cityam 2011-11-30

8/3/2019 Cityam 2011-11-30

1/40

MINI-BUDGET SPECIAL P 2,3,4, 21-29FTSE 100 5,337.00 +24.24 DOW 11,555.63 +32.62 NASDAQ t2,515.51 -11.83 /$ 1.56+0.01 / 1.17+0.01 /$ 1.33 unc

DEBT BOMBBUSINESS WITH PERSONALITY

Certified Distribution

03/10/11 till 30/10/11 is 100,123

www.cityam.com FREEIssue 1,522 Wednesday 30 November 2011

Osborne forcedto borrow more due

to low growth andhigh unemployment

Fitch warns UKwill lose triple-A

rating in event offurther shocks

Chancellor says itwill be hard to avoid a

recession if Eurozonecrisis deteriorates

GEORGE Osborne was forced toannounce two more years of austeritymeasures yesterday, after official figuresshowed the national debt spiralling outof control due to rising unemploymentand f lagging economic growth.

Just hours after the chancellorpledged to do whatever it takes to pro-tect Britain from the debt storm, theOffice for Budget Responsibility (OBR)said it now expected public sector netdebt to peak at a staggering 78 per centof GDP in 2014.

Osborne responded to the worseningfiscal position by announcing plans tocut public spending in real terms by anextra one per cent in both 2015 and 2016,extending the era of austerity well intothe next parliament and stamping outany hopes of tax cuts before the nextelection.

Fitch, one of the big three ratingsagencies, warned that the UK was nowthe most indebted triple-A country inthe world, with the exception of the US,

which was stripped of its gold-platedcredit rating by S&P earlierthis year.

Fitch added

that in the event of further financialshocks such as a meltdown in theEurozone, Britain would be unable toretain its triple-A rating without moreausterity measures.

Osborne admitted as much when hedelivered his Autumn Statement to theHouse of Commons yesterday, warningthat if the rest of Europe heads intorecession, it may prove hard to avoid onehere in the UK.

The OBR slashed its growth forecastfor next year by 1.8 per cent to 0.7 percent. It then pencilled in growth of 2.1per cent in 2013 and 2.7 per cent in 2014,although independent economists

warned that these predictions were fartoo optimistic.

The deterioration in the publicfinances left the chancellor with littleroom to announce new policies to boostanaemic economic growth. He saved1bn a year by scrapping plans toincrease child tax credits, while a freezein the working tax credit will savearound 275m a year.

Capping public sector payr i s e s

at one per cent in 2013 and 2014, afterthe current freeze ends, will savearound 1.8bn over the course ofthe parliament.

Osborne used the savings incurrent spending toannounce 5bn of invest-ment in infrastructureprojects and a raft ofmi c r o -measur esdesigned to helpentrepreneursand small

businesses.ALLISTERHEATH:P4

BYDAVID CROW

POLITICS

IN 2002 PUBLIC SECTOR NETDEBT WAS 31.6% OF GDP

PUBLIC SECTOR NET

DEBT WILL HIT 78%OF GDP IN 2014

8/3/2019 Cityam 2011-11-30

2/40

News | Autumn Statement2 CITYA.M. 30 NOVEMBER 2011

UK ECONOMICOUTLOOKl The Office for Budget Responsibility(OBR) has slashed the growth forecastsit made in March.

l Its central forecast for 2011 has beenrevised down to 0.9 per cent from the 1.7per cent March prediction. It expects 0.7per cent year-on-year GDP growth in2012, instead of 2.5 per cent.

l It now forecasts UK GDP to grow by2.1 per cent in 2013, 2.7 per cent in 2014and three per cent in 2015 and 2016.

lHowever, this central forecastassumes that the euro area finds a way

through the current crisis.

l The OBR says that there are too manyways that a failure to resolve the eurocrisis might play out to quantify the con-sequences in a meaningful way. However,it suggests that while it thinks there is anequal chance that growth might be bet-ter or worse than its central forecast,growth is more likely to be drasticallyworse than drastically better.

l The UKs debt level as defined in theMaastricht treaty is estimated at 93.9per cent of GDP in 2014-15. On the gov-ernments favourite net debt definition itwill hit 78 per cent of GDP.

l Public sector net borrowing will fallfrom 8.4 per cent of GDP in 2011-12 to1.2 per cent in 2016-17.

SPENDING CONTROLSl There will be two more years of cuts,by 1.1 per cent in 2015-16 and 0.9 percent in 2016-17. The aim is now to cutspending by a total of 5.3 per cent.

City A.M.s at-a-glance guide to thekey points of Osbornes mini-Budget

George Osborne and Danny Alexander leave Downing Street for the Commons, where the chancellor delivered his Autumn Statement Picture: REUTERS

l The state pension age will be raised to67 between April 2026 and April 2028.This is expected to save around 60bn intodays prices between 2026-2027 and2035-2036.

l Public sector pay rises will be set at anaverage of one per cent for each of thetwo years after the current pay freezeends (for most, in 2013). Health and edu-cation departments will get to keep thesavings, other departments will havetheir budgets cut accordingly.

l Foreign aid spending will be 0.56 percent of gross national income in 2012and 0.7 per cent from 2013.

TAXl The bank levy will be increased to

0.088 per cent from 1 January 2012 tomeet the governments target to raise atleast 2.5bn from this every year.

l Energy-intensive firms will be com-pensated for the higher costs of energyimposed by government policy.Beginning in 2013, it will be around250m over the spending review period.

l The 3.02p per litre fuel duty increaseplanned for 1 January 2012 will be post-poned to 1 August 2012. The fuel infla-tion increase planned for 1 August 2012(approx. 1.92ppl) will be scrapped.

l For 2012, TfL and regulated rail farerises will be capped at RPI + 1 per cent.

lThe government will subsidise SouthWest Water to cut household bills by 50.

l The government will freeze the annual

exempt amount for capital gains tax at10,600 for 2012-13.

lAir Passenger Duty rises will go aheadas planned, including on private jets.

lA tax credit will be introduced in 2013to encourage research and development.

l Some enterprise zones will be granted100 per cent capital allowances.

l From January 2012, the EnterpriseFinance Guarantee will be extended tobusinesses with up to 44m turnover.

l The small business rate relief holidaywill be extended for another six months.

BENEFITS & PENSIONSlMost working age and disability bene-fits will be uprated in line with the CPImeasure of inflation in 2012-13, anincrease of 5.2 per cent. The disabilityelements of tax credits will be upratedby CPI. The government will not upratethe couple and lone parent elements ofthe working tax credit in 2012-13.

l The child element of child tax creditwill be uprated in line with CPI, and willrise by 135 per year in 2012-13. The

110 above-inflation increase that wasplanned for 2012-13 will not go ahead.

lAction will be taken to clamp down ontax relief to employers making asset-backed pension contributions.

l The basic state pension will increaseby the triple guarantee, as announced inJune 2010. The standard minimumincome guarantee in pension credit willincrease by 3.9 per cent in April 2012.

CREDIT EASINGl 21bn will be spent helping small andmedium-sized enterprises (SME) unableto get credit from commercial lenders.

lA National Loan Guarantee Schemewill make up to 20bn of state guaran-

tees for bank funding so banks lend tobusinesses they consider too high risk.

lA Business Finance Partnership willprovide 1bn to small businessesthrough non-bank channels.

INFRASTRUCTURElDespite the grim state of its finances,the government believes it can plan outa strategy for coordinating public andprivate investment in UK infrastructure,backing investment of 30bn.

l 6.3bn of notional savings generatedover the Spending Review 2010 periodwill now be spent on infrastructure(1.3bn of this was announced earlier inthe autumn). A further 1bn of privatesector investment will be guaranteed bythe government. A commitment to 5bn

of capital projects in the next spendingreview period is also being made.Some relief from the furnace of government-imposed energy costs Picture: REUTERS

Editorial StatementThis newspaper adheres to the system of

self-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the EditorsCode of Practice, a copy of which can be found atwww.pcc.org.uk

Printed by Newsfax International,Beam Reach 5 Business Park,Marsh Way, Rainham, Essex, RM13 8RS

Distribution helplineIf you have any comments about the distributionof City A.M. Please ring 0207 015 1230, or [email protected]

4th Floor, 33 Queen Street, London, EC4R 1BRTel: 020 3201 8900 Fax: 020 7283 5334Email: [email protected] www.cityam.com

EditorialEditor Allister HeathDeputy Editor David HellierNews Editor David CrowActing Night Editor Marion Dakers

Business Features Editor Marc SidwellLifestyle Editor Zoe StrimpelSports Editor Frank DalleresArt Director Jo SimpsonPictures Alice Hepple

CommercialSales Director Jeremy SlatteryCommercial Director Harry OwenHead of Distribution Nick Owen

8/3/2019 Cityam 2011-11-30

3/40

News | Autumn Statement 3CITYA.M. 30 NOVEMBER 2011

Nick Clegg (left)looked worried onhis way to theCommons, butGeorge Osborneand DavidCameron (right)looked astonishedat any criticism.Picture (L): REXPicture (R):REUTERS

lA memorandum of understanding hasbeen signed with two groups of UK pen-

sion funds to invest in infrastructure.

l The government is working with theAssociation of British Insurers to estab-lish an Insurers InfrastructureInvestment Forum. These initiatives aretargeting 20bn of investment.

l The Regional Growth Fund for Englandis being increased by more than 1bn,ironically to support the growth of theprivate sector in areas currently depend-ent on the public sector.

HOUSING

lA new build indemnity scheme willback high loan-to-value mortgages onnew build houses, allowing buyers to putdown just five per cent deposits.

lA right to buy initiative on councilhousing will offer discounts on state-owned properties of up to 50 per cent.

lA 400m investment fund will backfirms with stalled development projectsthat have planning permission.

l The government will invite proposalsfrom developers and local authorities for

new developments, from modern gardencities to urban and village extensions, butonly where there is clear local support.

l The government is spending 200mover 2012-13 and 2013-14 to encourageearly uptake of its Green Deal initiativeon energy efficient buildings.

l The stamp duty land tax relief forfirst-time buyers has not increased theirnumbers and will end on 24 March 2012as planned.

