Rail Fares Hit by Biggest Annual Increase in Five Years

David Baldock/Flickr

(qlmbusinessnews.com via theguardian.com – – Tue, 15 Aug, 2017) London, Uk – –

Rail fares for commuters in England and Wales will increase by 3.6% from next year, adding pressure to incomes already squeezed by higher prices.

The rise, the biggest annual increase in five years, is set by the government and linked to July’s retail price index (RPI) measure of inflation announced by the Office for National Statistics on Tuesday. The higher fares will take effect from January.

Economists had expected RPI to increase to 3.5% in July, while rail fares rose by 2.3% at the start of 2017 based on last year’s figures.

The change applies to about 40% of rail fares, including season tickets on many commuter journeys, some off-peak return tickets on long-distance journeys and anytime tickets around major cities. So-called regulated fares are set by the government but normally provide the benchmark for rises across the network.

Unions and campaigners have been holding protests against the rises at railway stations around the country.

The RMT general secretary, Mick Cash, said government policies of holding down wages while allowing fares to rise was a “toxic combination”. He said: “The private operators and government say the rises are necessary to fund investment but the reality is that they are pocketing the profits while passengers are paying more for less with rail engineering work being delayed or cancelled, skilled railway jobs being lost and staff cut on trains, stations and at ticket offices.”

The Aslef general secretary, Mick Whelan, called for the system to be reformed, saying: “The government must intervene to make fares simpler, fairer and cheaper in Brexit Britain. Passengers and taxpayers will rightly be asking what they are paying for.”

He said fares should at the least be linked to the consumer price index (CPI), which rose by 2.6% in July, rather than RPI.

Stephen Joseph, the chief executive of Campaign for Better Transport, called for a fares freeze: “[The government’s] frozen fuel duty for the last seven years and we think rail fares should be given the same treatment.”

Joseph also said it was unacceptable that the government continued to use the higher RPI rate to calculate rail fare rises. “Passengers would be forgiven for thinking they are being taken for a ride when RPI has been dropped as an official measure for most other things.”

The rail industry defended the steep increase. Paul Plummer, the chief executive of the Rail Delivery Group, representing train companies and Network Rail, said: “Money from fares pays to run and improve the railway, making journeys better, boosting the economy, creating skilled jobs and supporting communities across Britain. It’s also the case that many major rail industry costs rise directly in line with RPI.”

Inflation had been expected to rise again after an unexpected fall in June, helped by falling fuel prices, which offset the rising costs of food, clothing and household goods.

Although CPI did not resume its upward trajectory last month, it is still running above the government’s 2% inflation target and outstripping the pace of wage rises. That has led to a rising cost of living, heaping pressure on households. Consumers are using credit cards to fund spending and the Bank of England has expressed alarm about the increase in personal debt.

Chris Williamson, the chief business economist at data company IHS Markit, said there were still risks “skewed towards inflation rising in coming months”, while wage growth is expected to remain below 2%.

ames Tucker, the head of CPI inflation at the Office for National Statistics, said RPI was not seen as a good measure by the statistics authority. However, the Treasury said the use of RPI was “consistent with the general approach adopted across the rail industry”, while the measure is used to account for inflation in the cost of running train services.

“Although inflation is likely to start falling next year, we understand some families are concerned today about the cost of living,” a Treasury spokesperson added.

Labour said the latest rise meant the average commuter will be paying £2,888 for their season ticket in January, £694 more than they paid in 2010. Some are paying over £2,500 more to travel to work than in 2010, it added.

A Virgin Trains season ticket between Birmingham and London Euston will now cost £10,567, while season tickets on some routes have risen by more than 40% since 2010. Andy McDonald, the shadow transport secretary, said the rises were “truly staggering”, adding: “The truth is that our fragmented, privatised railway drives up costs and leaves passengers paying more for less. The railways need serious reform.”

In Scotland, the blow for some rail travellers will be eased slightly as the Scottish government plans to limit regulated off-peak fares to an increase of 1% below RPI, or 2.6%, although season tickets will rise at the RPI rate.

By Richard Partington and Gwyn Topham

Standard Life and Aberdeen Asset 11bn Merger

(qlmbusinessnews.com via bbc.co.uk – – Tue, 15 Aug, 2017) London, Uk – –

The £11bn merger between Standard Life and Aberdeen Asset Management has completed, creating Europe’s second-biggest fund manager.

A Stock Exchange announcement confirmed the deal’s conclusion, following court approval for the merger last week.

The enlarged company, which will trade as Standard Life Aberdeen, will hold £670bn under management.

Co-chief executive Keith Skeoch described the move as the “beginning of a new chapter” in the firms’ history.

Mr Skeoch said: “Our leadership team is in place and we have full business readiness from day one.”

The merger, which was agreed in March, is targeting cost savings of £200m a year, with about 800 jobs expected to be lost over three years from a global workforce of 9,000.

The new company will be jointly led by Mr Skeoch and Aberdeen boss Martin Gilbert.

Mr Gilbert said: “As ever our priority remains the delivery of strong investment performance and the highest level of client service.

“The merger deepens and broadens our investment capabilities and gives us a stronger and more diverse range of investment management skills as well as significant scale across asset classes and geographies.”

