LONDON |
LONDON (Reuters) - The Bank of England signalled on Wednesday that it was close to releasing a wave of new money into the shrinking British economy because of the worsening euro zone debt crisis.
Such a move would effectively involve printing money to buy government bonds, in turn lowering British borrowing costs.
Coming on the back of last week's announcement of new BoE and government measures to spur lending to businesses, it underlines the depth of concern that exists about the state of Britain's economy as its main trading partners weaken.
The first of last week's new lending measures also took effect on Wednesday, when the Bank gave banks 5 billion pounds of low-interest six-month loans. The banks were urged by the Bank to take the money, sources told Reuters.
Minutes of the BoE's last policy meeting showed officials split 5-4 against launching a new round of monetary stimulus by buying government bonds, a form of quantitative easing, significantly with Governor Mervyn King in favour.
A Reuters poll taken after the minutes came out showed that economists now see a 80 percent chance of another round of QE next month.
The last time the MPC was so divided was in June 2007 - when officials split 5-4 over whether to raise interest rates on the eve of the financial crisis - and the previous time King was in a minority was August 2009, when he also wanted more QE than the consensus.
The minutes show far stronger support for more stimulus than many economists had expected, and follow the announcement last week of new Bank and government and help Britain's economy, which returned to recession late last year.
They also gel with the mood of other authorities around the world in the face of weakening global growth and massive uncertainty about the euro zone, which combines to rival the United States as the largest economy in the world.
The U.S. Federal Reserve is under pressure to authorise more stimulus later on Wednesday at the end of a two-day policy meeting, while the People's Bank of China cut interest rates two weeks ago in a surprise move.
The BoE's Monetary Policy Committee said the global economy was slowing and that risks to Britain and the rest of the world from financial distress and political tension in the euro zone had intensified.
“"Most members judged that some further economic stimulus was either warranted immediately or would probably become warranted in order to meet the inflation target," minutes of the June 6-7 meeting said.
British sovereign bonds outperformed German government debt after the news, as markets bet the bank would soon restart its programme of quantitative easing.
QE is designed to help the economy by making borrowing cheaper and has already led to 325 billion pounds of British government bond purchases.
"The vote in June was much closer than many had been expecting," said Citi economist Michael Saunders. "It's clear the MPC are heading for further QE soon in large scale and I think it's highly important that the governor has switched his vote on that."
The Bank called a halt to new gilt purchases in May, largely because inflation was proving slower than forecast in falling back to its 2 percent target.
But this month the Bank said inflation was now likely to be lower than forecast, in part because of falls in oil prices and less generous wage deals as well as risks from the euro zone. Since the MPC meeting, inflation dropped unexpectedly to 2.8 percent from 3 percent.
QE NOT CERTAIN NEXT MONTH
Last month external Bank member David Miles was the only official to call for an expansion of QE, but this month he was joined by King and external member Adam Posen in urging an extra 50 billion pounds of purchases.
Paul Fisher, the BoE's executive director for markets, supported a 25 billion pound increase.
The Bank policymaker Ben Broadbent - one of the five to oppose more QE this month - told Reuters in an interview that the case for more QE had increased, but that he would want to look at the impact of new Bank and government schemes to boost credit before agreeing to more gilt purchases.
Despite the closeness of the vote, some economists said it would be wrong to see more QE next month as a done deal.
"The immediate reaction on the minutes when you see a 5-4 is QE is imminent, and they are flagging it coming. But I don't think it is entirely as black and white as that," said Scotiabank economist Alan Clarke.
In the minutes, some MPC members had said they wanted to see the outcomes of Greek and French elections before deciding on more QE. Both took place last weekend, and Greece appears to have formed a government that broadly supports the country's existing bailout.
The government's options to stimulate the economy are limited due to its commitment to eliminate most of Britain's big budget deficit over the next five years - putting much of the onus on the Bank.
Demand for the 5 billion pounds lent on Wednesday appeared muted as the Bank had to lend some of the funds at the minimum 25 basis point premium over its 0.5 percent Bank Rate that it was willing to accept.
Anthony O'Brien, strategist at Morgan Stanley, said the result suggested that "the need for liquidity is not as bad as possibly people thought it might be", and that the terms on which the Bank accepted lower-grade collateral were relatively unattractive.
The Bank asked big banks to participate in the operation, in order to remove any stigma attached to taking what could be seen as emergency cash, several people familiar with the matter said.
(Additional reporting by Alessandra Prentice, Olesya Dmitracova, Steve Slater and Sven Egenter. Editing by Jeremy Gaunt.)
A valuable lesson in pocket money - The Independent
No wonder experts say parents should introduce their children to basic financial matters at an earlier age than ever. "Teaching children the value of money from an early age provides a good foundation for their future spending habits, and sends positive messages about managing finances and living within one's means," explains Simon Walsh, spokesman for Family Lives. "Their observations of how you spend, save, budget and donate to charities can shape early views about money management."
