UK services growth slowest for 16 months as hiring falls

Sterling cut gains against the dollar and the euro after the downbeat services reading, which follows bigger-than-expected falls in the PMIs for manufacturers and construction, though all are still above the 50 line that divides growth from contraction.
Markit said the three surveys suggested that British GDP growth slowed to 0.5pc in the third quarter from a nine-year high of 1.2pc the quarter before.
“While a double dip recession remains unlikely, the survey suggests that the risk has increased and that growth looks set to be slow and choppy going forward,” said Markit chief economist Chris Williamson, in similar language to that used last month by finance minister George Osborne.
Almost all private sector economists believe the previous quarter’s exceptional growth was a one-off caused by weather-related disruption in the first quarter, and the key question is how fast growth slows thereafter.
A stalling recovery in the United States and hefty public spending cuts in Britain and most of the eurozone mean many economists expect quarterly growth to slow to well below a trend rate of around 0.5pc.
These fears have spread to the service sector companies in the PMI survey, which excludes retailers and public sector employers but not businesses reliant on government work.
The services PMI expectations component has barely risen from the 15-month low hit in June, and the employment component fell sharply to 46.9 from 49.7, touching a 10-month low. New business came in at its slowest pace since June 2009.
“Worries over the impact of government spending cuts and the scheduled rise in VAT early next year continued to undermine sentiment,” Markit said.
The Chancellor plans to raise value-added tax on most goods and services to 20pc in January from its current rate of 17.5pc, on top of budget cuts of 25pc to most government departments over the next four years.
However, the survey brings good news for the Bank of England, which hopes the weak economic environment will enable inflation to fall back to its 2pc target without the need for interest rate rises.
Competitive pressures and discounts to boost sales meant firms barely raised prices in August, with the increase the smallest since April. This was despite higher wage and utility bills causing firms’ costs to rise at their fastest since May.
IT and computing was the strongest sector in August, while indices for the larger ‘business services’ category declined.
This entry passed through the Full-Text RSS service — if this is your content and you’re reading it on someone else’s site, please read our FAQ page at fivefilters.org/content-only/faq.phpFive Filters featured article: “Peace Envoy” Blair Gets an Easy Ride in the Independent.

US warns G20 over recession risks

Mr Obama (L) wants to maintain stimulus spending to boost growth

The US has said the world’s largest economies should focus on maintaining growth to avoid a double-dip recession.
As the G20 summit begins in Canada, US Treasury Secretary Timothy Geithner said Europe and Japan should boost domestic demand instead of cutting spending.
European leaders have said reducing government deficits is key to setting long-term growth on track.
But Brazil warned that steep budget cuts could harm emerging economies.
Speaking in Toronto, scene of the summit, Mr Geithner said the global economy was still emerging from its crisis and “the scars of this crisis are still with us”.
He said: “This summit must be fundamentally about growth.”
Cut or spend? Emergency assistance that G20 leaders agreed on at previous summits at the height of the economic crisis must not be withdrawn too soon, he said.

“We’re going to avoid that mistake by making sure that we recognize that it’s only been a year since the world economy stopped collapsing,” he said.
Europe and Japan should do more to stimulate domestic demand to make it easier for other countries to export to them.
With countries emerging from the global downturn at different speeds, splits have emerged in how to proceed.
Spooked by attacks on the euro currency prompted by Greece’s debt crisis, European governments have focused on cutting spending to reduce their deficits.
A draft version of the summit’s communique suggested the Group of 20 richest and emerging economies was nearing a compromise, Reuters news agency said.
This would see an agreement to halve budget deficits by three years and toughen banking regulations.
Brazil said the focus on cutting deficits could harm emerging economies.
“If the cuts take place in advanced countries it is worse,” said Brazilian Finance Minister Guido Mantega.
“Because instead of stimulating growth they pay more attention to fiscal adjustments, and if they are exporters they will be reforming at our cost.”

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Greek government debt downgraded

Greek pensioners took to the streets at the weekend in protest at budget cuts

Greek government bonds have been downgraded four notches to “junk” status by Moody’s credit rating agency.

The agency said there was still “considerable uncertainty” surrounding the impact of measures introduced to cut the country’s high budget deficit.

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Japan PM warns of debt ‘collapse’

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New premier Naoto Kan warned that Japan must change or face “collapse”

Japan is at “risk of collapse” under its huge debt mountain, the country’s new prime minister has said.

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Germany looks to rein in budget

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Chancellor Merkel says Germany cannot live beyond its means

German Chancellor Angela Merkel is holding a special, two-day cabinet meeting to come up with a savings plan for the country’s budget.