Overall, Standard Life Aberdeen will have offices in 50 cities around the world, servicing clients in 80 countries.

Rolls-Royce interim results delivered a forecast-beating performance

Warren East Rolls-Royce chief executive

(qlmbusinessnews.com via telegraph.co.uk – – Tue, 1 August 2017) London, Uk – –

Rolls-Royce chief executive Warren East has delivered a forecast-beating performance with the company’s interim results as he continues to deliver a turnaround of the blue-chip engineering group.

Half-year results for the six months to the end of June showed reported revenue of £7.57bn, up from £6.46bn a year ago. Pre-tax profit soared to £1.94bn, reversing last year’s loss of £2.15bn.

However, the company conceded that the improvement in profit was heavily influenced by currency movements. Rolls has a huge “hedge book” of foreign exchange deals aimed at protecting it from currency fluctuations and the strengthening of the pound since the start of the year meant these assets got a £1.4bn boost, compared with a £2.2bn charge last time round. Rolls noted that this was the “principal reason” for the strong results at a headline level.

On an underlying basis, Rolls’s preferred measure and which strips out currency movements, revenue was £6.87bn, up 6pc. Pre-tax profit was £287m, a gain of 148pc. The weaker pound has inflated Rolls’s figures, as the bulk of the aviation industry’s deals are done in US dollars.

The news was welcomed by traders, with shares in the company up more than 6pc in early dealing, rising 54p to 947.5p.

City forecasts were much more downbeat. Analysts had been expecting the FTSE 100 business would report underlying revenue of £6.58bn and underlying pre-tax profit of £193m.

Free cash flow – the measure of how much money the company generates after expenses and a key figure for Mr East – was negative £339m, meaning the company is spending more than it is making. However, this was still an improvement on the figure a year ago, which was negative £414m.

Mr East has repeatedly said that he wants Rolls to be generating £1bn of positive free cash flow by 2020.

Rolls has tried to rein back expectations, describing the £1bn figure as an “ambition ” rather than a clear target.

“Rolls-Royce delivered encouraging year-on-year operational progress in the first six months,” said Mr East, who was appointed two years ago to turn around the business after it issued a series of profit warnings that saw its share price halve.

The chief executive said Rolls’s plans to increase the number of jet engines it makes for airliners and at a lower cost were working, with deliveries up 27pc and “good further progress” improving the economics of making the engines.

Mr East added that cost savings from his “simplification” restructuring “were ahead of plan” and a better than expected boost from accounting measures meant the company had delivered “a good set of results, with financial performance ahead of our expectations for the first half”.

However, Mr East cautioned analysts and investors not to get ahead of themselves, holding guidance at previous levels and warning that “execution and delivery of a number of important milestones across our businesses will be key to achieving our full-year expectations”.

Analysts have said that as Mr East has deliberately been downbeat about the company’s performance to mange expectations.

“Warren is being smart by under-promising and over delivering,” said one.

The order book at the end of the six months stood at £82.7bn, up from £79.5bn at the same point a year ago.

The dividend was held at 4.6p.

By Alan Tovey

Trade Secretary Liam Fox to start talks on post-Brexit trade deal with the US

Chatham House/Flickr

(qlmbusinessnews.com via bbc.co.uk – – Mon, 24 July 2017) London, Uk – –

The UK is to hold its first talks with the US to try to sketch out the details of a potential post-Brexit trade deal.

International Trade Secretary Liam Fox will spend two days in Washington with US counterpart Robert Lighthizer.
EU rules mean the UK cannot sign a trade deal until it has left the bloc.

EU rules mean the UK cannot sign a trade deal until it has left the bloc.
Mr Fox said it was too early to say exactly what would be covered in a potential deal. Firms and trade unions have both warned of the risks of trying to secure an agreement too quickly.

The Department for International Trade said discussions were expected to focus on “providing certainty, continuity and increasing confidence for UK and US businesses as the UK leaves the EU”.

Mr Fox added: “The [UK-US trade and investment] working group is the means to ensure we get to know each other’s issues and identify areas where we can work together to strengthen trade and investment ties.”
‘Small practical things’

The British Chambers of Commerce (BCC) director general Adam Marshall said the US’s experience at such negotiations would make it difficult for the UK to secure a good deal.

“We’re just getting back into the game of doing this sort of thing after 40 years of doing it via the EU,” he told the BBC’s Today programme.

“So I think early on in the process, it would be concerning if the UK were to go up against the US on a complex and difficult negotiation.”

Mr Marshall said while the BCC’s business group’s members would welcome the US and the UK talking about how to increase trade between them, the focus should be on improving “small practical things” such as custom procedures rather than a comprehensive trade deal.

Trade unions the TUC and Unite have also expressed disquiet over a rushed US trade deal.

“Ministers should be focused on getting the best possible deal with the EU, rather than leaping into bed with

Donald Trump,” TUC boss Frances O’Grady told the Guardian.
US President Donald Trump and UK PM Theresa May at the G20

But independent economist Michael Hughes told the BBC’s World Business Report that talking to the US at this stage was important.

