A group of 11 leading trade associations has launched a bold move to influence the interpretation of imminent European Union financial markets legislation amid fears UK regulators could take an overly-stringent approach, reports the Financial Times.
The paper says bodies party to the highly unusual co-operative effort include the Association of British Insurers, the British Bankers' Association, the Investment Management Association and the London Investment Banking Association. The venture underlines concerns about the implications of the Markets in Financial Instruments Directive, which takes effect in November 2007.
THE CONTROVERSY surrounding the Consumer Price Index (CPI) has taken a new turn as the Office for National Statistics said its measure of inflation fell last month, despite electricity and gas prices rising at the fastest rate in over 26 years, reports the Telegraph.
It says figures from the ONS have also shown that it is understating the effect of higher utility bills on the overall inflation number. The amount of weighting given to gas bills in its inflation calculations has risen by only 17% since 2003 while the actual cost of gas bills has rocketed by 64%.
The news will fuel calls on the ONS to reconsider the way it calculates how much weighting it gives to each component in the measure, according to the paper.
Experts warned that the official inflation measure masked the fact that pensioners' cost of living is rising faster than for other members of the population.
The CPI dropped from 2.5% to 2.4% in July - the first fall in the measure since January - following a fall in the price of household goods, such as furniture and electrical appliances. This leaves it above the Bank of England's target of 2%, but well shy of the 3.1% reading which would force the Bank to write an explanatory letter to the Chancellor.
Economists said they expected CPI to rise further in the coming months, as the effect of higher gas and electricity bills kick in. The Bank's governor, Mervyn King, warned last week that the chances of writing a letter to Gordon Brown were 50-50 between now and Christmas. The Bank also expects the increase in tuition fees this winter from £1,175 to £3,000 to have a marked effect.
The Bank is expected to raise interest rates to 5% before the end of the year in an effort to bring rising inflation back under control.
However, with the CPI falling in July, there is increasing disquiet on whether the measure really reflects the speed at which the cost of living is rising.
The ONS said gas bills last month were 37.1% higher than last year - the biggest annual increase since comparable records began in 1963. Electricity bills were up by 25.9%- a 25-year record. These increases do not take into account the most recent increases in gas bills announced by British Gas and other providers over the past month.
But despite the increase in the cost of energy, the weighting given over to gas and electricity bills in the CPI have not risen by the same degree. The breakdown of the official "basket" of goods in the inflation measure shows what we spend on gas bills is up by 17% and our spending on electricity is up by 7% since 2003. But, the ONS's own numbers show the cost of these bills has risen by 64% and 45% respectively in the same period.
THE BEARISH sentiment of fund managers worsened again during July, as fears about the global economy left investors more pessimistic about future growth than they have been for 10 years reports the Guardian.
The paper says Merrill Lynch's August poll of 209 fund managers showed that 78% of investors thought global growth would slow over the next 12 months, compared with what had been a 10-year low of 72% in July.
According to the report, 52% of respondents believed that corporate profits would deteriorate over the next 12 months, compared with 44% in July. Risk appetite also hit the lowest levels since the Iraq war began in 2003.
"Investors are surprisingly still very pessimistic," said David Bowers, Merrill Lynch's poll consultant. "But what we are seeing is them starting to rethink their attitudes towards bonds." He said current geo-political tensions had played a part in this shift in attitudes.
"Something is holding people back from going into the market," he said, "It is particularly striking that there are high cash levels, yet no one is in a hurry to put it into work."
The number of fund managers saying they were "underweight" in bonds dropped to 56% from 70%.
Bowers said the way the US Federal Reserve behaved would be very influential in changing attitudes. The investment bank believed the Fed had made its final rate rise for the year and would continue to keep borrowing costs on hold at 5.25% after halting a two-year string of quarter point rises last week. Merrill believes the Fed will start cutting rates next January, finishing at 4% by the year end.
Investors were narrowly divided over whether the Fed should focus on inflation or growth prospects when setting rates. David Rosenberg, Merrill's chief US economist, said that the slowdown in the housing market meant that growth should be the priority.
"There are currently 4m units [properties] which aren't selling," he said, "This is a 40% growth [of unsold properties] year-on-year, which is unprecedented. If house prices come down and have an impact on saving ratios and aggregate demand this is more of a concern than inflation. This alone could shave one to two percentage points off [economic growth] over the next year. With growth at 3% this could have a massive impact."
Bowers was sharply critical of the Bank of England's surprise quarter-point rate rise this month. He said the decision raised concerns about credibility, arguing that it had been made to address political concerns.
"The MPC went into a tightening cycle earlier rather than later. They had to deliver on the inflation target. The rate decision was neither to stimulate nor to restrict [the economy]."IFAonline
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till