Get them involved in making their own financial decisions too. "My eight-year-old son Henry knows that if he wants something, he must select a few items he no longer wants, photograph them, write a description and put them on eBay," says Rebecca Gunn, 39, who lives in Bedfordshire.
Like many parents, Gunn also uses pocket money to help her son to understand its value. "It stops him walking into a shop wanting everything he sees. It makes him think about what he wants and he enjoys weighing up the pros and cons of things as the week goes on."
Research from Equifax reveals a growing emphasis on encouraging children to "earn" their pocket money through basic chores such as washing up and tidying up. The average amount children receive, according to another survey by Halifax, is £4.57 for 8-11 year-olds and £7.02 for 12-15 year olds. "Each of my two children, aged five and seven, has a special job around the house once a week," says Sarah Brown, a 40-year-old mother from Kent. "It means they realise they need to contribute something to earn money."
A vital component of the pocket money concept, she believes, is that kids discover their own spending power. "This is where, as a parent, you have to get the balance right between parental advice and allowing your child to make their own decisions – and therefore mistakes. It's definitely given my children an understanding, which did not exist a year ago, of how important it is to know how much things cost," says Brown. "Even simple things like checking the price tag on the box to see if it's affordable, is not something you see many kids do. Perhaps most satisfying of all is that my eldest, has opened a bank account and is already beginning to grasp the concept of interest."
When your children hit their teens, consider swapping pocket money for a monthly allowance, but the same principles apply, advises Pritee Chohan, Money for Life Programme volunteer and a branch manager for Halifax. "Sit them down to explain the differences between the savings accounts on offer and help them to budget for that holiday with friends or for driving lessons. By the time they leave home, they should have all the money savvy they need to make a great start in life."
David Cameron: no 'bottomless pit of money' to fund fuel duty cut - Daily Telegraph
"I think people sitting at home know that the Government doesn't have a bottomless pit of money," he said.
"Obviously we look at all these things, I think there are dos and don’ts for the Government. What the Government mustn’t do is try and borrow its way out of debt. You can’t borrow your way out of the situation we’re in, it would be very dangerous for Britain.”
He suggested that the Coalition would focus on making sure householders and businesses have access to cheap loans.
"What we can do is use the fact that we have credibility, we have some of the lowest interest rates we’ve had in Britain for hundreds of years, use that credibility to make sure those interest rates are also available to the homeowner, to the small businessman wanting a loan,” he said.
Danny Alexander, the Chief Secretary to the Treasury, has already signaled that the Government is unlikely to be able to afford to scrap the increase.
“Given the huge issues we have with public finances, we also need to make sure that we’ve got the money coming through the tax system, and the increase in fuel duty is part of that,” he said earlier this week.
Motorists groups have urged the Government not to take advantage of the recent falling petrol prices to argue that the 3p tax rise should go ahead.
Brian Madderson, chairman of the Petrol Retailers Association, said it would be “opportunistic” of the Treasury to hope that people would not notice the extra tax.
“David Cameron knows it is right to scrap this increase while the country struggles with a second recession,” he said. “The decision to do so would not be a U-turn, but common sense prevailing as the economic outlook deteriorates.
“Road fuel is no longer a luxury but an essential part of everyday life. The planned duty increase will penalise lower income earners, pensioners and the unemployed and will push inflation up."
The average price of petrol has fallen by 9.83p a litre since its peaks in April to around 132.65p this week.
The price of oil on the international markets has fallen by around a quarter since March, helping to bring down inflation.
However, Paul Watters, head of public affairs at the AA, warned that the planned duty rise will only "increase the inflation rate and put more pressure on hard-pressed families and business in the UK once again”
Julian Assange's leading supporters face losing £240,000 in bail money - The Guardian
Some of Julian Assange's most prominent supporters stand to lose up to £240,000 in bail money, provided to secure the WikiLeaks founder's freedom when he first faced extradition proceedings.
A leading criminal lawyer said that following Assange's decision to seek asylum in the Ecuadorean embassy in London and breach the terms of his bail, they would have to persuade the courts why they should not forfeit their money and prove they had done all they could to prevent him breaking the court order.
A group of celebrities and activists, including the socialite Jemima Khan, film director Ken Loach and publisher Felix Dennis, posted cash security of £200,000 to Westminster magistrates court with a further £40,000 as promised sureties when Assange was freed in December 2010.
"The people who have posted the money would have to go to court and plead their case as to why they shouldn't lose their money," said Oliver Lewis, partner at solicitors Powell Spencer and Partners. "There would have to be a pretty good reason why the money shouldn't be forfeited. Usually the court says 'thank you very much, you have lost your money'. You have to show that you have been vigilant and put every effort in to stop it happening."
Vaughan Smith, the founder of the Frontline Club for journalists, hosted Assange at his Norfolk home for over a year and stands to lose £20,000.