“To have some preliminary ideas and get some basic principles out is a sensible thing to do,” he said.
He said currently talks were expected to focus on financial services and farming.

“In both cases it is likely that the UK would have to water down some of the standards it currently has, either in terms of genetically modified food or in terms of regulation of financial services firms operating in the UK, in order to get a deal, so it’s a delicate one,” he added.

Earlier this month, US President Donald Trump said he expected a “powerful” trade deal with the UK to be completed “very quickly”.

At the time, a UK government official said Mr Trump and UK Prime Minister Theresa May had agreed to prioritise work on a post-Brexit trade deal.

Trade between the two countries is already worth over $200bn (£150bn) a year
In 2015, US exports of goods and services to the UK were $123.5bn, up by 4% from 2014, according to the Bureau of Economic Analysis

The US is the single biggest source of inward investment into the UK
Together the UK and US have around $1 trillion invested in each other’s economies
The trading relationship between the UK and the US supports over a millions jobs in both countries

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McDonald’s announced a record annual turnover of $27bn

Mike Mozart/Flickr

(qlmbusinessnews.com via telegraph.co.uk – – Sat, 8 July 2017) London, Uk – –

McDonald’s, the fast food chain, announced a record annual turnover of $27bn as it continued to win market share around the world and vowed to open 1,300 new outlets this year.

The company, which has enjoyed a stellar few years following the economic crisis, said that its turnover had increased by 12pc to $27bn, with net income increasing 11pc to $5.5bn.

This is the ninth consecutive year that sales have increased after it suffered from a crisis of confidence at the end of the 1990s.

In the US like-for-like sales increased by 7.1pc in the final quarter and 6pc for the year, its highest level of growth since 2006.

Its European restaurants continued to perform well as it won over consumers on a budget – both families trading down from pizza restaurants and commuters buying cheap coffee on the way into work. European sales jumped 10pc on a like-for-like basis, the company said.

Jim Skinner, the chief executive, said: “As we begin 2012, we are intensifying our efforts toward the global priorities that represent our greatest opportunities under the Plan to Win – optimising and evolving our menu, modernising the customer experience and broadening accessibility to our Brand.”

He said that the company would invest about $2.9bn of capital – roughly half dedicated to opening more than 1,300 new McDonald’s restaurants. It has about 33,000 restaurants already, just a small number fewer than Subway, the sandwich chain.

The financial results came as the company announced it would create 2,500 jobs this year in the UK, with about 30pc of them going to first-time workers.

Jill McDonald, chief executive officer of McDonald’s UK, said: “Despite these difficult economic conditions, our continued emphasis on good quality food at affordable prices, and improving the experience for our customers and our people, has meant that we are able to continue to invest in the business and create jobs.”

By Harry Wallop

Policy makers warn UK to prepare for first rate increase in a decade

James Stringer/Flickr

(qlmbusinessnews.com via bloomberg.com — Wed, 5 July 2017) London, Uk —

Ten years since the Bank of England last raised interest rates, policy makers are warning Britons to prepare for the next one.

“Our foot is pretty much on the floor with the accelerator,” Michael Saunders, a member of the rate-setting Monetary Policy Committee, told The Guardian in an interview published late on Tuesday. “Households should prepare for interest rates to go higher at some point.”

The comments came on the same day that the central bank told lenders to prove they’re not underestimating the risks of rapidly growing consumer credit given the current “benign economic environment.” With BOE interest rates at a record low, shoppers have borrowed and run down the rate at which they save to fuel spending and prop up the economy since the Brexit vote, with many first-time borrowers never having experienced an increase in official borrowing costs.

Governor Mark Carney said last week that “some removal of monetary stimulus is likely to become necessary,” tweaking his previous remark that it’s not yet time to start making that adjustment.

“I don’t think the economy needs as much stimulus” as it currently has, said Saunders, who voted for tighter policy in June. “But if rates do go up, it will be in the context of the economy doing OK and unemployment being low and probably falling.”

August Meeting

Members of the MPC are weighing up the risks of faster inflation against the need to support growth ahead of their next announcement on Aug. 3. They have publicly split in recent weeks, with three of eight officials in June dissenting for tighter policy and a fourth subsequently suggesting he might follow suit.

One risk of raising rates too soon is that highly indebted households curtail their spending, putting the brakes on an expansion not getting enough of a boost from exports. However, officials have also warned about the potential threats posed by leaving policy too loose for too long, which include losing control of inflation expectations and fueling consumer credit.

“To me this is the time when you don’t take the punch bowl away fully but you just start to edge it away,” Saunders said. “The risk that you run with maximum stimulus is that the jobless rate keeps falling then at some point if pay growth picks up you have to reverse course very sharply. It would then be much harder for tightening to be limited and gradual.”

The BOE, which kept its benchmark interest rate at 0.25 percent in June, last increased borrowing costs 10 years ago on Wednesday — to 5.75 percent. Policy makers subsequently cut rates in response to the financial crisis, recession and the threat of deflation.

Fragile Recovery

A report showing services growth slowed in June indicated that the U.K. recovery may still be uneven as the government starts talks to leave the European Union. IHS Markit said that while GDP growth probably improved to 0.4 percent in the second quarter, it is likely to cool again in the three months through September.