EDUCATION

l 600m will be spent on 100 new freeschools by the end of this parliament.

l 600m will be spent on local authori-ties with high demographic pressures.

UNEMPLOYMENT

l 940m will be spent to get the younginto work. The OBR warns this will dis-place older workers, not lower joblessness.

l There will be wage incentives for160,000 employees, 40,000+ payments

to small firms that take on apprenticesand a work experience offer for everyunemployed 18-24 year-old after threemonths on the jobseekers allowance.

l 50m will be spent on 16-17 year-oldsin most need to get them into education,apprenticeship or on-the-job training.

lBy 2014-2015, 380m a year will help130,000 two-year-olds annually to getfree weekly education and care.

Marc Sidwell

DONT MISS

ALL THE

NEWS AND

ANALYSISIN OUR

AUTUMN

STATEMENT

SPECIAL

P4, 21-29

8/3/2019 Cityam 2011-11-30

4/40

News | Autumn Statement Special4 CITYA.M. 30 NOVEMBER 2011

Osborne misses a great opportunityDONTFORGET

OUR

BUDGETSPECIALON

PAGE 21

ing between the lines of yesterdaysmini-Budget, it is clear that the UK isout of money to an even more extremedegree than the political establish-ment had previously realised, which

means that jam may not materialisefor many a year. This horrible reality isfinally beginning to dawn on GeorgeOsborne, though he is only half-actingon it while still clinging to many of thecertainties of the boom years (Ed Balls,needless to say, is on another planet,

where scarcity has been abolished andthe laws of economics repealed).

The problem is that we are now in avicious debt spiral: on the Maastrichtdefinition, the UKs national debt willpeak at 94 per cent of GDP in 2014-15, a

EDITORS LETTER

ALLISTER HEATH

AS ever, it was Lewis Carroll who put it best in Alice Through the LookingGlass: The rule is, jam tomorrow and

jam yesterday but never jam today.Even that could be too optimistic: read-

dangerously high level that globalstudies have shown has a cripplingeffect on economic growth (it will hit78 per cent on the governmentsfavourite measure). Britains national

debt will be worse than that ofGermany, France and the Eurozone; it will remain better than Italys, butthat is no great achievement. Yet themore debt we get, the less growth weget and the more tax receipts disap-point and therefore the nationaldebt grows again. The answer should

be to combine massive deregulationand supply-side reforms of the econo-my with radical spending cuts to

break out of the spiral of decline. Tragically, while Osborne is clearlyincreasingly aware of the hole he is in,he decided to try and wing it, delayinghis new found radicalism so muchthat it has lost most of its bite. He pre-sumably didnt dare try and explain tothe public that we are all much poorerthan we thought, which means that

we simply cannot afford to spend somuch, especially on public services.

Yesterdays Budget from Osborne

was thus a weird mix of neo-Browniteobfuscation, a shameless shifting ofthe fiscal goal-posts, tinkering, over-spun, not especially relevant projects,robust free-market rhetoric(unmatched by game-changingreforms), lots of silly corporatism, afew good but minor polices to incen-tivise new firms and(rightly) far morespending cuts butonly after the nextelection.

His plan to boostyouth jobs via subsi-dies to firms wassuperbly destroyed

by the OBR, whichrightly sees it as acostly way of shifting

jobs to the youth atthe expense of older

workers while doingnothing to createextra jobs overall.

There was somegood stuff on dereg-ulation; and thechancellor is right toseek to tap pensionfunds to finance infrastructure(though that will often mean money

being reallocated out of equities).But if there is one man on earth

who can talk the austere talk whileblazing an almost Keynesian path, it isOsborne. For all his righteous indigna-tion at those who would seek to bor-row the UK out of a debt crisis, he isdoing just that. The national debt willincrease by 61 per cent during this par-liament, even more than the 60 percent that his predecessor AlistairDarling was planning (and which

began to panic the markets at the start

of 2010). The governments net debtwill jump from 905.3bn last year to1.515 trillion by 2016-17; the increaseis 112bn larger than predicted inMarch. In just eight months, the situa-tion has deteriorated disastrously;another such slippage caused, forexample, by a crisis in the Eurozone could be lethal for Britains prospects.Osbornes target of eradicating thestructural deficit by 2015-16 will bemissed; his attempt at redefining histarget as a rolling one which wouldmean that the balanced budget year

would always be five years away, andtherefore meaninglessly elastic deserves to be laughed out of town. Asa result, the planned total fiscal tight-ening during 2010-11 and 2011-12 hasfallen from 4.5 per cent of GDP to 3.5per cent of GDP in the new forecast.

The Office for Budget Responsibilityexpects GDP growth of 0.9 per cent

this year and 0.7 per cent in 2012. These forecasts have the virtue of

being realistic, although it is evidentthat the Eurozone crisis poses majordownside risks. GDP growth of 2.1 percent in 2013 looks just about achiev-able but growth of 2.7 per cent in

2014 and 3.0 per cent in both 2015 and2016? Forget it. These are ridiculouslyover-optimistic numbers, with or with-out a Eurozone implosion. There is fartoo much private sector deleveragingto do and the economy is too tied upin red tape and incentive destroyingtaxes. The OBR is wrong to believe thatthe trend (sustainable) growth rate theUK can aspire to will increase from adepressed 1 per cent this year to 2 percent by 2012 and 2.3 per cent from2014. This is unrealistic, partly becauseproductivity is bound to remain low inthe public sector, which means thatthe economy in 5-6 years time is likelyto be smaller than what the OBRhopes for, and the deficit even larger.

The best part of Osbornes budgetwas his acceptance that cuts will haveto be much greater. Total expenditure

will be cut by 0.9 per cent a year in realterms in 2011-12, 2012-13, 2013-14 and

2014-5, adding to 3.4 per cent, roughlyas previously planned. But there willthen be two more years of cuts, bothconveniently pushed back to after theelection: a 1.1 per cent drop in spend-ing in 2015-16 and a further 0.9 percent drop in 2016-17. The new plan is tocut spending by a total of 5.3 per cent,

in a partial and belated realisationthat years of over-spending have givenus an unaffordablestate sector and thatour knackered econ-omy will requiremore, not less aus-terity but thereductions arespread over six years,

which is an eternityin politics as well asin real life. Will theyreally ever happen?It would have been

better to acceleratethem drastically,take the sharp painand then move on.Cynical investors

will also doubt whether Osborne real-ly wants to cut that much or

whether, like Brown, he would ratherpass on a massive deficit black hole tohis successors.

Public sector job cuts will hit710,000, far more than previouslyexpected; pay hikes will be capped forstate workers for another two years(given that the 50p tax rate wont beabolished until these pay restraintsend, that presumably means it will beretained permanently). While it isalways sad when people lose their

jobs, many of these public sector cuts

will come through natural attrition and crucially, it is necessary to reducethe size of the government workforce,

which spiralled out of control underthe previous government. Even afterall the cuts, the state will directlyemploy more people than it did under

John Major. If all goes according toplan, total employment will rise byaround 1.7m between the start of 2011and 2017, with the private sector creat-ing 2.4m extra jobs. The problem, ofcourse, is that all these predictions are

based on pie in the sky economics: ifthe Eurozone does go pop, andimplodes in a messy, uncontrolledmanner, all bets are off. It is becausethis risk is so high that Osborneshould have had the guts to be moreradical. He didnt and so his fate andours is now in the hands of powerfuleconomic forces that nobody can pos-sibly control.

[email protected] me on Twitter: @allisterheath

The national debt willincrease by 61 percent during the courseof this parliament,even more than the60 per cent his

Labour Partypredecessor AlistairDarling was planning

8/3/2019 Cityam 2011-11-30

5/40

HUGO

BOSSUKLTD.

Phon

e+44(0)2075545700

www.hugoboss.com

BOSSBlack

HUGO BOSS FORMAL SPECIALIST STORE 85-90 Queen Street London EC4A 2AS Phone 020 7213 9717

BOSS Store 18-31 Eldon Street London EC2M 7LA Phone 0844 847 9202

BOSS Store 40 Cheapside London EC2V 6AH Phone 020 7332 0573

8/3/2019 Cityam 2011-11-30

6/40

SOME OF the worlds biggest banks were hit with credit rating down-grades from ratings agency Standard& Poors yesterday after a sweepingoverhaul of the criteria it uses toassess institutions financial strength.

S&P downgraded 15 banks afterreviewing the ratings of 37 majorinstitutions. It dropped seven of thetop US banks by one notch, including

the four biggest by assets: JP Morgan;Bank of America, Citigroup and WellsFargo. The others were GoldmanSachs, Morgan Stanley and BNYMellon, with only State Streets ratingleft unchanged.

UK banks were also affected, withRBS, Lloyds and HSBC each downgrad-ed by one notch and some of Barclaysstrategic subsidiaries downgraded byone place as well.

Others in Europe such as DeutscheBank and Credit Suisse were moved

from a stable to a negative outlook.But S&Ps review left scores of otheremerging markets and European

bank ratings untouched, such asBanco Santander; Credit Agricole,Commerzbank and Brazilian and

Argentinian names among others.S&P said fears over capital adequa-

cy and banks sovereign debt holdingsdogged some institutions while mort-gage lenders were under pressure inthe US. It also factored in the loss ofgovernment guarantees.

S&P slaps downgradeson 15 major global banksBYALISON LOCKBANKING

News6 CITYA.M. 30 NOVEMBER 2011

THE EUROPEAN Central Bank (ECB)accidentally performed 9.5bn(8.1bn) of quantitative easing last

week because it was unable to per-suade banks to deposit enough funds

with it to make up for its bond pur-chases.

The incident is a stark signal thatthe Bank could be reaching the tech-nical limit of its ability to buy bondsin order to keep a cap on sovereign

yields, says Raoul Ruparel, an econo-mist for Open Europe.