"It is not clear to me whether I have a liability but either way I am concerned," he said. "I do believe Julian genuinely feels he will be sent to America – and of course I think the money is important because it relates to the welfare of my wife and children, but they don't feel they are at risk of being sent to America.
"I remain a supporter and it is important we recognise he is a western dissident. There are a lot of people who believe the work he did at WikiLeaks was in the public interest."
Khan confirmed on Twitter that she had also posted bail money for Assange. "I had expected him to face the allegations," she said. "I am as surprised as anyone by this."
Tracy Worcester, the model and actress turned environmental campaigner, confirmed that she had put up a surety for Assange but said she had not yet been able to speak to his legal team about the latest developments and declined to comment further.
The human rights activist Bianca Jagger denied reports that she had contributed to the bail money, tweeting: "I would like to set the record straight. I didn't post bail for Julian Assange."
A spokeswoman for the courts service said it was normal for breaches of bail to be considered at the court that set the bail conditions in the first place, in this case Westminster magistrates court.
"What happens to the money will be decided by a judge if and when he is brought back before the court," she said. "It depends on what the police say about what they think a person has done and what should follow on from that."
10 questions Money Advice Service needs to answer - Money Marketing
Money Advice Service chairman Gerard Lemos and chief executive Tony Hobman (pictured) will be grilled by the Treasury select sub-committee this afternoon in what could be a bruising encounter.
MPs are investigating the service and last week they heard from FSA panels, debt advice organisations, the ABI and moneysavingexpert founder Martin Lewis. All had some stern words for the service.
So, what are the questions Lemos and Hobman must have answers for?
1) What is the point of the Money Advice Service?
Last week, in a stinging attack on MAS, sub-committee chair George Mudie asked those giving evidence what MAS’s role is. You could hear a pin drop. FSA Consumer Panel chair Adam Phillip’s suggestion that MPs should ask MAS was the best anyone could come up with. They are sure to want answers.
2) Is Tony Hobman worth two and a half prime ministers?
Hobman’s £350,000 annual remuneration package is over double what the Prime Minister gets. Dave might have abandoned his position of dragging people in the public sector and quangos earning more than him into his office and asking them to justify their pay, but Hobman will have to defend his pay package today. Are you feeling incentivised Tony?
3) Why is your business plan so lacking in detail?
Most of those giving evidence to the sub-committee last week raised concerns about a lack of detail in MAS’s business plan for 2012/13. Conservative Party deputy chairman Michael Fallon may lead the charge on this after saying he was surprised the plan set out MAS’s budget in only ten numbers.
4) Are you embarrassed about your financial health check?
Moneysavingexpert.com founder Martin Lewis told the committee last week that most of the tools on MAS’s website were “crap” and that he would be embarrassed to host them on his website. MAS’s own figures have shown its healthcheck fails to change behaviour.
5) Have you upped your game since you knew MPs were coming after you?
Money Marketing revealed MPs would be launching an inquiry into the Money Advice Service in March. Last week, ABI director general Otto Thoresen, who wrote the book on generic advice, said MAS’s industry engagement had previously been non-existent but had improved in recent months. Mudie and Conservative MP Mark Garnier speculated this was down to the fact the service knew “it was going to get a good kicking” from the sub-committee.
6) Do you think your TV ad was worth the money?
Last year’s £4m ad campaign which claimed the service offers free, independent, unbiased advice, which was a “breath of fresh air” caused a stink among advisers. Advice UK told MPs last week MAS spends too much on marketing so they are bound to have questions about plans to spend nearly half its £46.3m money advice budget for this year on “brand awareness”.
7) Could you do more to direct people to existing services?
Despite more than a million people using the MAS website in 2011/12, only 2,138 people ended up on unbiased.co.uk. The advice portal says this shows MAS’s signposting leaves something to be desired. Due to not being able to get any information on how many people are using the site to research IFA related issues, it is difficult to tell. MPs could push for more transparency to improve this.
8) Are you sufficiently accountable?
Aifa has accused the MAS of having a “blank cheque” from the industry without the requisite accountability to go with it. MPs were told last week that industry must be more involved in how the service puts together its plans because it funds the service. MPs on the committee really have a bee in their bonnet about accountability of the new regulatory system and the MAS is unlikely to be treated differently.
As the Money Advice Trust put it in its submission to the inquiry: “While we have no reason to doubt that MAS has effective accountability mechanisms, we would welcome greater clarity as to what these are and how they operate.” Er, quite.
9) Who should fund you?
While strictly a question for Government, the MAS is likely to be asked whether its funding base should be widened. Its money advice wing is currently funded by an industry levy while its debt advice sector work is funded by lenders. Last week, the FSA practitioner panel suggested utility firms could also contribute to the service.
10) Why isn’t the money just going straight to debt advice providers?
MAS’s budget almost doubled this year to over £80m to take account of its role of coordinating debt advice. Much of that will go to providers like the Citizens Advice Bureau, but MPs will want to know why it needs to go through MAS at all.
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