BoE intervenes as IMF criticises UK budget

LONDON - The Bank of England stepped in Wednesday to shore up market confidence after the International Monetary Fund criticised Britain's inflation-fighting budget.

Reacting to markets turmoil, the BoE announced it was temporarily buying up long-dated UK government bonds "to restore orderly market conditions".

However, the pound promptly slumped 1.7 percent to $1.0552.

The BoE intervention followed criticism Tuesday from the IMF, which argued that Britain's budget could increase inequality and worsen inflation.

Credit ratings agency Moody's also waded in overnight with a warning about soaring debt.

Finance minister Kwasi Kwarteng's big tax cuts and energy price freeze, aimed at boosting the UK's recession-threatened economy, appeared to have had the opposite effect as traders warn of ballooning debt to pay for the incentives.

Following last Friday's budget, UK government bond yields have soared and the pound hit a record low at $1.0350.

Critics added that Kwarteng's measures would benefit the rich more than the poorest, as millions of Britons suffer from a cost-of-living crisis.

"We have acted at speed to protect households and businesses through this winter and the next, following the unprecedented energy price rise," the Treasury said as it sought to defend itself.

"We are focused on growing the economy to raise living standards for everyone," it added, blaming sky-high oil, gas and electricity prices on Russia's invasion of Ukraine.

IMF ADVICE

In a highly unusual intervention, the IMF late Tuesday said it was "closely monitoring" developments and urged the government in London led by new Prime Minister Liz Truss to change tack.

The Fund added: "We understand that the sizable fiscal package announced aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures.

"However, given elevated inflation pressures in many countries... we do not recommend large and untargeted fiscal packages at this juncture."

The IMF said the "UK measures will likely increase inequality" and stressed the importance of fiscal policy not working "at cross purposes to monetary policy".

Analysts warned that Britain's controversial measures could force the Bank of England to hike interest rates far higher than forecast.

"Expectations that there will be a super-size interest rate hike coming from the Bank of England to try and counter the government splurge on tax cuts and spending have increased," Hargreaves Lansdown analyst Susannah Streeter noted Wednesday.

Many central banks, including the BoE, are aggressively hiking interest rates in a bid to cool decades-high inflation. 

TAX CUTS 

In his budget, Chancellor of the Exchequer Kwarteng cut the highest rate of income tax and scrapped a cap of banker bonuses.

He also, however, announced a plan to lower income tax for all workers.

Conservative party head Truss appointed Kwarteng to replace Rishi Sunak, who reached the final two in the race to be prime minister.

Sunak had hit out strongly at Truss's promise of tax cuts, arguing that the UK priority was to first bring down the nation's inflation rate that stands at a near 40-year high of 9.9 percent. 

Moody's called Britain's new fiscal policy regime "credit negative", adding that a sustained confidence shock could "permanently" weaken its debt affordability.

Kwarteng has said he would wait until November 23 to outline plans on controlling government debt.

Agence France-Presse

UK inflation jumps to new 40-year high

LONDON - British inflation surged to a new 40-year high in July on rising food prices, official data showed Wednesday, adding to a cost-of-living crisis as the country faces the prospect of recession.

The Consumer Prices Index (CPI) accelerated to 10.1 percent last month from 9.4 percent in June, the Office of National Statistics said.

The Bank of England warned earlier this month that inflation will climb to just over 13 percent this year, the highest level since 1980.

It also projected that the country would enter a recession that would last until late 2023.

The central bank raised its key rate by 0.50 percentage points to 1.75 percent at its last policy meeting, the biggest hike since 1995.

The BoE move mirrors aggressive monetary policy from the US Federal Reserve and the European Central Bank last month, as the world races to cool red-hot inflation that has been fuelled by Russia's invasion of Ukraine.

The UK's statistics office said the "largest movements" in the CPI in July came from food.

Bread and cereals were the largest contributors to the rise in food prices, followed by milk, cheese and eggs.

Agence France-Presse

Brexit faces challenges in Northern Irish courts

IRELAND - Britain's departure from the EU faced two separate legal challenges in Northern Ireland's High Court Friday.

Lawyers for one group lodged an application with the court to challenge London's decision to abide by the June 23 referendum result and proceed to leave the European Union.

In a letter last month, the group had asked British Prime Minister Theresa May to allow votes on the issue in both the British parliament and in the Northern Ireland Assembly before triggering the formal process to leave.

The politicians and activists bringing the action want May's government to consider the potential impact on Northern Ireland's peace process before triggering the formal process to leave the EU.

Jones Cassidy Brett, the legal firm representing the group, said: "The various assurances sought by our clients have not been forthcoming and, indeed, the response heightened their concerns about the approach the government was likely to take."

This legal action was initiated only hours after it emerged that the court had agreed to fast-track a separate challenge by a victims' rights campaigner, who argues that Brexit would contravene international agreements underpinning peace in Northern Ireland.

That case taken by Raymond McCord, 62, will be heard on September 5, the first official day the court is due to sit following the summer recess.

