A KNIFE-EDGE decision on interest rates tomorrow has become even more uncertain after key economic surveys sent out conflicting signals, reports The Times.
According to the paper, the new data, indicating buoyant house prices but new weakness in manufacturing, will raise the pressure on the Bank of England’s Monetary Policy Committee today as it starts its two-day rate-setting meeting.
Most of the City expects the MPC to hold rates tomorrow, but a small minority of economists expects buoyant second- quarter GDP growth, and a pick-up in inflation, to persuade it to order a quarter-point rate increase.
The MPC’s dilemma was sharpened further as Nationwide Building Society reported that average house prices jumped by a robust 0.8% last month — the sharpest gain in the group’s survey since March.
The steep July increase lifted Nationwide’s measure of annual house price inflation to 5.9%, up from 5% in June to the highest for more than a year. With the MPC wary of rekindling an unsustainable house price boom, the figures will be one more factor giving ammunition to any Bank hawks pressing for higher rates.
At the same time, however, yesterday’s purchasing managers’ survey of manufacturing may bolster the arguments of MPC doves to keep rates on hold.
In worse than expected figures, the July snapshot of industrial conditions from the Chartered Institute of Purchasing and Supply (CIPS) showed activity in the recovering sector dropped back last month.
CIPS’s headline index of manufacturing activity fell to 53.8 for last month, from 55.0 in June. Any figure over 50 indicates expansion.
Detailed analysis showed the decline in activity was driven by weakening in both output levels and orders. The drop in orders was triggered by a fall in domestic demand even as export orders rose.
THE MAJORITY OF Britain's 100 biggest companies will shut their final salary pension schemes to existing workers as well as new members within six years, a report published today predicts.
According to The Guardian, only one FTSE 100 company - Rentokil Initial - has so far closed its gold-plated scheme to existing employees, forcing them to put money into an alternative arrangement, but actuarial firm Lane Clark & Peacock believes dozens of others are set to follow between now and 2012 in an attempt to slash escalating pension costs.
Yesterday it emerged department store chain Debenhams (a FTSE 250 company) is to close its final salary scheme to all staff, three months after its stock market flotation.
The move mirrors a similar one by retail rival Harrods, which said in February that its final salary arrangement was unaffordable and must shut to safeguard the future of the upmarket store.
Ironically, the predicted growth in the number of schemes closing has been blamed in part on recent legislation designed to encourage companies to do more to tackle their pension deficits.
Charlie Finch, a consultant at Lane Clark & Peacock, is quoted as saying: "Although the new legislation makes it more likely pension scheme members will receive their promised benefits, the price could be more scheme closures as companies are forced to commit cash to funding their deficits instead of paying benefits for current employees."
The firm's latest annual Accounting for Pensions survey estimated the combined deficit of FTSE 100 company pension schemes is now £36bn - down from £37bn a year ago. This slight fall was despite the record £12.1bn that the companies paid into their schemes last year.
About 92 FTSE 100 companies have a final salary scheme, and most have been closed to new members. In the last three months Royal Bank of Scotland and Friends Provident have announced plans to do this.
The report also said about 30 companies needed to boost contributions or risk being investigated by the pensions regulator. These included British Airways and BAE Systems - although both have announced proposals to tackle their deficits.
BRITAIN’S FINANCIAL watchdog has ratified £750,000 in fines for market abuse against both Philippe Jabre and his former employer, GLG Partners, after the hedge fund manager dropped an appeal, reports The Daily Telegraph.
In a "final notice" delivered to the pair, the Financial Services Authority indicated it would oppose any attempt by Jabre to return to managing money in the City, noting his misconduct was a "very serious" breach of the behaviour required from "approved persons".
It stopped short of rebuking him for deliberate market abuse, however, after he was cleared of the charge in February. The notice came less than a week after Jabre abandoned an appeal to clear his name.
The FSA found he "shorted" shares in Japanese bank Sumitomo Mitsui after receiving confidential information from a banker in 2003, to make a profit of approximately $500,000 for his GLG market neutral fund. Around $92,000 of the profit went to GLG.
Margaret Cole, FSA director of enforcement, said: "Jabre traded on information he had received as a result of the position he enjoyed as a leading hedge funds manager. The stability and fair operation of the markets through legitimate pre-marketing activities is jeopardised if those who are wall-crossed do not respect the restrictions imposed on them."
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