Economists have in the past suggest-ed there could be a limit on the capac-ity of the bond-buying programmedue to a lack of available deposits theBank can take in to make up for theimpact of its spending on theEurozones money supply.

The ECB has now bought 203.5bnof bonds issued by Eurozone govern-ments, but is only holding an extra194.2bn in deposits to make up for it.

Usually, the ECB sterilises its bondpurchases by bringing in more weeklydeposits from banks looking to storecash somewhere safe.

But the fact that its sterilisationfailed last week suggests that banksare unable or unwilling to increase

their deposits with the Bank, probablybecause they want to hang onto theextra liquidity as a cushion against

market shocks.Economists will keenly watch next

weeks figures, released on Monday, tosee if the ECB is able to get the pro-gramme back on course.

If not, it could precipitate a politicalcrisis. At that point it is likely that theECB and Germany will have to make afundamental decision over whether toeither continue the bond purchases,abandoning their core monetary prin-ciples, or stick to their guns and winddown the purchase programme alto-gether, says Open Europes Ruparel.

Meanwhile, Eurozone finance min-isters last night agreed on the techni-cal details of their bailout fund, theEuropean Financial Stability Facility(EFSF), but the chief of the fund, KlausRegling, admitted that there wouldnot be significant investor interest inthe coming weeks.

We do not expect investors to com-mit large amounts of money in thenext few days or weeks. Leverage is aprocess over time, he said. In October,Eurozone ministers had said its250bn in available cash would beleveraged to four or five times. Thatnow looks optimistic in the light of lit-tle investor interest.

Eurogroup chairman Jean-ClaudeJuncker also said the IMFs resourceswould be beefed up so that it could

match the EFSFs firepower. And theEurozone agreed to pay out Greeces11bn aid instalment.

ECB injects

9.5bn of QEinto Eurozone

Our Rate: Economy.Your Mood: First-Class.

42

50

from/night*

* Subject to availability at participating locations. Offer valid FridaySunday nights 1 September 2011 through 15 January 2012. Rates listed are in Pounds perroom, per night based upon single/double occupancy and excludes applicable fees, taxes, gratuities and incidental charges. Book 14 days in advance. Non-refundable full payment required at booking. Discount relates to Best Available Rate which is a specific rate type that varies depending on time of purchase,

is unrestricted, non-qualified and excludes discount rates. Other restrictions may apply. See HamptonbyHilton.co.uk for details. 2011 Hilton Worldwide

Comfy bed

Free hot breakfast

Free high-speed internet access Earn Hilton HHonors points and airline miles

100% satisfaction guarantee

hamptonbyhilton.co.uk

00800 42678667

8/3/2019 Cityam 2011-11-30

7/40

8/3/2019 Cityam 2011-11-30

8/40

TRADERS who rushed to bet onmarket swings caused by turmoilin the Eurozone are set to help IGGroup increase first-half revenueby nearly 25 per cent.

The spread betting firm yester-day said revenue should rise 23 percent to more than 193m, markinga swift turnaround after it issued aprofit warning in January.

IG has kept costs in line withexpectations and has benefited astraders rediscovered their appetitefor risk amid the sovereign debt cri-sis that has spooked markets.

Following on from a strong first

quarter, the group has continuedto experience high levels of clientactivity during the second quarterof its financial year, IG said yester-day in an update on the six monthsto 30 November.

Analysts at Numis said IG wouldbenefit from the collapse of brokerMF Global, which held about asixth of the Australian market.

These customers are probablystill trapped in the liquidationprocess but should return to themarket next year, probably lookingfor a safer place to trade, JamesHamilton and David McCannwrote.

The MF Global collapse coupled with increased regulation should

favour the larger financiallystronger groups like IG.

IG, which says it is the worldsbiggest spread-betting company byrevenue, competes with unlistedrivals such as City Index and CMCMarkets.

Turmoil no troublefor IG as sales soar

Rothschild trust looking fordeals amid Eurozone crisis

BY PETER EDWARDS

CAPITAL MARKETS

THE INVESTMENT trust run by LordRothschild is set to take advantageof the firesale of Eurozone bankassets.

RIT Capital Partners yesterdayposted a slump of nearly 10 per centin net asset value (NAV) butRothschild, its chairman, said theywished to do more ventures of thelike of Renshaw Bay, an asset man-agement and hedge fund business it

launched with former JP Morganexecutive Bill Winters.

We are exploring opportunitiesin distressed assets; banks, especial-ly in Europe, will be selling assetspossibly at much discounted levels,Rothschild (pictured) said.

City A.M. understands thiscould include real estate,corporate credit and struc-tured products.

Rothschild, the head ofthe family bankingdynasty in Britain, alsogave a sober summaryof recent global tur-

moil: These have been some of the

most torrid markets of my lifetime.Europe has been lead violinist in adiscordant band.

Speaking fewer than two weeksafter David Cameron demandedGerman Chancellor Angela Merkeltake robust action over the crisis,Rothschild warned that Europesproblems had not been adequatelyaddressed.

RIT said NAV per share fell9.6 per cent to 1,165.9p for thesix months to 30 September,compared to a 13.5 per cent

decline in the FTSE All-Shareindex over the same period.

BY PETER EDWARDS

FUND MANAGEMENT


SCHRODERS PREDICTS 2012 RECESSION

The UK is likely to be dragged into a recession by the Eurozone next year, accord-ing to investment firm Schroders. At its Annual Crystal Ball event yesterday,chief investment officer Alan Brown said: We are going to find out in the next12 months whether the Eurozone holds up and whether the UK is going to gointo a double-dip recession. Picture: GETTY

ANALYSIS l IG Group Holdings

p

29 Nov23 Nov 24 Nov 25 Nov 28 Nov

480

470

450

460

440

430

420

474.0029 Nov

MF GLOBAL UK administrator KPMGsaid it had recovered about $500m(320m) of client assets frozen at thedefunct broker, and planned to makesignificant returns to customersbefore a March 2012 deadline.

We have so far collected about ahalf of the approximate $1bn out-standing but it is hard to speculate onthe final amount given we aredependent on third parties, saidKPMG partner Richard Heis yesterday.

Former MF Global UK clients will berelieved their cash is starting toreturn to the administrator, viaexchanges, clearing houses andbanks, as they prepare to start filingtheir applications to claim back theirmonies.

KPMG said on Monday clients willbe able to formally claim from earlynext month and have to the end ofMarch next year to make submissions.

Heis said: While we have set adeadline for client monies claims ofthe end of March, we will evaluate allclaims made and, naturally, someclaims will be more difficult to agree.

KPMG recovers$500m in MFGlobal assets

FINANCIAL SERVICES

8/3/2019 Cityam 2011-11-30

9/40

CONSUMER confidence in the USclimbed by the most in more thaneight years during November, fig-ures showed yesterday, increasing to56 from a revised 40.9 reading inOctober.

The Conference Boards indexshowed the biggest monthly gainsince April 2003, rebounding this

month from a to-and-a-half-year low, but a fall in house prices inSeptember underscored the weakfoundations of the recovery.

This is a huge rise in consumerconfidence. It gets us back to secondquarter levels and further under-scores the dramatic move that weveseen in consumer spending, saidLindsey Piegza, an economist at FTNFinancial in New York.

Generally when the consumer

becomes happier, more confident,they're generally more likely to diptheir toes back into spending.

Earlier, data had showed that thebeleaguered housing market is stillstruggling to get back on its feet.

The S&P/Case Shiller compositeindex of 20 metropolitan areas fell0.6 per cent from August on a sea-sonally adjusted basis, falling shortof economists forecasts for nochange.

US consumers hopeful asconfidence figures soar

US President Barack Obama still faces hurdles in the US economic recovery

BYHARRY BANKSUS ECONOMY

News 9CITYA.M. 30 NOVEMBER 2011

NEWS | IN BRIEF

St Ives sales up 10pc on last yearSt Ives has reported a sales increase ofaround 10 per cent for the 13 weeks to28 October, compared to the same peri-od last year. The firm said the increaseis mostly from both acquisitive and

organic growth in its marketing serv-ices segment, while sale across theprint businesses were broadly in linewith last year despite tough economictimes.

Gatwick turnover takes offGatwick posted a 15 per cent jump inhalf-year turnover yesterday. Underlyingpassenger numbers rose 3.3 per cent to19.7m, and cost control and new landingfees helped lift earnings before excep-

tionals 34.4 per cent to 164.4m. Theairport has scrapped landing fees duringwinter to encourage airlines to land atGatwick during off-peak times of year,while hiking its summer charges.

8/3/2019 Cityam 2011-11-30

10/40


FACEBOOK is expected to go publicnext year in one of the largest initialpublic offerings ever.

It is thought that the social network-ing site will aim to raise $10bn (6.4bn)from an IPO, to launch between Apriland June next year, resulting in a com-pany valuation of more than $100bn.

Although Mark Zuckerberg has keptFacebook private for longer thanexpected, the company is likely toreach the 500-shareholder limit by theend of this year and will be required tomake its financial information publiccome April as specified by the SEC.

Facebook, thought to have almost$4bn in revenue, would be the fourthUS company to complete an IPO with agreater value than $10bn, alongside Visa, General Motors and AT&TWireless Services.

Groupon floated on 3 November at$20 a share. Shares plunged 43 percent since last Monday and closed yes-terday at $15.24.

Facebook IPOis expected toraise $10bn

TECHNOLOGY

AMERICAN Airlines and its parentcompany AMR Corp filed for bank-ruptcy yesterday after failing to win alabour deal with pilots and sufferingfrom mounting fuel costs.

AMR had been the only major UScarrier to avoid bankruptcy in thepast decade. Its rivals used bankrupt-cy to restructure their labour agree-ments and cut costs.

That left AMR, the third-largest USairline behind United ContinentalHoldings and Delta, with the highestlabour costs in the industry and theonly major airline still funding work-er pensions.

It completes the cycle, saidHelane Becker, an analyst with

Dahlman Rose & Co. Every major air-line in the United States has filed forChapter 11.