The BOE isn’t alone in contemplating lifting policy from emergency levels. The U.S. Federal Reserve starting increasing rates in December 2015. Investors see Canada raising rates next week for the first time since 2010, and European Central Bank officials have started talking about how to signal winding down stimulus.

In the U.K., Saunders and Ian McCafferty have called for tighter policy, while Chief Economist Andy Haldane has said he’s considering it. On the other side of the debate, BOE official Jon Cunliffe said last week that officials have time to see how domestic inflation pressures evolve before they need to act, while his colleague Ben Broadbent has not made his stance public since voting to keep policy unchanged at last month’s meeting.

The balance for the August decision is difficult to predict, not least because the rate-setting panel may have two new voters without a track record. Kristin Forbes, the leading advocate of higher rates, is being replaced by economics professor Silvana Tenreyro. A successor for former deputy governor Charlotte Hogg is also due to be appointed to the nine-member MPC.

By Scott Hamilton

Lloyds Bank to stop trading Qatari Riyals

Elliott Brown/Flickr.com

(qlmbusinessnews.com via uk.reuters.com — Fri, 30 June 2017) London, UK —

Britain’s Lloyds Banking Group (LLOY.L) said on Friday that it has stopped trading Qatari Riyals and that the currency is no longer available for sale or buy-back at its high-street banks.

A spokeswoman for the bank said a “third-party supplier” that fulfils its foreign exchange service had ceased trading in the currency from June 21.

“This currency is no longer available for sale or buy-back across our high street banks including Lloyds Bank, Bank of Scotland and Halifax,” the spokeswoman said.

By Andrew MacAskill

Bank of England to make lenders hold £11 Billion amid tightening credit rules

 

James Stringer/Flickr

(qlmbusinessnews.com via uk.reuters.com — Tue, 27 June 2017) London, UK —

The Bank of England tightened its controls on lending on Tuesday and said it was likely to make British banks hold an extra 11.4 billion pounds of capital as it decided the risk of a big hit to the economy from the Brexit vote had passed.

After the referendum decision to leave the European Union a year ago, the BoE cut to zero a requirement that banks create a capital buffer as it sought to offset an expected drying up of lending.

But Britain’s economy has performed more strongly than expected since the vote, despite some more recent signs of a slowdown. Some of the central banks’ interest rate setters think it is already time to raise its main interest rate.

On Tuesday the BoE’s separate Financial Policy Committee declared that overall risks to Britain’s economy from its financial system were at a “standard” level.

The FPC raised its counter-cyclical capital buffer (CCyB) – which rises and falls along with the ups and downs of the economy – to 0.5 percent from zero with a one-year implementation phase. It said that it expected to raise it further to 1.0 percent in November.

One percent is the level that reflects an economy that is running normally.

Bank shares fell after the BoE announcement but recovered soon after to their levels earlier on Tuesday.

The BoE also said it was concerned that lenders were placing undue weight on recent low losses which could only be achieved in the current benign conditions.

“As is often the case in a standard environment, there are pockets of risks that warrant vigilance,” the BoE said.

The BoE said it was continuing to oversee banks’ preparations for Brexit, including for the possibility of Britain leaving the EU in 2019 without securing any trade deal, cutting off banks from their European customers which could undermine financial stability.

“Such scenarios are where contingency planning and preparation will be most valuable,” the BoE said.

Each 0.5 percent increase adds 5.7 billion pounds to British banks’ capital requirements, though many banks already hold capital in excess of the minimum so may not need to raise fresh funds.

TIGHTER NEW RULES FOR LENDING

The BoE also said British regulators would publish tighter rules on consumer lending next month, and that it would bring forward planned checks on whether banks could cope with consumer loans losses to September from November.

Existing restrictions on high loan-to-income mortgage lending were likely to stay for the long term, the BoE said, and it also tweaked the rate against which lenders must test borrowers’ ability to repay their mortgages.

The BoE said some global risks it had previously identified had not crystallised. But it warned of dangers from China, where private-sector borrowing is now more than two and a half times annual economic output.

“High debt makes China vulnerable to shocks. This could affect the global economy and UK banks.”

It also warned that British corporate bonds and commercial real estate may be overvalued. Both had their valuations boosted by low interest rates, but did not appear to take into account that these low interest rates reflected a weak economic outlook.

“Current London West End office prices are well above the range of estimated sustainable valuation levels,” it said.

The FPC raised the minimum leverage ratio for British banks to 3.25 percent from 3.0 percent, to reflect last year’s exclusion of central bank reserves from the calculation of capital. This exclusion was designed to ensure that monetary policy measures like quantitative easing did not crimp lending.

By David Milliken and Huw Jones

Ireland AIB Sale raises 3 billion euros

(qlmbusinessnews.com via uk.finance.yahoo.com — Fri, 23 May 2017) London, Uk —

DUBLIN (Reuters) – Ireland raised 3 billion euros (2.7 billion pounds) by selling a quarter of Allied Irish Banks (AIB) on Friday in a remarkable turnaround for a company at the forefront of reckless lending during the “Celtic Tiger” boom.