His legal team says the promptness of the hearing, and a decision this week to grant public funding to underwrite it, confirm its importance.

McCord believes Brexit would contravene the 1998 Good Friday Agreement, which effectively brought an end to the three decades of armed conflict in Northern Ireland.

"I am very concerned about the profoundly damaging effect that a unilateral withdrawal of the UK from the EU will have upon the ongoing relative stability in Northern Ireland," he says in his affidavit to the court.

McCord believes the loss of EU funding towards conflict resolution projects in Northern Ireland could jeopardise the ongoing peace process if not replaced.

His legal costs will be met from public funds, which his lawyer, Ciaran O'Hare of McIvor Farrell Solicitors, said were granted "only in cases of merit, complexity and public importance".

Northern Ireland has its own legal jurisdiction within the United Kingdom, as does England and Wales, and Scotland.

The British government already faces a legal challenge to stop it beginning the process of leaving the EU without an act of parliament.

In the English courts, lawyers at Mishcon de Reya argue that the British government cannot trigger Article 50, the legal process for leaving the bloc, without a parliamentary debate and vote authorising it to do so.

source: www.abs-cbnnews.com

Britain votes to leave EU

LONDON - Britain has voted to break out of the European Union, striking a thunderous blow against the bloc and spreading panic through world markets Friday as sterling collapsed to a 31-year low.

Investors scrambled to sell the pound, oil and stocks as Britain took a lurch into the unknown, becoming the first country to quit in the EU's 60-year history, a culmination of decades of suspicion over European aims of creating an ever-closer political union.

Voters decided 52 percent to 48 percent in favour of quitting the bloc with 374 out of 382 regional results declared.

With 16.8 million votes for "Leave" and 15.7 million for "Remain", it is now mathematically impossible for "Remain" to win, the BBC reported.

"Let June 23 go down in our history as our independence day," said top anti-EU campaigner Nigel Farage, leader of the UK Independence Party, who had promised Britons the chance to retake power from Brussels and rein in high immigration.

"If the predictions now are right, this will be a victory for real people, a victory for ordinary people, a victory for decent people," he told supporters.

A joyous crowd chanted back to him: "Out! Out! Out!"

At the rival "Remain" party in London, subdued supporters stood glued to TV screens clutching beers -- some with their hands over their mouths.

'EUROSCEPTIC GENIE'
Sterling plunged more than nine percent to $1.33, a 31-year low. World oil prices skidded by more than six percent and Asian stocks sank.

Britons appeared to have to shrugged off dire warnings that quitting the 28-nation alliance would create a budget hole requiring spending cuts and tax increases once they lose unfettered trade access to the EU.

Their decision will undoubtedly reawaken fears of a domino-effect ripple of exit votes in EU-sceptic members that could imperil the integrity of the bloc, already struggling with twin economic and refugee crises.

"The eurosceptic genie is out of the bottle and it will now not be put back," Farage said.

Dutch far-right MP Geert Wilders and French National Front leader Marine Le Pen immediately called for a referendums on EU membership in their own countries.

Prime Minister David Cameron, who led the ultimately doomed struggle to sway voters in favour of sticking with Brussels, will face immediate pressure to resign.

The bookmakers' favourite to replace him is former London mayor Boris Johnson, a rival from within his ruling Conservative Party who was the "Leave" camp figurehead.

GOING IT ALONE

The result means the world's fifth-largest economy must now go it alone in the global economy, launching lengthy exit negotiations with the bloc and brokering new deals with all the countries it now trades with under the EU's umbrella.

European Commission chief Jean-Claude Juncker has warned the EU will "not be bending over backwards" to help Britain in those negotiations. Analysts say it could take the island nation a decade to secure new trade accords worldwide.

In a worst-case scenario, the International Monetary Fund has warned that the British economy could sink into recession next year and overall economic output would be 5.6 percent lower than otherwise forecast by 2019, with unemployment rising back above six percent.

Thousands of jobs in the City could be transferred to Frankfurt or Paris, top companies have warned. The Brexit camp argued that the business world will adapt quickly, however, with Britain's flexible and dynamic economy buoyed by new economic partners and selective immigration.

Japanese Finance Minister Taro Aso told an emergency press briefing that Tokyo was "extremely worried" about the risks to the global economy and markets but stood ready to respond "firmly".

The campaign has left Britain riven in two, marked by the brutal murder of pro-"Remain" British lawmaker Jo Cox, a mother of two who was stabbed, shot and left bleeding to death on the pavement a week ahead of the vote.

BRITISH UNITY THREATENED

The vote threatens the unity of the United Kingdom, too.

Two years after Scotland voted in a referendum to remain in the United Kingdom, its political leader First Minister Nicola Sturgeon has said a new independence vote is "definitely on the table" after Britain voted against the majority will expressed by Scots.

"Scotland sees its future as part of the EU," Sturgeon told Sky News after the vote.