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Thailand has been knocked ‘back to square one’

Thailand’s reputation has been knocked “back to square one” by the eruption of
deadly political violence on the streets of Bangkok and cannot expect
investor confidence to return soon, the country’s Finance Minister said
yesterday.

Korn Chatikavanij hinted that the Government was considering calling elections
this year and that the previously suggested date of November 14 could not be
ruled out.

Unfortunately, he said, the Government could not yet be sure of delivering a
full and fair election with a result that would be acceptable by all Thais.

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Europe’s stock markets plunge as Germany announces crackdown on ‘naked short-selling’

By
Niall Firth
Last updated at 12:19 PM on 19th May 2010

FTSE falls by 2.5%Euro hits four-year low against the dollarMerkel: If the euro fails, Europe failsOsborne wins concession from Brussels on hedge fundsCameron set to meet Europe’s leaders tomorrowShares have plunged across Europe this morning after Germany announced
a crackdown on speculation in government debt in a bid to shore up the
eurozone.The FTSE fell almost 3 per cent in early trading today after Germany’s financial regulator banned ‘naked short-selling’ of government debt and shares in ten major financial companies. ‘Naked shorting’ involves selling shares that you do not own and have not even borrowed, as in conventional short-selling. It can be used by traders to drive down the price of shares and was banned in the US in 2008 at the height of the financial crisis. Germany’s ban on the practice follows moves by Europe’s finance ministers to impose stricter regulation on speculative trading in the wake of the Greek debt crisis.Shares in many of Europe’s biggest firms fell by more than 10 per cent as investors took fright at Germany’s shock move to regulate the sector.
German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble talk in the Bundestag in Berlin yesterday ahead of their crack-down on naked short-selling
And other European countries have expressed their dismay at Germany’s sudden ban which they say was introduced without their consultation.France’s Economy Minister Christine Lagarde said: ‘It seems to me that one ought to at least seek the advice of the other member states concerned by this measure.’Speaking to parliament after the ban came into force last night, German Chancellor Angela Merkel said EU leaders had to stop the financial markets from ‘extorting’ the state.And as she faced jeering from the opposite benches she insisted that the fate of the European Union hinged on the survival of the euro.’The current crisis facing the euro is the biggest test Europe has faced in decades, even since the Treaty of Rome was signed in 1957,’ she said, referring to the treaty that created the European Union.’This test is existential and it must be overcome … if the euro fails, then Europe fails.’The euro is in danger. If we do not avert this danger, then the consequences are incalculable and the consequences for the whole of Europe are also incalculable.’The German regulator, BaFin, said the ban on naked short-selling - which takes effect from midnight last night and will run until March 31 of next year - will also apply to naked credit default swaps involving eurozone debt. WHAT IS NAKED SHORT-SELLING?Conventional short-selling involves selling assets which have been
borrowed from a third party with the intention of buying them back at a
lower price and pocketing the difference.
But naked short-selling involves a trader selling shares without even borrowing them to begin with.
The practice is banned in the US but it is still believed to
continue unnoticed as it is very hard to spot. Credit default swaps are
a type of insurance against a borrower going bankrupt that have become
a lucrative market for traders.
European leaders have complained that speculators used credit
default swaps on Greek government debt to bet the country would default
on its borrowings - raising pressure to the point where it was forced
to ask for a bailout.

Finance Minister Wolfgang Schaeuble said Germany was acting in anticipation of European regulations expected to be proposed next month.’We said ‘We’ll go first’ because it was precisely that part of the speculation in the recent months with government bonds in the euro zone caused us such concern.’ he said.The ban comes as Greece received its first tranche of eurozone cash
yesterday, a £12.4 billion slug of money that allowed it to ward off
the threat of default.
Germany was the biggest donor, disbursing £3.8 billion of loans, but
nine other EU countries also stumped up cash - including Cyprus, which
offered £27 million of aid. And the tightening of regulation by Berlin comes as Europe’s finance ministers unanimously backed tougher rules on high-risk hedge fund transactions, despite opposition from the UK.But in a concession after days of lobbying by George Osborne, they agreed to consider the UK’s demand for London hedge fund managers to get Europe-wide operating rights in return for more transparency and tighter surveillance of their market dealings.About 80 per cent of hedge fund managers in Europe are based in London, but despite the single European market, they cannot operate across borders on behalf of their offshore clients.
George Osborne smiles next to Spain’s Finance Minister Elena Salgado yesterday
Mr Osborne said:’I arrived (in Brussels) with a challenging position bequeathed to me by the previous government, where there was not much support or recognition of British concerns.’I am very pleased that the minutes (of the meeting) reflect my concerns. We now take the process forward. There is still much to play for’.Mats Persson of think-tank Open Europe said: ‘The current UK Government was landed in a real mess by its predecessor and should be given credit for trying to make the best of a bad situation. ‘The attempts to remove the most protectionist (hedge fund) rules are clearly welcome.’But he said the proposed hedge fund rules remained ‘highly damaging’ to the industry. An Open Europe study last year estimated that the hedge fund and private equity sector contributed £7.8 billion to the EU economy in tax revenues - of which £5.2 billion was raised in the UK.Tighter controls would cost private equity and hedge fund industries between £1.1 billion and £1.6 billion in the first year.’The EU is already a very sensitive issue for Britain’s coalition government, and forcing through this Directive against the will of the UK won’t help one bit.’The last thing the EU needs is the City of London and the British Government feeling like victims of a political point-scoring exercise in Europe. Constructive relationships have to work both ways.’ 