The sale took the overall return for the state from AIB to nearly half the 21 billion euros spent to bail the bank out after a massive property crash in 2009, the biggest bill for any Irish lender still trading.

The state ended up with 99.9 percent of AIB and has been nursing it back to health, with the aim of eventually recouping all the taxpayer money it ploughed into the lender, one of three it managed to save in the euro zone’s most costly state rescue.

The initial public offering (IPO) of 25 percent of AIB’s shares at 4.40 euros each was the third largest European bank listing since the financial crisis and the biggest IPO of any kind in London by market capitalisation in almost six years.

“The successful completion today of AIB’s IPO represents a significant milestone,” Finance Minister Paschal Donohoe said of the long-awaited share sale his predecessor Michael Noonan launched in May.

“This successful IPO has created a strong platform for the state to recover all the money it has invested in AIB and to further dispose of our banking investments for the benefit of the Irish people,” Donohoe said.

In the biggest test yet of investor appetite for the Irish banking sector since the crisis, the AIB shares on offer were four times oversubscribed and sold at the midpoint of an initial 3.90 euro to 4.90 euro range set last week.

The sale price valued the bank at 11.9 billion euros, meaning investors only received a 3 percent discount to the bank’s book value of 12.3 billion euros at the end of 2016 – or 0.97 times tangible book value.

That put AIB shares at a premium to its main Irish rival Bank of Ireland, which trades at 0.87 times book value, and towards the level of European rivals such as Lloyds and ABN Amro.

“LANDMARK DAY”

Shares in the bank climbed 7 percent to 4.71 euros in unofficial trading ahead of next Tuesday’s formal debut on the Dublin and London stock exchanges.

“Although the valuation only leaves around 7 percent upside versus our target price, we believe the potential for special dividends, excess capital and strong top down dynamics in Ireland are likely to be supportive of the stock price,” Keefe, Bruyette & Woods analyst Daragh Quinn wrote in a note.

Like Ireland’s economy, which is growing faster than any other in Europe, AIB has staged a strong recovery, posting a profit for each of the last three years and becoming the first domestically owned lender to restart dividends since the crash.

The return for the state from the IPO, together with the amount AIB has repaid in capital, fees, dividends and coupons since its bailout, now comes to almost 10 billion euros.

“This is a landmark day for the bank,” AIB chief executive Bernard Byrne said in a statement. “The level of investor interest and support is a great vote of confidence in the strength of the turnaround in the bank and the wider economy.”

Ireland pumped 64 billion euros into its banks and expects to turn a profit on the half given to the three that survived. Noonan said last month it would probably take eight to 10 years to return AIB fully to private ownership.

The government will use Friday’s proceeds to cut some 1.5 percent from a national debt that at 200 billion euros is still among the highest in the euro zone by most measures.

As the deal also includes a greenshoe, or over-allotment option, the size of the IPO could rise to 28.75 percent if demand proves higher than expected following AIB’s debut – and add another 400 million euros to state coffers.

By Padraic Halpin

(Additional reporting by Dasha Afanasieva in London)

 

Rising inflation puts a squeeze on UK households spending power

Ken Teegardin/Flickr

(qlmbusinessnews.com via uk.reuters.com — Mon, 19 June, 2017) London, UK —

Households in Britain have become more worried about the outlook for their finances in the 12 months ahead as rising inflation puts a squeeze on their spending power, a survey showed on Monday.

IHS Markit said its index measuring how households feel about their personal finances fell to 45.8 in June from 47.1 in May, the most pessimistic in three months and one of the lowest readings since the end of 2013.

The firm’s overall Household Finance Index, measuring how people feel about their current situation, rose to 43.8 from 42.6 but remained below the 50.0 no-change level.

Britain’s main measure of inflation hit 2.9 percent in May, its highest level in nearly four years after last year’s Brexit vote hammered the value of the pound, and growth in wages is lagging behind, official data showed last week.

That is eating into the spending power of consumers who typically drive British economic growth.

“June’s survey reveals that UK household finances remain under intense pressure from rising living costs,” said Tim Moore, senior economist at IHS Markit.

“While the squeeze moderated slightly since last month, worries about the outlook have deepened.”

The survey also showed 58 percent of respondents expected higher interest rates in 12 months time, more than double the figure seen after the Bank of England cut interest rates last August following the Brexit vote.

The Bank kept rates at their record low of 0.25 percent last week but three members of its eight-strong Monetary Policy Committee voted for a rate hike, surprising investors and raising speculation that an increase in borrowing costs might come sooner than previously expected.

By William Schomberg

Tesco reports strongest quarterly sales performance in seven years

(qlmbusinessnews.com via uk.reuters.com — Fri, 16 June 2017) London, UK —

Tesco (TSCO.L), Britain’s biggest retailer, has cemented its recovery, reporting its strongest quarterly sales performance in its home market in seven years despite rising prices.

Chief Executive Dave Lewis has been leading a fightback after Tesco’s profits were hammered by changing shopping habits, the rise of German discounters Aldi and Lidl and an accounting scandal in 2014.

