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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UK unemployment rate at lowest since 2009

The UK unemployment rate has fallen to its lowest level since 2009, official figures show.

At 7.4%, this is the lowest rate since the February-to-April period in 2009, the Office for National Statistics (ONS) said.

The number of people out of work fell by 99,000 to 2.39 million in the three months to October, the ONS said.

Prime Minister David Cameron told MPs the figures showed that "the plan is working".

Mr Cameron said: "There should not be one ounce of complacency because we have still got work to do to get our country back to work and everyone back in work means greater stability for them, greater ability to plan for their future, greater help for their families.

But the plan is working, let's stick at it, and get unemployment down even further."

But Labour leader Ed Miliband, while welcoming the news, said more people are working part-time because they could not get the hours they need.

This 7.4% rate compares with a figure of 7.6% for the three months to September, and is below the rate analysts had expected.

The number of people claiming Jobseeker's Allowance in November fell by 36,700 to 1.27 million.

In Northern Ireland the unemployment rate was slightly higher at 7.5%, while Scotland's figure was 7.1.%. England and Wales matched the national figure of 7.4%.

The North East of England had the highest unemployment rate, at 10.1%, while the lowest rate was 5.6% in the East of England.

The North East also had the highest claimant count rate at 6.1%, compared with the South East, which had the lowest, at 2.3%.

Earnings pressure

Average weekly earnings growth, including bonuses, picked up by 0.9% in the three months to October compared with a year earlier, the ONS said, a slight improvement on the three months to September.

Excluding bonuses, pay grew by 0.8%.

But this is still well below the level of inflation - currently running at 2.1% - meaning that people's earnings are still falling in real terms.

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The ONS data also showed that the number of people aged 16 and over who are in work was at a record high of 30.09 million, up 250,000 compared with the May-to-July period.

The percentage of the workforce in the public sector - 18.8% of those in employment, or 5.7 million people - fell to its lowest rate since the current data series began in 1999.

'Spectacular strength'

Economists welcomed the latest jobs figures.

David Tinsley, UK economist at BNP Paribas said the UK labour market was "showing spectacular strength".

David Kern, chief economist at the British Chambers of Commerce, said: "These are very strong labour market figures, which back our recent forecast of increased growth in the fourth quarter of this year."

And Chris Williamson, chief economist at Markit, said: "The official data are now confirming the upbeat signals from business surveys, which have shown the fastest rates of job creation since the late 1990s in recent months, as firms respond to a marked pick up in demand."

The Bank of England has said it will not consider raising interest rates from their record low of 0.5% until the unemployment rate falls to 7%.

But even then, governor Mark Carney has said an interest rate increase is not guaranteed.

The pound jumped against both the dollar and euro after the release of the jobs figures, as expectations rose that UK rates could rise sooner than forecast

The Bank's nine-member Monetary Policy Committee (MPC) was unanimous in voting to keep interest rates on hold, minutes from its December meeting revealed, and to leave the central bank's £375bn programme of quantitative easing unchanged.

The MPC believes inflation could fall to its target level of 2% early in 2014, the minutes show, but it is concerned that sterling's recent 2% rise against other currencies could jeopardise the UK's economic recovery.

The UK grew by 0.8% in the third quarter of 2013, and the Bank is forecasting growth of 2.8% next year.

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David Cameron: Help to Buy triggers £1bn of new home loans

David Cameron claims that more than 6,000 people will move into their own property thanks to the Government's Help to Buy scheme, just three months after it was launched.

Nearly £1bn of home loans have been offered through the Government’s flagship Help to Buy scheme in the first three months since its introduction, the Prime Minister has claimed.

The controversial scheme, which has triggered warnings of a fresh housing bubble, has allowed more than 6,000 homebuyers to put in an offer on a property and apply for a mortgage, David Cameron said.

Those mortgages, once approved, will amount to almost £1bn of new lending, the Prime Minister said. So far 750 purchases have been completed since the initiative was rolled out in October.

“The New Year is often a time when people look to make those big life-changing decisions like moving home or taking that first step on the housing ladder,” Mr Cameron said.

“But too many people have found themselves frozen out of the market in recent years as a result of the size of the deposit required.”

Mr Cameron added: “That is why as part of our long-term economic plan we introduced the Help to Buy scheme, so hardworking people with sufficient earnings can get on, fulfil their aspirations and enjoy the security of owning their own home.”

However, Help to Buy, which offers Britons the chance to get on the property ladder with a deposit of as little as 5pc, has sparked warnings of a fresh housing bubble from economists and also Vince Cable, the Business Secretary.

Property experts have cautioned that initiatives such as Help to Buy are making it easier to purchase homes at a time when there is a shortage of new property coming on to the market.

Bodies such as the International Monetary Fund have warned the UK needs to be “vigilant” to the risks of another housing bubble and suggested the Government may need to consider other measures such as easing planning constraints to boost house building.

Downing Street insisted today that housebuilding is now growing at its fastest rate since 2008 and Help to Buy encourages “responsible lending”.

People wanting to buy a house through the scheme are, on average, seeking to buy properties worth £160,000 – below the UK’s average house price of £247,000.

Applicants face average monthly repayments of around £900 on an income of around £45,000, Downing Street said.

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