THE BANK OF ENGLAND has dealt a blow to hopes of an imminent cut in interest rates, says the Financi...
THE BANK OF ENGLAND has dealt a blow to hopes of an imminent cut in interest rates, says the Financial Times, highlighting the risk of higher inflation from public sector pay and the rise in national insurance contributions.
It has also made its strongest warning yet that there is a growing danger of a "sharp correction" in house prices.
In its latest inflation report, the Bank revised up its forecast for price rises over the coming year, mostly because of the unexpected strength of house prices, and said the greater risk was that inflation would be higher rather than lower.
FURTHER DETAILS of that report are found in the Times, which says Britain's housing market will run out of steam within two years and the peak of the boom may already have passed.
Although house prices are likely to keep climbing in the near term, Mervyn King, Deputy Governor of the Bank, said that property values could not continue to increase at their current rate of 25 - 30% a year.
A correction in the market now seemed inevitable, Mr King said, although the Bank's Monetary Policy Committee (MPC) still believes that an outright collapse in property values is unlikely.
A more probable scenario is a slowdown in the rate of growth of house prices from 30% to zero over the next two years, said King. But he admitted that great uncertainties surrounded the outlook for house prices and that a 1990-style crash in property values could not be ruled out altogether.
STANDARD LIFE has cut the exposure of its £34bn with-profits fund to equities, officials have told the Daily Telegraph.
The mutual insurer said that at the end of September, 57% of the fund was invested in shares. This was compared to 73% three months earlier.
Spokesman Gordon Arthur said some shares had been sold but declined to give details. He said the fall in the ratio was also due to plunging stock markets, which reduced the value of equities compared to other investments.
In addition, Standard changed its asset mix by not buying shares with the £1bn it managed to raise through a bond issue in July.
THE CITY watchdog yesterday defended one of its managing directors against accusations that he faces a conflict of interest in an investigation into the split-capital trust scandal, adds the Times.
John Tiner, a Financial Services Authority managing director, who has been presenting the watchdog's case to MPs at the Treasury Select Committee, is a former partner at Arthur Andersen, the accountancy firm.
Class Law, the legal firm acting on behalf of thousands of investors that have lost money in the trusts, claims that Arthur Andersen was involved in marketing the schemes to clients. Partners at Arthur Andersen are to be named in investor law suits being prepared by Class Law.
AT LEAST one of Japan's "big four" banks is likely to be forcibly nationalised next month, in a move that will cost shareholders billions of pounds, says the Times.
The nationalisation will probably be precipitated by a "symbolic" bankruptcy of one of Japan's 30 most indebted companies before the end of the year.
These stark predictions were made yesterday by Hiroshi Okuda, chairman of the Keidanren, the powerful Japanese industrial association, which includes the main banks among its members. Okuda, who is also chairman of Toyota, the world's second largest carmaker, suggested that the controversial move will follow from the much tougher accounting standards, introduced on October 30.
Okuda, whose organisation has been closely involved in the Government's contingency plans for a financial crisis, said the Prime Minister, Junichiro Koizumi, was now "strongly supporting" major reform of the banking system and effectively backs the failure of Japanese banks.
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