He stabilized the business and then got it growing again with a focus on lower prices, new and streamlined product ranges, better customer service and much improved supplier relationships. Tesco remains Britain’s largest supermarket by a wide margin.

The group, which in January agreed to buy wholesaler Booker (BOK.L) for 3.7 billion pounds ($4.7 billion), said on Friday that UK like-for-like sales rose 2.3 percent in the 13 weeks to May 27, a sixth straight quarter of growth.

The outcome was ahead of analysts’ forecasts, in a range of up 1.7-2.0 percent, and built on growth of 0.7 percent in the previous quarter.

“The key focus for this quarter has been working with our supplier partners to protect our customers from inflation. Today’s numbers show the benefit of our approach,” Lewis told reporters.

The performance was driven by 1.3 percent growth in customer transactions, 10 million more year-on-year, and by volume growth in fresh food of 1.6 percent.

Tesco shares rose as much as 4.4 percent, but gave up those gains on wider concerns about a deteriorating consumer environment in Britain and lower international sales.

The stock is up 17 percent year-on-year but down 13 percent so far in 2017.

Britons have been hurt by a rise in inflation, caused in large part by the fall in the value of the pound since last year’s vote to leave the European Union, and by a slowdown in wages growth.

FLEXING ITS MUSCLES

Tesco, which has a share of around 28 percent of the UK grocery market, says it is not passing on as many cost increases to shoppers as its competitors.

By purchasing a tighter range of goods and working more closely with its suppliers, Tesco is able to exploit its huge purchasing scale.

Lewis said Tesco’s grocery inflation in the quarter was 1.5 percentage points below the most recent measure by industry researcher Kantar Worldpanel of 2.9 percent.

“At the moment inflation in Tesco is significantly below the market trend,” he said.

Bernstein analyst Bruno Monteyne said Tesco’s inflation number “reflects working together with suppliers, not margin compression.”

Tesco’s finance chief Alan Stewart said the group’s margin and cost savings targets were unchanged after the update on the first quarter of its financial year.

Analysts regard Sainsbury’s (SBRY.L), Britain’s second largest supermarket group, as the most exposed to a weaker economy after buying general merchandise retailer Argos.

Other analysts say the discounters remain a major threat to Tesco and its traditional rivals, highlighting renewed momentum at Aldi and Lidl, with recent industry data recording their fastest sales growth since 2015.

The trading update, released ahead of Tesco’s annual shareholders’ meeting later on Friday, showed group like-for-like sales rose 1 percent.

However, Tesco’s international like-for-like sales fell 3.0 percent, reflecting a decision to discontinue unprofitable bulk selling activity in Thailand.

Tesco also said it had resolved a tax issue relating to the sale of its South Korean business in 2015, releasing a 329 million pounds provision.

By James Davey

Bank of England vote leaves interest rates on hold in 5-3 Split

 

Bank Of England
James Stringer/Flickr

(qlmbusinessnews.com via theguardian.com – – Thur, 15 June, 2017) London, Uk – –

The Bank of England has edged closer to raising interest rates as a deeper split emerged among its committee of policymakers, with three out of eight voting for an immediate rise to keep inflation in check.

The 5-3 split to keep interest rates at their record low of 0.25% surprised financial markets and the pound rose against the dollar on the news. Most City economists had expected just one member, Kristin Forbes, would maintain her previous vote for rates to be raised to 0.5%. Instead she was joined by Ian McCafferty and Michael Saunders.

Their call for higher borrowing costs follows figures that show inflation has risen further above the Bank’s target of 2.0%. In May inflation hit 2.9%, as measured by the consumer prices index. The increase was driven in part by the pound’s weakness since the Brexit vote, which has made imports to the UK more expensive.

The other five members of the monetary policy committee (MPC), including the Bank’s governor, Mark Carney, decided interest rates should stay at their historically low level to help support growth at a time of rising prices and meagre wage growth. The drop in living standards has hit consumer spending and knocked overall economic growth. Figures on Wednesday showed workers were experiencing the biggest pay squeeze since 2014.

Minutes from the Bank’s rate-setting meeting released on Thursday cited a range of views on the MPC. They noted inflation was now expected to overshoot the Bank’s target by more than previously expected. Supporting those voting for a rate rise, there were also signs that growth in business investment and net trade was on track to make up for weaker consumption.

The minutes added that some policymakers felt it was time to start scaling back the massive package of support launched after last summer’s EU referendum, which included a rate cut and more electronic money printing.

“The withdrawal of part of the stimulus that the committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive,” the minutes said.

“But there were also arguments in favour of leaving the policy rate unchanged. A slowdown in household consumption, and GDP as a whole, had recently begun, and it was too early to judge with confidence how large and persistent it would prove to be … Wage growth had remained subdued, despite low unemployment.

“Different members of the committee placed different weights on these arguments. On balance. For five members, the current policy stance was still appropriate to balance the demands of the committee’s remit. For three members, the outlook now justified an immediate increase in bank rate.”

All committee members agreed that any rate rises would be expected to be at a gradual pace and “to a limited extent”.

One seat on the committee was empty – the result of Charlotte Hogg’s resignation as deputy governor after it emerged she had breached the Bank’s code of conduct. Forbes leaves the MPC later this month and investors are awaiting an announcement on her replacement.