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George Osborne faces first defeat as Chancellor over EU crackdown on hedge funds

By
Rob Davies
Last updated at 12:36 PM on 18th May 2010

George Osborne is braced for his first setback as Chancellor of the Exchequer, as European finance ministers prepare to force through legislation to crackdown on the hedge fund industry.Britain has been lobbying for a compromise on proposals to tighten up regulation of Europe’s so-called ‘alternative investment‘ funds, about 80 per cent of which are based in the UK.Ministers fear the directive will drive lucrative business away from the City at a time when it is desperate to boost tax revenues.
Hedging their bets: Dutch Finance Minister Jan Kees De Jager (left) talks with Chancellor George Osborne at the start of the EU finance ministers meeting in Brussels today
Privately, Treasury officials and industry lobbyists are already conceding defeat in the face of a concerted effort from countries led by France and Germany, both of which are determined to crack down on hedge funds. Their eagerness to target hedge funds has been fuelled by anecdotal evidence of speculators making money on Greece’s sovereign debt crisis, which has depressed the value of the euro.Under the proposals – which will go to a vote among Europe’s finance ministers today – alternative investment firms would be regulated from Brussels. Those from outside the EU would be subject to strict criteria if they want to operate in the 27-nation bloc. The ministers may also decide to place borrowing limits on funds.London-based fund managers fear the plan will make it impossible for funds based outside the EU to raise money within Europe. A UK official said: ‘We think that in return for facing the additional costs of meeting
these regulations, hedge fund managers based in London - and that’s
most of them - should get the right to market their funds across the
EU.

‘The Chancellor will take a principled stand, making the case that the
UK still has reservations, particularly on this issue of cross-border
hedge fund market access.’However, it is expected that the deal will not be done today, and
there are still months of negotiations in the pipeline involving
Euro-MPs.

But the Chancellor accepted that the EU proposals to step up scrutiny of hedge funds - mostly London-based - are unstoppable.
Mr Osborne has blamed his predecessor Alastair Darling for failing to shape the proposed directive in Britain’s favour at an earlier stage
Mr Osborne conceded he faced defeat when he told the Financial Times on Monday: ‘To be frank, I’ve been handed a hospital pass by the previous government and there are not many allies in the council on Tuesday.’The Conservative chancellor blames Alistair Darling, his Labour predecessor, for failing to shape the directive in the UK’s favour at an earlier stage.
One government official said: ‘The Chancellor wants to deploy
our negotiating capital on other occasions - we must pick our battles’.
Criticism of the directive has been particularly loud in Britain, where much of the European hedge fund industry is based, employing an estimated 40,000 people and bringing in more than £5billion in tax revenues each year.Industry bodies representing alternative investors say the proposals would not only force hedge funds out of Europe, but would also prevent pension funds from investing where they please, hitting returns for their pensioners.So far, Britain has only won the backing of Sweden and the Czech Republic in its efforts to water down the directive, which would go through despite of the trio’s objections, under the EU’s majority voting system.The issue is so sensitive that former prime minister Gordon Brown and
his chancellor Alistair Darling got the issue taken off the agenda for
the last meeting of EU finance ministers, before the election.Mr Osborne, in his first week as chancellor, called Spain’s finance
minister last week in a last-ditch bid to win another backer to
Britain’s cause.But in private, Treasury officials concede that the battle is already lost, while Sharon Bowles MEP, who chairs the European Parliament’s Economic and Monetary Affairs committee holds out little hope of a proposal that will satisfy Britain.’We lost this argument a long time ago,’ she said, but added that there was ‘still some possibility of improvement’, as the directive has to go to the European Parliament before becoming law.During his away-day to Brussels, Mr Osborne is expected to hold private
talks with his French and German counterparts on separate measures in
the pipeline for tighter economic surveillance, with peer review of
national budget plans in the eurozone.

