Bank of England: Interest Rates
The Bank of England surprised markets by cutting its base rate by 0.25 per
cent to 3.75 per cent.
The Committee reviewed monetary and economic developments in the light of
its latest quarterly projections for output and inflation.
Inflation has, as expected, moved a little above target, but this is the
result of temporarily large contributions from petrol prices and from
housing depreciation.
Over the next two years, the prospects for demand, both globally and
domestically, are somewhat weaker than previously anticipated. In order to
keep inflation on track to meet the target over the medium term, the
Committee judged that it was necessary to reduce interest rates by 0.25%.
Extended Warranties
Extended warranties for electrical goods may be too expensive, according to
a Competition Commission report. The report also criticised the lack of
choice in the market.
The commission is writing to retailers and some insurers, outlining possible
problems it has identified. It pointed to a possible distortion of
competition to the sale of domestic electrical goods through the sale of
warranties.
The commission suggested that warranty sales - with profit margins of
between 20 per cent and 50 per cent could be funding price cuts for
electrical goods.
The report stated however that consumers were fairly happy with their
extended warranties.
A scale monopoly might exist in favour of Dixons, Britain's biggest
electrical retailer, which owns chains, including Currys and The Link,
according to the commission. It said initial evidence showed that Dixons
might supply at least a quarter of extended warranties.
The report said Dixons' rivals might be part of a complex monopoly. These
include Comet, owned by Kingfisher, Argos, Littlewoods, MFI and Powerhouse,
the biggest independent chain.
The commission will meet interested parties ahead of a planned public
hearing in London on April 25.
Kingfisher, which is in the process of finalising the demerger of its
electrical businesses, said it was confident the market was fair and offered
consumers value for money.
The Consumers' Association, which has been locked in a war of words with
Dixons over the issue of warranties, said: "The issues letter is prime facie
evidence that this market is rigged against the consumer."
European Central Bank:
Interest Rates
The Governing Council of the ECB decided this month that the minimum bid
rate on the main refinancing operations and the interest rates on the
marginal lending facility and the deposit facility will remain unchanged at
2.75%, 3.75% and 1.75% respectively.
Royal Bank of Scotland
Fred Goodwin, head of Royal Bank of Scotland, reported a big increase in
profits, raising the dividend, and preparing to go on the takeover trail
again. Profits rose by 12pc to £6.45bn. RBS is now eyeing fresh takeover
targets in the US, where it already owns Citizens and Mellon banks.
The Royal Bank of Scotland also considered making a bid for Abbey National
before it eventually decided that turning round the UK's sixth biggest bank
would be too difficult.
Royal Bank of Scotland plans to refurbish and overhaul its 1,650 Nat West
branches in a £150m project. The project will also fee charges to the
corporate identity of Nat west with the black and white colours of Nat
West’s distinctive logo replaced with raspberry and blueberry.
Abbey losses
Abbey National yesterday posted a £984 million loss, the first by a high
street bank since Barclays in 1992. The bank also halved the dividend to 25p
and plans to sell off wholesale operations to return to its retail banking
roots.
Former directors of Abbey National received payoffs totalling more than £7
million despite the record loss that the bank suffered. Lord Burns,
chairman, said that Abbey had no choice but to pay the directors their
contractual entitlements.
Legal & General
Leading insurer Legal & General have reduced bonuses to endowment and
pension policyholder’s bonuses for the second time in four months. Payouts
on a typical 25-year mortgage endowment will be cut by 10pc, leaving many
borrowers with a shortfall when it comes to paying back the loan.
Legal & General became the latest UK large life assurer to say it would talk
to the City regulator about seeking a waiver from statutory solvency rules
that can force life offices to sell shares in a falling market.
Financial Crisis
Financial Services Authority chairman Sir Howard Davies claimed there has
been no financial crisis in recent years, despite a string of disasters
including Equitable Life. Defining crisis as when confidence is lost in
markets generally, he said the UK had not had a full-blown one for some
time.
Britain recorded up its slowest growth for a decade last year as consumers
bore the brunt of keeping the economy moving. The office for national
statistics said yesterday it had revised down the growth estimate for last
year to 1.6pc, from 1.7pc - the slowest annual rate since 1992, but well
above other major European economies.
Share waiver: AVIVA
Aviva, the parent company of Norwich Union, yesterday admitted it might ask
the financial services authority to waive its solvency rules so that it can
start to buy shares again. By contrast, Standard Life has said it will ask
the FSA to relax certain of its rules so it can avoid being forced to sell
shares into a falling stock market.
Board shakeup: Barclays’
Barclays' chief executive Matt Barrett has promoted his heir-apparent David
Roberts as part of a wider board clear-out. Roberts becomes chief executive
of the Woolwich, acquired by Barclays in 2000, replacing Lynne Peacock
Government Debt
The Government could be understating the Country’s by up to £200 billion,
according to new independent research. Economic analysts at Capital
Economics say that if all the contractual liabilities associated with the
government's public private partnerships were added to the debts the
government has underwritten, it would push the ratio of debt GDP to over
50pc.
Future Economic Outlook
Business leaders consider prospects over the next three years to be "good"
or "very good", according to a global survey of senior executives. Optimism
is tempered by concern over the risk of war, the threat of a collapse in US
consumer spending and pressures for improved corporate governance.
Euro notes
The Chancellor hinted that he would push for the Queen's head to be included
on euro banknotes if Britain joined the single currency.