Policymakers, led by Carney, will provide a fuller update on their thinking when they release quarterly economic forecasts and vote again on interest rates in August. Before Thursday’s split vote most economists had said they expected the MPC to continue looking past above-target inflation and instead to favour supporting jobs and growth by keeping interest rates at their record low as Britain embarks on Brexit talks.

James Knightley, a senior economist at the bank ING, said he still expected a majority of policymakers to tolerate higher inflation in favour of shoring up the economy, as had been the case when inflation went well above target in the past.

“Given the BoE ‘looked through’ inflation at 5%+ rates in 2008 and 2011, we think the committee as a whole will look through this spike too,” he said.

“The economic and political uncertainty, we believe, is too great to get a consensus behind higher rates and with Kristin Forbes leaving the BoE this month, the hurdle to getting that consensus will soon be harder to achieve.”

But Ben Brettell, senior economist at financial firm Hargreaves Lansdown said the MPC minutes showed policymakers were more optimistic than many economists about the UK’s prospects.

“It seems the willingness of the MPC to ‘look through’ higher inflation and leave rates on hold is wearing thin, and if inflation continues to surprise we could see higher rates by the end of the summer,” he said.

By Katie Allen

Pound plunges amid fears Brexit negotiations could be delayed

 

James Hume/Flickr.com

(qlmbusinessnews.com via theguardian.com – – Fri, 9 June, 2017) London, Uk – –

The shock election result sent the pound plunging amid fears that Brexit negotiations could be delayed if voters returned a hung parliament to Westminster.

The pound immediately dropped in reaction to the shock 10pm exit poll, falling as much as 2% to $1.27 in the currency markets, its lowest level in six weeks. It was projected the Conservatives would become the largest party but fall short of the 326 seats required for a majority.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, described the exit poll as a “thunderbolt”, reflecting shock across the City, where dealers had begun the evening expecting a clear majority for the Conservatives.

The pound remained under pressure but analysts at financial firm IG said the futures markets were predicting the FTSE 100 index would open just 13 points lower, cushioned in part by the fall in sterling, which benefits the international companies in the index.

The stock market had fallen 0.38% to 7449 on Thursday, before the exit poll was published. While investors were surprised when May called the election on 18 April, with the FTSE 100 suffering its biggest fall since the vote for Brexit, the Tories were expected to win convincingly.

But the exit poll showed that would not be case. During the night the currency regained some of the lost ground as the first results came in and traders stationed at their desks across the City calculated that the exit poll was overstating the Conservatives’ losses.

But as the night wore on, the exit poll proved to be more correct than originally thought. Jeremy Cook, the chief economist at World First, said sterling was moving as each seat was called and at 1.30am, it reached a new low for the session of $1.2696, as sentiment shifted back towards the exit poll presenting a true picture. Cook saidsterling could fall to $1.24. This figure would, however, not be as low as the levels it plunged to after the Brexit vote almost a year ago.

“Currencies like governments with mandates – and don’t like delays to Brexit,” Cook said.

Lee Hardman, a currency analyst at MUFG, also warned the pound was vulnerable. “The market will be praying that this exit poll has got it wrong. Currency volatility is the best proxy for market fears; if the Conservative ship is sinking, then the market will be looking for a lifeboat,” he said.

Late on Thursday night, Kallum Pickering, an economist at Berenberg, agreed: “If the exit polls are right, tomorrow will be interesting, to put it mildly.”

The City was focused on the fear that fresh political uncertainty could delay Brexit negotiations. Kit Juckes, an economist at Société Générale, said: “There will be other polls, and results will come out through the night, but this is going to leave Theresa May struggling to keep control of the Brexit process.”

Dean Turner, an economist at UBS Wealth Management, said: “It is early days, and the result can change, but it looks as though Theresa May’s grip over the Conservative party has weakened, which does not bode well for the forthcoming Brexit negotiations.”

There was uncertainty about whether the election result could lead to a softer Brexit. Pickering said: “Markets might perceive the near-term uncertainty to be worse than it was after the Brexit vote. However, if a hung parliament forces a cross-party compromise, it could lead to a softer Brexit strategy, and may turn out to be positive in the long run after some serious initial confusion.”

While London dealers waited for the stock market to open, Chris Beauchamp, the chief market analyst at IG, said: “The shock of the result is not really translated into the market.” The loss of seats by the Scottish National party reducing pressure for Scottish independence was one potential reason, as was the prospect of a softer Brexit.

The Confederation of British Industry was quick to say any new government should start to refocus on the economy, which, according to official statistics, was the worst performer in the EU in the opening months of 2017 as the Brexit vote started to take its toll.

“As a nation, we have the creativity, skills and global outlook to make the UK a true world leader in the industries of the future, bringing jobs and growth to all parts of the UK,” said Carolyn Fairbairn, the director general of the employers’ body.

“As early priorities, business will want to see a commitment to tax and regulatory stability, fast progress on a modern industrial strategy to support skills, infrastructure and innovation, and a Brexit approach that puts people and trade ahead of politics.”