In its bankruptcy filing, AMR saidits cost-cutting in recent years had been insufficient and that it couldnot continue without changing itsuncompetitive cost structure.

British Airway parent IAG said itspartnership with AMR, which is arevenue sharing agreement, contin-ues to operate as usual.

Shares of AMR, whose passengerplanes average 3,000 daily US depar-tures, have tumbled 45 per cent sincethe end of September.

The world changed around us,incoming chief executive Tom Horton

told reporters on a conference call.It became increasingly clear that

the cost gap between us and our com-petitors was untenable.

Incumbent chief executive GerardArpey yesterday announced his retire-ment.

The airline said it and its regionalaffiliate American Eagle would con-tinue to operate as usual, fly theirnormal schedules, honour reserva-tions and make exchanges andrefunds.

Shares of rival airlines rallied onexpectations that fares could rise, asAMR kept a lid on industrywide faresin its effort to keep its airplanes full.

Under its Chapter 11 bankruptcyfiling in a New York court, the compa-ny listed assets of $24.72bn and liabil-

ities of $29.55bn. The company has$4.1bn in cash

American Airlines goes into Chapter

11 after deal with pilots falls throughMINING

JAMES Murdoch has survived as chair-man of BSkyB although his mandatefor leading the group was dealt a blowas 44 per cent of the companys inde-pendent shareholders abstained orvoted against his re-election at yester-days AGM.

Murdochs win is unsurprising asNews Corporation, headed by hisfather Rupert, owns 39 per cent of thesatellite giants shares, but the largeprotest vote will be seen as an embar-rassing set-back.

Guy Jubb, head of governance andstewardship at Standard LifeInvestments, which owns 2.9 per centof BSkyB and opposed Murdochs re-election, called for the independent

directors at BSkyB to reflect carefullyon not only the level of dissentamongst independent shareholders but also the tone of the comments

that accompany their votes.The opposition to Murdochs re-elec-

tion comes as a result of his role atNews International, the group at thecentre of the phone-hacking scandal.

Nick Ferguson, BSkyBs deputychairman, recognised the views of theshareholders but said: The entireBSkyB board is now determined tomove forward to maintain BSkyBsstrong performance and create valuefor all shareholders.

Murdoch getsa bloody noseBY LAUREN DAVIDSON

MEDIA

Murdoch was re-elected as BSkyB chairman despite the opposition Picture: REUTERS

ANALYSIS l British Sky Broadcasting

p


750

740

730

720

710

745.0029 Nov

NEWS | IN BRIEF

BHP could sell off diamond mines

BHP Billiton, the worlds biggest miner, isconsidering selling all or part of its dia-mond assets, which include the EKATImine in northern Canada, as it focuses onlarge, long-life, scalable assets.BHP said yesterday it had begun areview to examine whether a continuedpresence in the diamond industry wasconsistent with its strategy of investingin expandable assets. The review is dueto be completed by the end of January2012.

Olympus will review structureJapans Olympus Corp has launched areview of its business structure, accordingto an internal memo, amid speculation the92-year-old company may have to sellassets in order to survive a massiveaccounting scandal. The company is alsolooking to reform its corporate governance,and is setting up separate teams to super-vise the two reviews, according to the 28

November memo, obtained by Reuters andlater confirmed by the company.

Tiffany sales lose their shine

Concerns about slowing sales momentumtook some of the lustre off Tiffany & Cosstock yesterday amid signs that Europeanand US economic distress are weighingon luxury consumers. The upscale jew-eller, a stock market darling for how fastits international business has grown,reported third-quarter earnings that beatanalysts' estimates but gave a profit andsales outlook for the holiday-quarter thatmissed Wall Street expectations. Globally,Tiffany's sales in the third quarter wereup 17 per cent, excluding the impact ofcurrency translation.

Resolution to return next 250mLife insurance buyout group Resolutionyesterday said it had achieved the capi-tal synergies it had targeted this yearand was on track to return 250m ofcash to investors next year as planned.Resolution also said it had completedthe takeover of life assets from AXA UK

with the final purchase of WinterthurLife UK.

8/3/2019 Cityam 2011-11-30

11/40

EDITORS KNEW OF HACKING, SAYS EX-NOTW JOURNALIST A former senior journalist at theNews of the World told the Levesoninquiry into press standards that for-mer editors, including Piers Morgan,Rebekah Brooks and Andy Coulson,were all aware of unethical practicesused by the newspapers reporters.Giving evidence under oath, PaulMcMullan, who was deputy featureseditor, said Mr Coulson and MsBrooks were aware of phone hackingthere.

DIVISIONS DEEPEN AT UN TALKS ONCLIMATEFresh divisions have opened up onthe second day of the UN climatetalks in Durban as China accused theEuropean Union of shifting the goal-posts to make unfair demands on

developing countries over a new glob-al climate pact.

WEALTHY CHINESE STILL EAGER TOWEAR PRADAIf there were fears that Chinas vora-cious appetite for luxury goods was waning, they have yet to extend toPrada. The Italian label said yesterdaythat sales in the Asia-Pacific regionhad soared by 44 per cent, boostingboth sales and profits. Luxury goodsmakers have placed huge bets onChina in recent years, spurred on bystellar growth.

BAE UNDER FIRE FROM MPS OVERTANZANIA PAYMENTBAE Systems has been harshly criti-cised by a parliamentary committeefor dragging its heels over a 29.5mcompensation payment to the peo-ple of Tanzania. MPs on theInternational DevelopmentCommittee said they were

appalled that it had taken monthsto make the payment.


PHARMACEUTICAL giant AstraZenecahas won Europe-wide approval for itsdiabetes drug Komboglyze.

The treatment, which was devel-oped in a partnership with US peerBristol-Myers Squibb, helps glycaemiccontrol in adult patients with typetwo diabetes.

The approval comes following astudy and series of tests involving4,326 patients.

Type two diabetes accounts forapproximately 90 to 95 per cent of allcases of diagnosed diabetes in adults.In Europe alone there are around

50m people suffering with the condi-tion.

AstraZeneca

diabetes druggets go-ahead

SAAB Great Britain, the UK arm ofSwedish car manufacturer SaabAutomobile, filed for administrationyesterday.

The company said that it had previ-ously received a conditional fundingcommitment from China YoungmanAutomobile Group for the payment ofthe wages of Saab Automobileemployees and for ongoing opera-tions at Saab GB.

But the firm has not yet receivedany money.

The board of Saab Great Britain isof the opinion that administrationgives the company and creditors the

necessary legal protection until therequired funding for the company

has been secured, the firm said.Saab GB has exclusive rights to dis-

tribute Saab cars and parts in the UK.It employs 55 people in Milton Keynesand distributes the cars and parts to a58 strong dealer network across theUK of which 20 are Saab-only sites.

Saab City, a wholly owned sub-sidiary of Saab GB employing 65 peo-ple, operates two Saab motordealerships, one in Wapping and asmaller site in Fulham.

A statement said: The board ofSaab GB is of the opinion that admin-istration gives the company and cred-itors the necessary legal protectionuntil it has secured the requiredfunding for the company.

The company said it was searchingfor a buyer.

Saab GB in bankruptcy

filing amid funding woesAUTOMOTIVE

PHARMACEUTICAL

TOY licensing firm CharacteGroup yesterday reported a 20 percent rise in pre-tax profits to morethan 9m.

But the group, which makes tie-in products for popular childrensshows such as Peppa Pig, FiremanSam and Scooby-Doo, warned thatits annual sales were likely to comein lower than previously forecast,though it said profits wouldremain steady.

Group sales for the year to 31 August rose 11.4 per cent to94.95m, while profits before taxwere up 19.8 per cent to 9.05m.

Executive chairman RichardKing said: The groups strategy offocusing on brands and licensedproducts, where the business can bring into play its expertise incharacter licensing, product and

brand development and distribu-tion, has enabled the business toreport solid growth in both rev-enue and profitability.

Peppa Pig toymaker profitsgrow by 20pcRETAIL

TOPPS TILES, the UKs largest tilingretailer, has seen its sales deterioratein the past few months as squeezedconsumers continue to put off redeco-rating their homes.

The group said the combined effectof stagnation in the housing marketand falls in consumer spending powerhad caused sales at stores open over ayear to fall by two per cent.

Like-for-like sales were down 6.9 percent in the first seven weeks of thenew financial year, which analystsnoted was an improvement after a 9.5per cent slump in its fourth quarter.

Matthew Williams, chief executive,said the group was broadening itsappeal beyond the traditional cus-

tomer base with more focus on attract-ing high end customers.

With very challenging trading con-ditions persisting throughout the sec-

ond half of our financial period, ourfocus has been on strengthening ourmarket leading position, he said.

Topps runs 321 stores and plans toopen with five new outlets this finan-cial year. It raised its market share byone per cent to 26 per cent.

The firm, which issued a profitwarning in August, said pre-tax profitsfor the year to October were 13.9m,compared with 16.3m last year.

Shares fell two per cent to 23.5p.

Sales worsenat Topps TilesBYKASMIRA JEFFORD

RETAIL

Peppa Pig toys have helped lift gains at Character Group

ANALYSIS l Topps Tiles PLC

p

23 Nov 24 Nov 25 Nov 28 Nov 29 Nov

23.25

23.00

23.50

22.75

22.50

22.25

22.00

21.75

23.5029 Nov

WHAT THE OTHER PAPERS SAY THIS MORNING

8/3/2019 Cityam 2011-11-30

12/40

OMEGA, the Bermuda-domiciledLondon stock market-listed insurancegroup, yesterday confirmed that thetycoon bidding for 25 per cent of itsstock wants to lower his offer.

Omega made a stock exchangeannouncement yesterday followingreports, including in City A.M. suggest-ing that bidder Mark Byrne was aboutto let his offer lapse.

Sources close to Byrne have told CityA.M. that his tender offer, which closes

today, will likely lapse as far as he isconcerned because certain regulatoryclearances have not been obtained.

