing of the first interest rate hike. This is some way off and the likelihood is that the UK faces a long period of steady policy. Nonetheless markets and ourselves are sceptical that this move will occur as far in the future as the second half of 2016, as the Bank of England's guidance implies," he said, adding that the debt markets expect a rise in early 2015.

Peter Dixon, UK economist at Commerzbank, said: "As far as the immediate future is concerned, the BoE is expected to remain on the sidelines.

"Although the economy can be expected to lose momentum relative to recent trends, we look for a self-sustaining recovery with GDP growth in the region of 2% next year. This is not an environment in which additional policy activism is required, implying no more QE as well as no rate moves."

Howard Archer, chief UK economist at IHS Global Insight, said: "The already limited likelihood of any further QE appears to have waned further as the good news on the UK economy has been largely sustained – notwithstanding a few blips such as the surprise marked drop in industrial production in August. Meanwhile, any change in interest rates is clearly a long way off whether or not unemployment ends up falling more rapidly than the Bank of England currently expects."

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