By Jill Treanor

Investors sought safety in defensive stocks after shock UK election results

James Hume/Flickr.com

(qlmbusinessnews.com via uk.reuters.com — Fri, 9 June, 2017) London, UK —

European shares rose in early deals on Friday as investors sought safety in defensive stocks after a shock UK election looked set to throw Britain into fresh political turmoil.

The pan-European STOXX 600 index was up 0.3 percent, while a drop in sterling to a seven-month low helped Britain’s internationally-facing FTSE 100 .FTSE index gain 1 percent.

UK Prime Minister Theresa May’s Conservative party lost its majority in the House Commons just 10 days before Brexit talks were due to start, with the prospect of a hung parliament sparking fresh concerns around Britain’s exit from the European Union.

Defensive sectors – those less dependent on the economic cycle – such as food and beverages .SX3P and health care .SXDP rose 0.8 percent and 0.5 percent respectively, while British utilities such as Centrica (CNA.L) were among top gainers.

Likewise safe-haven precious miners were also in demand, with Fresnillo (FRES.L) up 3.2 percent, while overseas-earners such as Burberry (BRBY.L) and Diageo (DGE.L) also rose.

Italian banks UBI Banca (UBI.MI) and Banco BPM (BAMI.MI) jumped 6.5 percent and 2.5 respectively, leading a rise among European lenders .SX7P.

Stocks linked to the British housebuilding industry were the biggest STOXX fallers, however, with builders merchant Travis Perkins (TPK.L) dropping nearly 4 percent, Howden Joinery (HWDN.L) dropped 3.7 percent and commercial REIT Great Portland Estates (GPOR.L) fell 3.4 percent.

By Kit Rees

Santander rescues rival Banco Popular in EU New Test Case

Santander Bank
Mike Mozart/Flickr

(qlmbusinessnews.com via uk.reuters.com — Wed, 7 June 2017) London, UK —

Spain’s biggest bank Santander (SAN.MC) is to buy struggling rival Banco Popular (POP.MC) for a nominal one euro after European authorities determined the lender was on the verge of insolvency.

Santander will ask investors for around 7 billion euros ($7.9 billion) of fresh capital to cover the cost of bolstering Popular, which has been weighed down by billions of euros of risky property loans.

The rescue, which followed a declaration by the European Central Bank that Banco Popular was set to be wound down, marks the first use of an EU regime to deal with failing banks adopted after the financial crisis.

It breaks the mould of using taxpayers’ money, instead imposing steep losses on shareholders and some creditors of the bank, a step two debt investors described as unexpected.

The owners of so-called AT1 and AT2 bonds suffered roughly 2 billion euros of losses, while shareholders lost everything. Senior bondholders were spared.

Popular, Spain’s sixth biggest bank, has long struggled and repeatedly asked shareholders for fresh money. But a recent acceleration in the withdrawal of deposits compounded its funding problems, triggering its sale.

The ECB had blamed what it called a “significant deterioration of the liquidity situation of the bank in recent days” in concluding that it “would have, in the near future, been unable to pay its debts or other liabilities.”

Elke König, Chair of the Single Resolution Board, an EU agency that winds down stricken banks, said that intervention had been needed overnight.

The Spanish reaction to the problem lender was prompt when compared to Italy, which has been grappling for years with the problems of its lenders.

In contrast to the banking crisis that unfolded in 2008, the move in Spain was also accepted with calm on stock markets and European bank shares moved upwards.

“This shouldn’t pose any real problems for other banks,” said Aberdeen Asset Management Head of Credit Research Laurent Frings. “But it does show that there is real risk in investing in these second-tier names.”

BOTIN SEES BENEFITS

Spanish Economy Minister Luis de Guindos said that Santander’s takeover was a good outcome for Popular given its situation in recent weeks and it would have no impact on public resources or on other banks.

Santander Chairwoman Ana Botin presented the business case for the hastily-organized deal, arguing that the combination of the two would strengthen the group’s geographic reach as the economy in Spain and Portugal improved.

“We welcome Banco Popular customers,” she said.

Santander, which was unaffected by the banking crisis in Spain that forced Madrid to seek international aid, said buying Popular would accelerate growth and profit from 2019.

It said it would set aside 7.9 billion euros to cover the cost of so-called non-performing assets – a reference to loans at risk of non-payment.

Struggling under the weight of 37 billion euros of non-performing property assets left over from Spain’s financial crisis, Popular had seen its share price slump by more than a half in recent days.

Popular was among a handful of banks that emerged as vulnerable to stress, such as an economic downturn, in a simulation carried out by the European Banking Authority last summer.

Popular remained vulnerable. Its ratio of risky loans is around three times above the average of its Spanish rivals.

But Popular’s small and medium-sized company loan portfolio, the largest among Spanish lenders, presents an opportunity for Santander, which said it would now lead this growing market.

By By Jesús Aguado and Francesco Guarascio

(Additional reporting by Andres Gonzalez, Jose Elias Rodriguez and Angus Berwick in Madrid, Francesco Canepa in Frankfurt and Jan Strupczewski, Francesco Guarascio in Brussels and Helene Durand in London; writing by John O’Donnell; Editing by Keith Weir)