But this view is disputed byOmegas board, which said yesterdaythat none of the conditions of theoffer had been breached and that, inany case, Byrne had a further 21 daysin which to get the regulatory clear-ances required.

One source said he expected all con-ditions to be cleared within the allot-ted time-frame. The Omega Board

knows of no reason why, if the mini-mum level of tenders is achieved, theoffer would lapse, the group said yes-terday.

One source said he thought Byrnehad been advised by Citi that hewould complete the tender auction ata price averaging around 75p, but inthe event investors tendered at a high-er price. With the two sides seeming-ly at loggerheads, advisers wouldnormally look to the Citys TakeoverPanel to resolve differences. ButOmega is domiciled in Bermuda so isoutside its jurisdiction.

Omega in bidwrangle asByrne wavers

QUINTAIN Estates has ended talks

with a potential joint venture fund-ing partner to develop and runits London Designer Outlet at its2.5bn Wembley scheme.

In its half-year results, the regener-ation specialist said talks had endedafter the partner failed todeliver part of the proposed financ-ing structure and will launch aformal market process in thenew year.

Adrian Wyatt, chief executive,said: We took the view that we

should cease the negotiations as theletting programme was getting bet-ter and stronger... and we felt that

we would be better served going tothe market.

Quintain said it has secured Nikeand Gap as its anchor tenants atthe mall. Meanwhile, at itsGreenwich project, the firm said it ismoving ahead with the building of1,300 homes at Peninsula Quay.

The group swung back intothe black in the six months toSeptember posting a pre-tax profit of3.7m compared with a 58.8m loss ayear ago.

Quintain seeks new partner forWembley designer mall project

Property firm Quintain is developing a designer outlet mall near Wembley

BYDAVID HELLIER

INSURANCE

PROPERTY


ANALYSIS l Omega Insurance Holdings

p


69

68

67

66

65

64

63

65.7529 Nov

BRITAINS blue chip index rose

yesterday, building on twostraight sessions of gains asstrong consumer confidence

data from the United States offsetrenewed concerns about theEurozone debt crisis.

The FTSE 100 added 24.24 points, or0.5 per cent, to close at 5,337 afterturning higher in the afternoon,when data showed US consumer con-fidence rose much more than expect-ed in November.

The reading, which came on theheels of encouraging sales data forthe Thanksgiving period, boostedstocks with high exposure to the US,such as Wolseley, the worlds biggest building supplies maker, whichclimbed 2.1 per cent.

On the other hand, stocks exposedto UK consumer spending fell afterthe British government cut its eco-nomic growth forecasts and suggest-ed tough austerity measures wouldextend beyond the next election duein 2015.

Home improvements retailerKingfisher fell 1.2 per cent with con-sumer goods maker Reckitt Benckiserdown 0.3 per cent.

FTSE climbson US data

THELONDONREPORT

8/3/2019 Cityam 2011-11-30

13/40

Driving down thecost of tradingIts not just about headline spreads. Ask your

provider about their daily typical spreads. Our

daily typical spreads reflect pricing precision

and consistency throughout the day.

Spread betting and trading CFDs can result

in losses that exceed your initial deposit

Compare our typical spreads at:

www.cmcmarkets.co.uk/fx

USD/JPY Headline Typical Margin

CMC Markets 0.7pts 0.841pts 0.25%

IG Markets 0.8pts 1.42pts 0.50%

facebook.com/CMCMarkets.uk

youtube.com/CMCMarketsPLC

twitter.com/CMCMarkets

Apple, the Apple logo, iPhone and iPad are trademarks of Apple Inc., registered

in the U.S. and other countries. App Store is a service mark of Apple Inc.

Spreads may widen dependent on liquidity and market volatility

CMC Markets spreads are as of week ending 25th November 2011

IG Markets spreads are as of week ending 25th November 2011, taken

from the IG Markets website on 29th November 2011. For full details of

our comparisons please visit www.cmcmarkets.co.uk/fx

8/3/2019 Cityam 2011-11-30

14/40

Terms apply. Subject to credit check.

Call 08080 990 000before 4pm and ask about next day delivery

Visit vodafone.co.uk/galaxys2or go to your local Vodafone store

Lines open 7 days a week, 8am-8pm, except bank holidays. Call us free on yourlandline; standard network charges apply to all calls made from a mobile phone.

Price on a 24-month contract

Mins to all UK mobiles & UK landlines(starting 01, 02, 03)

Standard UK texts

UK mobile internet

Wi-Fi access with BT OpenZone within UK

36600 minutes

Unlimited texts

500MB

2GB

Samsung GALAXY S II

a month

Call us today to find out more about our new3 month Data Test Drive offer

The amazingSamsung GALAXY S IIfor just 36 a monthOn an award-winning network

MORE NEWSONLINE

www.cityam.com

cellors Tatton constituency, we canonly assume Osborne would be exclud-ed from the mega discounts on offerif he was unlucky enough to blow atyre near Billy Boys emporium...

IT BEGINS AT WORKIF mobile phone donations and weblinks hadnt made giving to charityeasy enough, Oxfam has now gone onestep further arranging pick-ups from

companies at Canary Wharf.First past the post to boost its charity

credentials is the FSA, a partner of theinitiative. We encourage our staff toreduce waste and to be resource- andenergy-efficient, both within the work-

place and as members of thecommunity, said the FSAs ClaireHarvey.

Get yourself to your nearest Oxfamto see what employees at the City regu-lator have going spare.

OSBORNES DIPLOMATIC EFFORTSLOSE FRIENDS AT HOME AND ABROADSEEING as its barely a month sinceFrench President Nicolas Sarkozyunceremoniously told DavidCameron to shut up over the euro,Sarkos finance minister FrancoisBaroin is unlikely to have taken kindlyto chancellor George Osbornes latestattack on the single currency yester-day.

Going only very slightly off script inhis Autumn Statement to parliament yesterday lunchtime, Osborne

claimed that the entire Europeancontinent is pricing itself out of theworld economy and then promptlyflew off to Brussels for yesterdays lat-est round of Eurozone wrangling.

Despite unseasonably warm weath-er for the time of year as temperaturesin the EUs de facto capital reachednine degrees Celsius, Osbornes com-ments surely mean he guaranteedhimself a frosty welcome from hisEuropean counterparts yesterday.

TYRE-D OF GEORGETHE chancellor also seems to be losingfriends much closer to home, if a verypublic attack by a Sheffield garage isanything to go by.

As it launched a closing-down sale,Billy Boy Tyres decided to go out witha bang, emblazoning its forecourt with a sign personally thankingGeorge Osborne for its bad fortune.

Located just 50 miles from the chan-

The chancellor is unlikely to be able to take advantage of this mega closing down sale

The Capitalist14 CITYA.M. 30 NOVEMBER 2011

EDITED BY

ELIZABETH FOURNIERGot A Story? [email protected] The Capitaliston Twitter: @citycapitalist

8/3/2019 Cityam 2011-11-30

15/40

8/3/2019 Cityam 2011-11-30

16/40

Call 0800 049 4448 or visit carphonewarehouse.com

Allinformationisaccurateatthetimeofgoingtoprint.Important:duetothefastmovingnatureofthismarket,alloffers,pricesandavailabilityaresubjecttochange.1.Offeravailableuntil3stDecember20.BlackBerry,RIM,ResearchInMotionandrelatedtrademarks,namesandlogosarethepropertyofResearchInMotionLimitedandareregisteredand/orusedintheU.S.andcountriesaroundtheworld. UsedunderlicensefromResearchInMotionLimited.

EYE-CATCHINGSAVINGS

CHRISTMASTHIS

Geek Squad service plans available from 4.99 per month.

SAVE150

ARCHOS 7 70TI

TABLET PRICE 99.99WAS 249.99SAVE150

329.99SAVE150

WAS 379.99 479.99

MOTOROLA XOOM

Also available in 3G from 399.99

WI-FITABLET PRICE

SAVE150

BlackBerry PlayBook

16GB TABLET PRICE 249WAS 399SAVE150

Also available in 32GB and 64GB

SAVE1501

BRITISH mortgage approvals edgedup more than expected to theirhighest in nearly two years lastmonth, but the overall picture forlending remained well below pre-cri-sis levels and the outlook appearsset to darken.

The Bank of England saidapprovals for home loans a gaugeof house prices in six months time numbered 52,743 in October, upfrom 51,193 in September.

This was the highest sinceDecember 2009, and above econo-mists forecasts of a reading of51,500, but well below the long runaverage before the financial crisis ofaround 90,000.

The number of approvalsremained well below the average of90,000 seen in the lead up to thefinancial crisis, but todays data nev-ertheless suggest that the outlookfor the housing market is one of atleast stable prices as we move into

the new year, though downside risksclearly persist, said Chris

Williamson, chief economist atMarkit.

Mortgage lending rose by thebiggest amount since January 2011at 1.28bn, but net unsecured con-sumer credit was weak on themonth, edging up just 49bn, thesmallest increase since the start ofthe year.

Bank figures showed the biggestannual fall in M4 broad money sup-ply since monthly records began in1983.

The Banks preferred measure, M4excluding intermediate other finan-cial companies, showed a smallannual rise of 2.8 per cent.

Britains consumers have beenreluctant to take on more credit formajor purchases as bank lendingconditions are relatively tight anduncertainty over jobs is weighing onsentiment.

BoE figures showed that net cred-it card borrowing was subdued at

just 93m in October.

UK mortgageapprovals areon the riseBYHARRY BANKS

ECONOMY


BEST OF THE BROKERS

To appear in Best of the Brokers email your research to [email protected]

ANALYSIS lRandgold Resources

7,500

6,750

7,000

7,250

6,500

6,250

6,000

Sep Oct Nov

p

6,600.0029 Nov

RANDGOLD RESOURCESInvestec has upgraded the miner fromhold to buy with a reduced targetprice of 73.32, down from 73.89. Thebroker has trimmed its forecasts afterRandgold lowered its own outlook, butbelieves the recent share price fall pres-

ents a buying opportunity. Investec alsothinks the recent problems at its mills aremanageable and should be resolved bythe end of the year.