Bank of England: New Deputy
One of the country's top civil servants has been named as the first female
Deputy Governor of the Bank of England in a wide-ranging shake-up of the
Monetary Policy Committee (MPC). Rachel Lomax, currently Permanent Secretary
at the Department of Transport, will succeed Mervyn King when he becomes
Bank Governor in July this year.
Standard Life: Endownments
Standard Life, Britain's biggest mutual insurance company, faces a potential
bill of up to £4.8bn to honour the promises it made to 800,000 holders of
endowment policies which are failing to hit their targets.
Homeowners
Some confidence waining homeowners are gambling on a house price fall by
selling their property and renting, according to the Royal Institute of
Chartered Surveyors. Current owners have decided to sell in the hope of
making profit while home-seekers have delayed their purchase in case prices
fall.
Consumer confidence
Britons' confidence in the economy has collapsed to its lowest level for
almost five years in the face of mounting speculation of a war with Iraq. An
index of consumer sentiment this month dropped to its most pessimistic level
since October 1998, when the world was in the grip of a global financial
crisis.
Euro entry
A government decision this summer against euro entry may not rule out a
second assessment before the next general election, it emerged yesterday
from Commons committee questioning of Gordon Brown.
Share allocations: Morgan
Stanley
Morgan Stanley is set to face civil charges for allegedly allocating shares
in new public offerings to preferred investors. The Securities and Exchange
Commission has told the investment bank it plans to investigate allegations
of so-called "laddering" at the bank.
Pensions and Tax Relief
Investors in a typical UK personal pension would have lost money over the
last 10 years, were it not for tax relief, while basic rate taxpayers have
lost money in personal pensions over five years - even allowing for the
effect of the tax break. The results should act as a warning for those
workers whose employers are switching from defined benefit plans, where
pensions are linked to final salaries, to defined contribution schemes,
where they depend on the fund's investment performance.
PROPOSALS FOR AN EXTENDED RANGE OF “STAKEHOLDER” INVESTMENT PRODUCTS
PUBLISHED
The Government has outlined its proposals for an extended range of simple,
low cost investment products in their consultation document, Proposed
Product Specifications for Sandler ‘Stakeholder’ Products.
These products, as recommended by Sandler, are aimed at increasing
competition in the financial service industry and at making medium and long
term savings more accessible to lower income customers.
Key features of all the products will be:
• Simplicity- the products will have strict limits on their features in
order to ensure that they are easy to understand.
• Risk controlled- each of the products will have investment restrictions in
order to limit the potential loss to the consumer.
• Low cost- the products will be charge-capped in order to ensure that they
are good value for money.
Ruth Kelly, Financial Secretary to the Treasury, said:
“These products will be simple, low cost and risk controlled. They are aimed
at the millions of people who find financial services and products
confusing. People who have the ability to save but aren’t currently doing
so. Consumers who are not attracted to, or best served by complicated
products.
“In order to be successful in getting lower income people to save more for
their future the product specifications must be right. This consultation
provides the opportunity for everybody to put forward their views and I look
forward to receiving responses from a wide range of people.”
Pensions Minister Ian McCartney said:
“People need to have more confidence about saving, particularly for their
retirement. Stakeholder pensions have shown how we can build confidence in
new products. Stakeholder pensions are good value for money, flexible and
secure and easy to understand.
“We want to build on that approach. A suite of simple, price-controlled and
regulated products will enable many more people to save for the kind of
retirement they want.”
The consultation will last three months. The Government will propose final
specifications for the products in the summer.
FINAL TIMETABLE FOR THE INTRODUCTION OF MORTGAGE AND GENERAL INSURANCE
REGULATION
The Treasury today confirmed that regulation of both mortgages and long term
care insurance will come into effect on 31 October 2004, and that general
insurance regulation will come into force on 14 January 2005.
Ruth Kelly, Financial Secretary to the Treasury said:
“In light of the significant delay in publication of the EU Insurance
Mediation Directive, general insurance regulation will now come into force
on 14 January 2005. This will allow sufficient time for the FSA and the
insurance industry to prepare for this major change in regulation.”
DAWN PRIMAROLO LAUNCHES CONSULTATION ON INCENTIVES TO BOOST
EMPLOYER-SUPPORTED CHILDCARE
New improved tax and NICs incentives are to be introduced to enable
employers to play their part in meeting the childcare needs of all their
employees, Paymaster General Dawn Primarolo said today.
Launching the consultation document, Dawn Primarolo said:
“The Government is determined to help parents to balance their work and
family life. Employers have a very important role to play in helping their
staff to achieve a balance and particularly in helping parents meet their
childcare needs. We are committed to supporting them in this and today’s
proposals will help to ensure that more parents than ever before have access
to affordable, good quality childcare."
The key proposals in the consultation paper are:
• Expanding the workplace nurseries tax exemption to include all forms of
registered childcare, including approved home childcare;
• Simplifying the requirements for the tax exemption to make it easier for
employers to qualify by removing the condition for the employer to have
management responsibility of the provision;
• Introducing a new tax exemption for childcare vouchers (that are currently
only exempt from NICs);
• Introducing a financial limit for the tax and NICs exemption on all formal
childcare provision (other than workplace nurseries) and childcare vouchers;
and
• Ensuring that where schemes are offered, childcare support is available to
the whole workforce.
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