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Osborne in EU hedge fund defeat

By Kamal Ahmed and Rachel Cooper


Published: 11:14PM BST 15 May 2010

George Osborne is to admit defeat on new European Union rules to regulate
Britain’s multi-billion pound hedge fund and private equity industry and
allow finance ministers to pass a new directive which could badly damage the
sector.

Sources close to the new Chancellor of the Exchequer said that although the
British Government still disagreed with large parts of the directive, the
process was now too far down the track to be stopped. “We know we have to
pick our battles and this was one we had already lost,” one source said.

Mr Osborne, who took up his post in the Conservative-Liberal Democrat
coalition Government last week, called Elena Salgado, the Spanish finance
minister and present head of Ecofin, on Friday to discuss the UK’s position.

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UK faces £43 billion bill to bail out the euro

By
Daily Mail Reporter
Last updated at 8:37 AM on 10th May 2010

European finance ministers have agreed on a £650billion emergency
bail out package to prevent Greece’s debt crisis spreading to other
countries.The three-year deal involves £388billion in loans or guarantees from the 16 eurozone countries, £52billion from the European Commission and £216billion from the International Monetary fund.The European Commission’s injection was supported by a powerless Chancellor Alistair Darling, in a deal that could be Labour’s final legacy to the British people.
Bailout: European Monetary Affairs Commissioner Olli Rehn and Spanish finance minister Elena Salgado announce the £430billion package to save the struggling euro

Details of the deal were initially thrashed out at a meeting of EU leaders on Saturday in which Britain played no part. The
£52billion ‘balance of payments’ loans - designed to support member
states experiencing ‘difficulties caused by exceptional circumstances
beyond their control’, would leave the UK saddled with a £5.2billion
bill if they default.

That
fund already offers tens of billions of euros to non-eurozone countries
but will now be widened so all 27 EU countries can grab the funds  - 
making the total British liability £9.5billion.Ministers
from the eurozone countries have already approved a £95billion
bail-out for Greece. But economists estimate that if Portugal, Ireland
and Spain eventually require similar three-year bail-outs, the total
cost would add up to £430billion.
Britain pays 10 per cent
of the Commission’s bill and if the loan fund had to take the strain,
Britain’s share of the liability would be £43billion.
Alistair Darling talks with the Finance Ministers from Greece, George Papaconstantinou (left) and Ireland’s Brian Lenihan (centre), at the EU Council in Brussels on Sunday
Mr Darling insisted today that he had ‘minimised’, which he estimated would be about £8billion in the event of a ‘100 per cent default’ by an EU country.’It is a good deal for Europe and we have minimised our exposure and that is a very, very important feature of what I managed to agree last night,’ he told BBC Breakfast.Mr Darling said while Britain wanted to see stability restored, it was up to the euro-group countries to support the euro.’It is clearly in our interest that everything is done in Europe to try to stabilise the situation,’ he said.’But I am very, very clear that if there is a proposal to create a stability fund for the euro, that has got to be a matter for the euro-group countries.’What we will not do and what we can’t do is to provide support for the euro. That has got to be for those countries that use the euro, that are members of the euro group.’Mr Darling said he had spoken to Shadow Chancellor George Osborne and his Liberal Democrat counterpart Vince Cable during the negotiations.He refused to disclose details of his discussions with Mr Osborne and Mr Cable but the bailout could become a major stumbling block in reaching any deal between the euro-sceptic Tories and the pro-European Lib Dems.Although Mr Darling was powerless to stop the rescue package as the decision was taken by majority voting, Tory sources said that Mr Osborne is highly sceptical about the plan that he would inherit if he became Chancellor.A Conservative source said there was no guarantee that a Tory government would back the deal and they would demand to see the details. The markets soared in the wake of the news this morning. The FTSE 100 was 144 points higher at 5,267.44 at 8.15am.The euro, which has fallen almost 10 per cent against the dollar this year, jumped two cents in early trading in the Far East to $1.2915.Asian stock markets also rose, with the Japan’s Nikkei 225 up 1.3 per cent and Hong Kong’s Hang Seng index climbing 0.8 per cent.
A Brussels ’stitch up’: EU finance chiefs led by France and Germany have cobbled together a plan that will leave Britain facing a bill of up to £43billion to bail out the European currencyThe EU’s monetary affairs commissioner, Olli Rehn, said the agreement ‘proves
that we shall defend the euro whatever it takes.’

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