ANALYSIS lICAP

475

400

425

450

375

350

325

Sep Oct Nov

p

344.3029 Nov

ICAPCredit Suisse rates the interdealer brokeroutperform and has cut its target pricefrom 510p to 420p. The broker notes thatICAP faces headwinds from lower marketvolumes, but it thinks this is alreadypriced into the firms shares. Credit Suisseis slightly ahead of consensus forecasts,predicting pre-tax profit of 354m nextyear though this is still below manage-ment expectations.

ANALYSIS lThomas Cook

50

20

30

40

10

Sep Oct Nov

p18.9029 Nov

THOMAS COOKGoldman Sachs rates the travel firm neu-

tral with a target price of 14p. Goldmanhas cut its earnings per share forecasts forthe next two years by around 12 per cent,to account for banking fees and the dilutiveeffect of warrants under Thomas Cooksnew banking facility. Goldman sees themain risks to the firm as higher cost infla-tion and falling booking trends, while a risein consumer confidence would help.

NEWS | IN BRIEF

Nationwide says house prices upHouse prices edged up in November, beat-ing expectations despite a weak economy,but activity remains subdued and pricesare more likely to dip in the next 12months, Nationwide said yesterday. Houseprices rose 0.4 per cent from October on aseasonally adjusted basis, their third

straight monthly increase. Prices were 1.6per cent higher than a year ago, but theincrease highlighted a lack of housing sup-ply rather than any real pick-up indemand, Nationwide said. The latest fig-ures are in contrast to those released bythe Land Registry yesterday, whichshowed prices are falling across the UK.

Slump in EC confidence levelsWorries about the Eurozones debt crisisworsened in November and dragged theECs economic and consumer sentimentindex to a two-year low. Business man-agers and consumers turned more pes-simistic across almost all sectors of theEurozone's economy and the ECs monthlyeconomic sentiment index sl ipped to 93.7,its lowest since late 2009.

Spanish retail sales keep fallingSpanish retail sales fell by seven per centyear-on-year on a calendar-adjusted

basis in October, official data showedyesterday, after a revised fall of 5.6 percent in September. The data from theNational Statistics Institute marked thesixteenth month in a row of falling retailsales data.

Dip in Japanese household spendJapanese household spending fell 0.4 percent in October from a year earlier, gov-ernment data showed yesterday, in a signworries about faltering global growth areweighing on consumption.

8/3/2019 Cityam 2011-11-30

17/40

8/3/2019 Cityam 2011-11-30

18/40


4.5%

NEWS | IN BRIEF

Impax upbeat despite gloomEnvironmental investment fund ImpaxAsset Management has increased annualrevenue 36 per cent to 20.9m despite asharp deteroriation in market senti-

ment. Funds under management rosefour per cent to 1.9bn. Chief executiveIan Simm said the fundamental driversbehind Impaxs investment strategy hadimproved in 2011 although environmen-tal sector stocks underperformed.

Hedgies down again in NovemberHedge funds slumped again this monthdespite hopes a host of Eurozone supportdeals will stabilise global markets. Theaverage hedge fund fell 1.3 per cent, pro-

visional figures for November show. Theindustry is down 7.7 per cent for the yearto date, according to the HFRX GlobalHedge Fund Index. Hedge funds sufferedin August and September but have flat-tened out over the autumn.

Thomas Cook takes hit but contagion avoided

L AST weeks announcement byThomas Cook that it was seekingan additional 100m in fundingcreated headline news and

caused its shares to drop by 75 per cent

on the day of the announcement. Theimpact on the brands buzz inYouGovs BrandIndex was immediateand the decline has continued all week. Having been at around 0 in

November, buzz is now at -41, reflect-ing large numbers hearing negativenews. Not surprising considering thecircumstances, but what has been theeffect on perception measures?

There has certainly been an impactbut it has not been as dramatic as for buzz. General Impression has fallenfrom +13 last Monday to -10 thisMonday, while recommendation hasdropped from +8 to -2. Other measuresshow similar falls and the overallindex score (a composite of 6 key meas-

ures) has dropped from +10 to -1.Clearly any drop is not good news, butthese could have been much worse.

Thomas Cook now has new fundingand is advertising to reassure cus-

tomers. The stakes are high. Furtherdeclines in public perception could bevery damaging but if this advertisingcan halt the fall and eventually start toreverse it, then Thomas Cook will feelthat the news did not lead to as mucha crisis of public perception as it couldhave done.

Often problems for big brands cancause views about the whole sector todecline and it would have been this worry that caused competitor Thomson to move quickly last week

and launch its own advertising cam-paign to reassure the public about itsfinancial strength. There has been aslight decline for Thomson but it isvery slight (Index dropping from +9 to

+6) and it will, for now, be confidentthat a contagion effect has been large-ly avoided.Stephan Shakespeare is the chief executive ofYouGov

ANALYSIS l Thomas Cook brand Buzz

Buzz

26/11/201101/11/2011 10/11/2011 18/11/2011

10.0

5.0

0.0

-5.0

-10.0

-15.0

-20.0

-25.0

-30.0

-35.0

-45.0

-40.0

ANALYSIS l Thomas Cook BrandIndex

Index Impression

Recommend

26/11/201101/11/2011 09/11/2011 18/11/2011

25.0

20.0

15.0

10.0

5.0

0.0

-5.0

-10.0

-15.0

BRANDINDEX

STEPHAN SHAKESPEARE

8/3/2019 Cityam 2011-11-30

19/40

London

For more detail and to register your interest,

please go to www.SECinLondon.comLondon: + 44 (0) 207 659 4050

www.acacomplianceeurope.com

Starts February 2012

As a direct result of the US DoddFrank legislation, many UK ComplianceOfficers will have to implement therules and requirements of the Securities& Exchange Commission for the veryfirst time.

ACA, the worlds largest complianceconsultancy, specialises in SEC andFSA compliance and includes 45former regulators in its global team.In 2012, ACA will be offeringcomprehensive courses on SECrequirements as they apply toboth fully- registered and ExemptReporting Advisers (ERA).

Both streams will be presentedby former SEC examiners andattorneys and the training willconsider the technical aspects ofthe SECs rules as well as the practicalapplication of compliance controlsto meet those expectations.

Introduction to the US Regulatory Regime

The Structure of the SEC

Rulemaking

The Investment Advisers Act 1940

The SECs Approach to Firm Supervision.The Role of the Chief Compliance Officer.

The 206(4)-7 Annual Compliance Program Rule

Topics to be covered include:

SEC Trainingfor UK-basedComplianceOfficers


NEWS | IN BRIEF

Balfour signs new credit facilityBalfour Beatty, the infrastructure firm,has signed a five-year 850m syndicat-ed revolving credit facility, refinancing anumber of bilateral agreements thatwere due to expire in the next 12-15

months. [The facility] ensures BalfourBeatty has secured access to committedfunding for the next five years and willbe used for general corporate purposes,it said.

3Legs agrees licence changesExploration and development firm 3LegsResources has agreed changes to theterms of its three licences in SouthernPoland with the Polish Ministry ofEnvironment. The changes enable the

company to acquire about 70 kilometres(km) of two-dimensional (2D) and 50square km of 3D seismic data, to be fol-lowed by the drilling of an explorationwell.

Red Rock rises on big profitsShares in miner Red Rock Resourceswere up almost a third at one point yes-terday after it announced full year prof-its had almost tripled. The companysaid pre-tax profits for the year ended

30 June were just under 14m, up from4.75m the previous year. Earnings pershare rose from 0.65p per share to1.78p. Shares in the firm closed up26.4 per cent at 4.17p.

Barclays WealthThe wealth manager has named

Deepak Malhotra as a managingdirector and wealth adviser within

its wealth advisory business.Malhotra joins from Grant Thornton.

Renaissance CapitalThe emerging markets investmentbank has hired Damian Bunce asmanaging director, global head of

electronic trading group. Bunce willbecome a member of the marketsexecutive committee and report toNick Andrews, global co-head ofmarkets. Bunce joins from BarclaysCapital, where he was a director andhead of equities electronic sales and

trading at the firm.

NewedgeThe brokerage has promoted MichaelDann to global head of agriculturalbusiness, from his current position ofhead of cocoa, coffee and sugar.

Michael has been working in the bro-kerage business for 30 years, spe-cialising in agriculture andcommodities. He began his careerwith Marshall French & Lucas in1980 and has worked at DrexelBurnham, Paine Webber and Brody

White, in New York and London.

LinklatersThe magic circle law firm has madeits first partner lateral hire inSweden, electing Roger Johnson as apartner in the firms Stockholm

office from January 2012. Johnsonjoins from Hannes Snellman, one ofthe leading Nordic law firms, wherehe has been a partner sinceSeptember 2009. Roger previouslyworked at Linklaters Stockholmoffice between 2002 and 2009.

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys

+44 (0)20 7092 0053morganmckinley.com

To appear in CITYMOVESplease email your careerupdates and pictures to [email protected] SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

Brooks Macdonald Asset ManagementThe asset management firm has named TobyThompson as investment manager for its Londonoffice. Thompson joins from New Star where heworked for eight years, following roles atNewton and Eagle Star Investment Managers.

Thompson brings with him twenty years experi-ence in the investment industry, and is an associ-ate of the CFA Society of the UK.

Confidence up in theUS but investors wary

THE Dow and S&P 500 advancedfor a second day yesterday asstronger-than-expected con-sumer confidence data and

hopes for further progress on a solu-tion to Europes fiscal mess bolsteredsentiment.

However, in a sign investors are stillnervous about the European debt cri-sis, defensive sectors such as utilitiesand consumer staples were amongthe best performers. The Nasdaq com-posite index also closed lower.

Helping to lift the mood on WallStreet, the Conference Board, anindustry group, said its index of con-sumer confidence jumped to its high-est level since July, handily toppingeconomists forecasts.

Financial shares limited theadvance, with the S&P financialindex down 0.6 per cent. Shares ofBank of America dropped 3.2 per centto $5.08, its lowest closing level sinceMarch 2009. FThe Dow Jones industri-al average was up 32.62 points, or 0.28per cent, at 11,555.63. The Standard &Poors 500 Index was up 2.64 points,or 0.22 per cent, at 1,195.19. TheNasdaq composite index was down11.83 points, or 0.47 per cent, at2,515.51. In a positive move, Italianbond yields fell from session highs.

THENEW YORKREPORT

8/3/2019 Cityam 2011-11-30

20/40

8/3/2019 Cityam 2011-11-30

21/40

News | Autumn Statement Special21

GEORGE Osborne hopes to stimulateBritains flagging economic recovery

with yet more measures to encouragewealthy individuals to back start-ups.

He will extend the EnterpriseInvestment Scheme (EIS) to offerincome tax relief of 50 per cent to

individuals who invest up to 100,000and to companies which provide

backing of up to 150,000.The Seed EIS (SEIS), to be launched

in April, will also encourage re-invest-ment by granting a capital gains taxholiday to those who pour their SEISgains back into start-ups in 2012-13.

The moves won the support of busi-ness angels although experts haveraised fears the means of paying forit a freeze on capital gains taxrelief could be punitive if it is con-

tinued over the long-term.Richard Anton, chairman of the

BVCA, said the measures wouldencourage innovation, adding: Thisis a rare case of a George coming tothe assistance of Dragons.

The decision to freeze the 2012-13exemption for capital gains tax at10,600 was criticised by tax experts,however. Alison Smith from PwC said

it was unlikely to achieve much andwould not stimulate sales.

The chancellor is expecting thisfreeze to continue so any one lookingto make a capital gain in the futurecould be a loser... With higher infla-tion, the cumulative effect could besignificant.

The Treasury cheered businessangels, however, by making it easierfor venture capital trusts to provide

backing through the abolition of the1m investment limit per company.

Nations ailing

start-ups getfresh supportBY PETER EDWARDS

ENTERPRISE

Flagging growth, particularly in the north, has hit official forecasts Picture: REUTERS

BRITAINS hard-pressed small busi-nesses were thrown a 210m lifeline

when George Osborne extended akey tax relief.

The small business rate reliefscheme, which had been due toexpire in October next year, will rununtil April 2013.

Firms will also be given the chanceto defer 60 per cent of the increase in2012-13 rates, which they were facingas a result of the increase under theRPI measure of inflation. They willhave to repay what is owed over thenext two years.

Patrick Harrison, partner at PKF,

said: Cash is king at the moment forSMEs so any measure that helps cash-flow should not be sniffed at. Thelevel of business rates that an organi-sation has to pay is based on theirpremises rather than their profitabil-ity, so the tax holiday should be espe-cially welcome at a time whencorporate profits are being squeezed.

John Walker, chairman of theFederation of Small Businesses, saidpolicy must be translated into tangi-

ble actions on the ground.

210m reliefon rates for

small tradersSMALL BUSINESSES

THE TREASURY has responded to a year of criticism of its regionalgrowth strategy by devising more ini-tiatives to boost local enterprise.

After swinging the axe at regionaldevelopment agencies in summer2010, George Osborne yesterday pro-

vided a 1bn top-up for the 1.4bnregional growth fund and offered 100per cent capital allowance to enter-prise zones in the Black Country, East

Yorkshire, Liverpool, the North-East,

Sheffield and the Tees Valley. Thezones, first used with mixed success

in the 1980s, were re-introduced inthe spring after the publication of

weak economic growth figures.The chancellor will also extend the

enterprise finance guarantee from January. Businesses with a turnoverof up to 44m will qualify and newlenders will be added to the scheme.

We will do whatever it takes toprotect Britain from this debt storm

while doing all we can to build thefoundations of future growth,Osborne said.

BY PETER EDWARDS

ECONOMY

Boost for local enterprise

8/3/2019 Cityam 2011-11-30

22/40

THE GOVERNMENT cannot launch itscredit easing programme until it getspermission from the EuropeanCommission, chancellor GeorgeOsborne revealed yesterday as he for-mally announced the 21bn pro-gramme to reduce the cost ofborrowing by small businesses (SMEs).

The scheme will work by guarantee-ing the debt of those banks that lendmost to SMEs, on the condition thatthey pass on the full benefit of lowerdebt costs in the form of lower intereston the loans they offer. The Treasuryhas not yet determined which banks

will participate and on what scale.Osborne said yesterday that the

treasury is now negotiating for [EU]state aid approval so that the NationalLoan Guarantee Scheme will be upand running in the next few months.

He will hope that the approvalprocess is speedy the treasury iskeen to implement it quickly tocombat a credit crunch. However,many European Commission ini-tiatives have been hit by delaysrecently due to it being over-loaded by new regulatorychanges and the Eurozonecrisis.

The government will

also contribute 1bn to the BusinessFinance Partnership, a fund for invest-ing in SMEs, a cause close to businesssecretary Vince Cable (pictured).

Despite the govern-ment taking on billionsin risk, it will be keptoff-balance sheet in thenational accounts as a

contingent liabili-ty, and will notaffect thenational debt,the Office forB u d g e tResponsibilitysaid.

Take controlfrom the offset

THE GOVERNMENT is sitting on a69bn loss from bailing out the banksduring the financial crisis, the Officefor Budget Responsibility (OBR)revealed yesterday.

It means the last government paiddouble what the shares of RBS andLloyds are worth today: their stock hasfallen 45 per cent and 51 per centrespectively since their rescue in 2008,for a current loss of 30.6bn.

This is significantly larger than theimplied 1.6bn loss reported in the

March [forecast], the OBR admits. That comes in addition to losses

from guaranteeing the nationalisedbanks most toxic assets in 2009 underthe Asset Protection Scheme. Far froma gain of 3.4bn predicted in March,the OBR now forecasts a 25.6bn loss

to the taxpayer from the scheme.And the OBR has also published a

new figure giving the cost of raisingthe money to finance the Treasurysvarious interventions, which comes to12.8bn over 39 months.

The total makes for a grim 69bnloss from the bailouts at current valua-tions.

The plunging value of bank assetson the Treasurys books make privatis-ing Lloyds and RBS a distant prospect,despite hopes earlier in the year thatthe government could sell down itsstakes over the next two to three years.It will be reluctant to sell when doing

so would crystallise a huge loss for tax-payers and add to the national debt.

Bank share prices have been hithard by the Eurozone crisis, with evenRBS chief Stephen Hester last weekadmitting that most investors seetheir stock as a dumb place to invest.

HMT is sittingon 69bn lossfrom bailouts

Banks face repeated levyhikes over coming years

BANKS face the prospect of having torepeatedly calculate the cost of thegovernments bank levy after chancel-lor George Osborne hiked it yesterdayand is likely to have to do so again.

Osborne put up the levy for the sec-ond time this year, increasing from0.075 to 0.088 per cent from Januaryonwards. He had already hit bankswith an immediate rise from 0.05 percent in February just a month afterthe taxs introduction.

The treasury claims that the purposeof the tax, which will cost the majorbanks several hundred million poundseach per year, is to push banks towards

less risky funding structures.But as a result of Lloyds and RBS hav-

ing reduced their wholesale fundingexposure by more than expected, thetreasury is increasing the levy to getthe full 2.5bn for which it has budget-ed, suggesting its main purpose wasrevenue-raising.

Experts say the government willhave to do the same again next year because its forecasts make the samemistake of assuming that banks willmake little progress in cutting theirwholesale funding.

However, some of that will be offset by high inflation reducing the realvalue of the governments 2.5bn rev-enue target.

BY JULIET SAMUEL

BANKING

POLITICS BANKING

NEWS | IN BRIEF

Pension charge loophole is shutEmployers who make asset-backed pen-sion contributions to their companyspension scheme will receive less taxrelief, the government said yesterday,closing a popular loophole used by agrowing numbers of firms. A newFinance Bill 2012 was introduced with

immediate effect to ensure that anypayments now made will not allow busi-nesses to claim excessive tax relief.PwC partner Alex Henderson said somesort of intervention was expected as thechancellor was keen to raise moneyfrom it, but it was positive to see thatthe proposed changes only aimed torestrict the scope of the tax relief, notabolish it. Employers will be pleased tohave the additional certainty of speciallydesigned legislation, he said.

Tax breaks for artwork donorsWealthy individuals who donate gifts ofvaluable art to the nation will receivetax breaks, in an estimated 15m peryear scheme announced yesterday.Givers of pre-eminent objects will beable to claim up to 25 per cent off theirincome or capital gains tax, up to a limitof 30m annually. The move combinesthe current acceptance-in-lieu scheme

allowing inheritance tax to be paid withartworks, and comes after a consulta-tion since the Budget in March. Expertswelcomed the rise in the upper limit to30m, from 20m previously proposed,but cautioned that this may not be highenough to sway some potential donors.


Treasury forced to negotiatecredit easing with Brussels

ANALYSIS l Royal Bank of Scotland Group PLC

p

Jan Mar May Jul Sept Nov

40

45

35

30

25

20

19.5229 Nov

ANALYSIS l Lloyds Banking

p

NovJan Mar May Jul Sep

60

50

30

40

23.1829 Nov

RBS chief executive Stephen Hester Lloyds absent boss Antoni Horta-Osrio

8/3/2019 Cityam 2011-11-30

23/40

When you offset with first direct, youre the master of your mortgage.

It lets you link your qualifying current and savings accounts to your mortgage,

so you only pay interest on the difference. Whats more, you can choose

to make monthly or lump sum overpayments as often as you like, bringing

down the total that you owe.

Early repayment charges may apply depending on the type of interest rate

chosen, if you choose to fully repay your mortgage. You must hold or open

a 1st Account to qualify.

Take control of your mortgage. Call first direct today.

Reduce yourmortgagewith unlimitedoverpayments 0800 151 3009firstdirect.com

A range of mortgages, nicely arranged

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

first direct creditfacilitiesaresubjecttostatus. Becausewewanttomakesureweredoingagood job,wemaymonitorand/orrecordourcalls. HSBC Bankplc 2011.All Rights Reserved.first direct 40Wakefield Road, Leeds LS98 1FD. A

C23410

WORKERS in the public sector arebracing themselves for years of extrapain, after the chancellor said he

would squeeze government expendi-ture further as he seeks to balance thenations books.

Osborne is planning to cap publicsector pay rises to one per cent in 2016and 2017 two years beyond the cur-rent pay freeze.

An extra 310,000 public sector joblosses are also expected as the

Treasury strives to make sure it hits itstarget of eliminating the deficit with-in five years, and cutting debt as a pro-portion of GDP by 2015.

The chancellor also said thatnational public sector pay deals could

be scrapped, depending on a consulta-tion on allowing regions to set payrates that are more in line with thelocal private sector market.

A report on the subject fromnational pay bodies is due next July.

The Office for Budget Responsibility

expects yesterdays announcements toinvolve a fiscal tightening of 8.3bn in2015/16 and of 15.1bn in 2016/17.

As a result the ratio of debt to GDPis projected to fall from 78 per cent in2014 to 77.7 per cent in 2015.

The Trades Union Congress (TUC)warned the measures mean we arelocked into permanent austerity.

Further cuts raise the prospects offurther strikes.

The government has alienated itsentire workforce who are comingtogether in unprecedented unity totake a stand against such unfair treat-ment, said the TUCs Brendan Barber.

However, a report published todayfrom think-tank Policy Exchangeargues public sector workers are stillpaid 8.9 more than their private sec-tor counterparts, despite the payfreeze.

These figures highlight that dis-cussions on the public sector arefocussing on the wrong thing, saidPolicy Exchanges Matthew Oakley.

Unions are striking despite gener-ous pay and extraordinary pensions.

Public sector

faces furtheryears of cuts

Rise in child support shelved

THE COALITION has scrapped aplanned above-inflation rise in child

tax credits which had been unveiledby George Osborne only last year. The chancellor said he would not

go ahead with the plan to raise thechild element of the child tax credit

by 110 above the rate of inflation in2012-13, saving nearly 1bn.

He will also freeze the couple andlone parent elements of the workingtax credit, which goes to low earners,

saving around 275m a year. The move will help pay for an

increase of 5.2 per cent matchingthe CPI rate of inflation to the levelof most benefits received by people

below the retirement age or with adisability.Osborne said the welfare changes

would protect the most vulnerablepeople in society, which was seen asnod to the agenda pursued by workand pensions secretary Iain DuncanSmith and the Liberal Democrats.

The changes to child tax credits will hit five-and-a-half million fami-

lies, with about two million of thosealso suffering because of the workingtax credit freeze, according to charitythe Resolution Foundation.

Gavin Kelly, its chief executive,

said: Taking cash away from familieson low to middle incomes is preciselythe wrong thing to be doing it hitshouseholds when they are down.Every pound taken out of their pock-ets is also likely to be a pound takenout of consumption in the economy.

Anna Bird, acting chief executive ofthe Fawcett Society, said women andsingle parents would be hardest hit.

BY TIMWALLACE

UK ECONOMY

BY PETER EDWARDS

WELFARE

WORKERS retiring in or after 2028will draw a state pension from the ageof 67 instead of 66, chancellor GeorgeOsborne said yesterday, in a move that

will save up to 60bn in the decadeafter it is implemented.

Osborne said the UKs average lifeexpectancy had risen by at least a yearand a half since the original timeta-

bles for state pensions were drawn up,

requiring a rise in the state pensionage by a year between April 2026 and

April 2028.Forecasts from the Office of BudgetResponsibility showed that spendingon state pensions is expected to risefrom 5.5 per cent of the UKs GDP in2015-16 to 7.9 per cent by 2060-61.

John Longworth, director general ofthe British Chambers of Commerce,said it was the right response to theUKs demographic changes.

Pension age to rise to 67by 2026 to save 60bn

UK ECONOMY

News | Autumn Statement Special 23CITYA.M. 30 NOVEMBER 2011

Further cuts raise the prospect of more strikes Picture: REUTERS

GEORGE Osborne has slashed morethan 1bn from the UKs aid budgetto prop up other balances for capitalspending.

Yesterday the chanceannounced nearly 1.2bn will betaken from the department for inter-national development.

Planned increases in the depart-ments budget will be trimmed by380m this year, 265m next yearand 525m the following year.

Despite the cuts, the UK will stillspend 0.7 per cent of nationalincome on aid by 2013 becausenational income is forecast to belower.

The spending plans of the depart-ment for international developmentmeant that the UK was on course toexceed 0.7 per cent of nationalincome in 2013, said Osborne yester-day.

That I dont think can be justifiedso we are adjusting those plans so wedont overshoot the target.

The coalitions decision last year toincrease aid spending by 34 per centto 12bn over four years proved con-troversial in a time of austerity.

Yesterday aid groups Save TheChildren and Oxfam praised the gov-ernment for at least sticking to its0.7 per cent payment target.

Internationalaid budget isslashed by 1bn

INTERNATIONAL AID

8/3/2019 Cityam 2011-11-30

24/40

THE SQUEEZE on earnings will notstop until 2013, which means con-sumption will do little to help an eco-nomic recovery, according to theOffice for Budget Responsibilitys fore-casts published yesterday.

Once inflation is taken intoaccount, real earnings fell by 2.3 percent in 2011 a post-war record, said

OBR boss Robert Chote.Consumption was squeezed as aresult, with average forecasts in thethree months to November putting itone per cent lower over 2011, com-pared to Marchs forecasts of con-sumption rising by 0.8 per cent in the

year.The crippling combination of high

inflation and low wage rises will onlybegin to lift in 2013.

We do not expect earnings to out-pace prices again by a significant mar-

gin until 2014, Chote announced yes-terday.Consumer price inflation is set to

plummet next year, from a high of 5.2per cent in September 2011 to roughlyits target level of two per cent by late2012.

Rising wages will eventually drive arise in house prices, the OBR believes.

We assume that house price infla-tion recovers over 2013 and rises

broadly in line with the long-termaverage rate of earnings.

Workers to suffer fallingreal pay until late 2013BY TIMWALLACE

UK ECONOMY

ANALYSIS l GDP is still well below its pre-recession peak

Index2006 = 100

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

2009Q3

2010Q1

2010Q3

2011Q1

2011Q3

106

105

104

103

102

101

100

99

98

97

GDP after ONS revisions

GDP pre-ONS Blue Book revisions

2009 2010 2011 2012 2013 2014 2015

GDP GROWTH FORECASTS (%)

Nov-2010 -5 1.8 2.1 2.6 2.9 2.8 2.7

Mar-2011 -4.9 1.3 1.7 2.5 2.9 2.9 2.8

Nov-2011 NA 1.8 0.9 0.7 2.1 2.7 3.0

CPI INFLATION FORECASTS (%)

Nov-2010 2.1 3 2.8 1.9 2 2 2

Mar-2011 2.2 3.3 4.2 2.5 2 2 2

Nov-2011 NA 3.3 4.5 2.7 2.1 2 2

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

PUBLIC SECTOR NET BORROWING FORECASTS (% GDP)

Nov-2010 11.1 10 7.6 5.6 3.5 1.9 1

Mar-2011 11.1 9.9 7.9 6.2 4.1 2.5 1.5

Nov-2011 11.2 9.3 8.4 7.6 6.0 4.5 2.9

PUBLIC SECTOR NET DEBT FORECASTS (% GDP)

Nov-2010 53.5 60.8 66.3 69.1 69.7 68.8 67.2

Mar-2011 52.7 60.3 66.1 69.7 70.9 70.5 69.1

Nov-2011 52.9 60.5 67.5 73.3 76.6 78.0 77.7


PUBLIC sector job losses are unlikelyto cause higher unemployment

between now and 2017, the govern-ment said yesterday, as it expects hir-ing by businesses to outweigh cuts.

The private sector is expected to cre-ate 1.7m new jobs by 2017, accordingto the Office for Budget Responsibility(OBR), enough to mop up the 710,000

job losses in public agencies.Despite the rise in expected public

sector redundancies from the 400,000previously forecast, the OBR expects

the labour market to stay steady.The indicators suggest little evi-

dence of a permanent structural dete-rioration in the labour market and wehave maintained our long-term...assumption of 5.35 per cent, it said.

It said the unemployment rateshould peak at 8.7 per cent by the endof next year, rising to 2.8m peopleunemployed from 2.6m people today.

The Chartered Institute Personnel and Development backedthe OBRs view.

This is good news in that it sug-gests that unemployment can fallquite rapidly once the economyreturns to a strong rate of growth,

said CIPD chief economic adviser JohnPhilpott.

Hiring by business willoutweigh public cutsUK ECONOMY

ANALYSIS l Real incomes will not grow until 2013

% Earningsgrowth

Forecast

Marchs forecast

Novembers revised forecast

Source: ONS and OBR

2014 2015 2016 20172010 2011 2012 2013

5.0

4.0

2.0

-2.0

3.0

1.0

-1.0

0.0

-3.0

ANALYSIS l GDP growth should recover by 2015

% change ona year earlier

November central forecast

Source: ONS and OBR

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20162002 2003 2004 2005

6

4

0

2

-2

-4

-6

ANALYSIS l Budget deficits will be larger than previously expected

%

2009-10 2010-11 2011-12

November Forecast March Forecast

2012-13 2013-14 2014-15 2015-16 2016-17

12

10

8

6

4

2

0

ANALYSIS l Inflation is forecast to fall sharply

%

Annual rate

Forecast

2005 2009 2013 20171989 1993 1997 2001

9

8

6

1

7

5

4

3

2

ANALYSIS l UK borrowing costs are at historic lows

May 10 Sep 10 Jan 11 May 11 Sep 11Jan 09 May 09 Sep 09 Jan 10

500

400

200

0

3

cityam 2011-11-30

Documents