Northern Ireland, which is part of the United Kingdom, is now faced with the prospect of customs barriers for trade with EU-member the Republic of Ireland. Irish republicans Sinn Fein called for a vote on Irish unity following the referendum.

Leaders of Europe, born out of a determination to forge lasting peace from the carnage of two world wars, will open a two-day summit on Tuesday to grapple with the British decision.

DISINTEGRATION

German Foreign Minister Frank-Walter Steinmeier warned this month that a British departure would be a shock requiring quick action to avert the "disintegration" of the bloc.

"It looks like a sad day for #Europe +the United Kingdom," he wrote on Twitter on Friday.

Small countries that are economically at least as affluent as the UK are the main ones at risk, especially Denmark and potentially also Sweden," said Carsten Nickels of the Teneo analyst group in Brussels.

Immigration and an erosion of economic security have become rallying cries for populist challenges that remain scattered across in Europe, just as they have for Donald Trump's campaign in the US presidential election.

The bloc will have to learn lessons not only from events in Britain but from the rest of Europe, Juncker said ahead of the referendum, warning against a rapid push for more integration.

"This euroscepticism is not only present in Britain," he said.

source: www.abs-cbnnews.com

Luxury carmaker Jaguar eyes mass market SUVs, sedans

LONDON - Luxury carmaker Jaguar said it would invest $2.4 billion in a new range of lightweight aluminium sports sedans and crossover SUVs aimed at the mass market, creating 1,700 jobs in a British economy showing signs of resilience.

The spending is part of a move to launch more affordable models from 2015 to emulate the success of lower cost luxury vehicles made by its sister company Land Rover, and will better position it to compete with its larger German rivals.

Jaguar, part of the Jaguar Land Rover (JLR) group owned by India's Tata Motors, said the investment could create a further 24,000 in supply chain jobs.

"The creation of 1,700 new jobs and £1.5bn investment by Jaguar Land Rover is a great vote of confidence in the UK economy," British Prime Minister David Cameron said on Twitter.

British car sales rose by 11 percent in August, the 18th consecutive month of growth, in contrast to Germany, France, Italy and Spain, which all suffered sales declines.

Britain's finance minister, George Osborne, said on Monday that the UK had turned the corner and that an accelerating economy vindicated his austerity programme.

JLR has roared to health in the four years since Tata Motors bought the group from Ford for $2.3 billion.

It has escaped the cycle of plant shutdowns and falling production at many European automakers by tapping into growing demand for luxury cars in emerging markets.

Despite falling sales at home amid a sluggish Indian economy, shares in Tata Motors surged as much as 10 percent to a record high on Tuesday, outperforming a broader market that was up more than 3 percent.

Also on Tuesday, Jaguar Land Rover said August sales rose 28 percent from a year earlier to 27,852 vehicles.

CROSSOVER BOOM

Carmakers around the world are expanding into so-called premium "crossover" vehicles, seeking to tap demand for models that combine the functionality of sport utility vehicles (SUVs) with the comfort and performance of luxury cars.

Nearly one in every four premium vehicles sold last year in Europe was a crossover or SUV, and the category continues to grow, despite concerns about size and fuel consumption, according to UK-based consultancy LMC Automotive.

Jaguar's new models will compete directly with the likes of Germany's BMW and Daimler's Mercedes-Benz which dominate the market for entry-level luxury vehicles.

Jaguar said cash would be spent to design systems to help it introduce new one-piece "aluminium vehicle architecture".

The new models will be built on production lines previously used to make Land Rover vehicles at JLR's plant in Solihull, central England, where some 1,700 new jobs will be created.

A Jaguar sports sedan, due to be launched in 2015, will be the first to feature the new technology. It will also be the first car to use engines from JLR's new engine plant in nearby Wolverhampton.

Next up will be Jaguar's first ever sports crossover vehicle, called the C-X17, also featuring an aluminium frame, which is being showcased at the Frankfurt car show this week.

"The inherent flexibility of this all-new technology will enable the Jaguar Land Rover business to not only enter but aggressively compete in exciting new segments, creating new markets for both brands," JLR's Chief Executive Ralf Speth said.

source: www.abs-cbnnews.com

Outlook still cloudy for British economy

LONDON - Bank of England chief Mervyn King suggested this week the "black cloud" over the economy may be lifting, but with assets buoyant and the pound feeble, what investors think of Britain's growth prospects is less clear.

King surprised markets by saying on Thursday he saw "momentum" behind a UK recovery that will emerge this year, and that sterling was fairly valued after a recent tumble.

The pound's broad exchange rate index, which has plunged up to 7 percent in 2013, promptly perked up a bit.

Sterling remains about 25 percent lower on a trade-weighted basis than before the crisis that started in 2007, however, while soaring British stock prices appear in step with King's new-found optimism.

But which more accurately reflects investors' views of the British economy after a long period during which financial sector retrenchment, household deleveraging and fiscal austerity have meant little or no growth?

Pessimists feel the rhetorical shift by King, who talked last year of a "black cloud of uncertainty" over the economy, may simply be aimed at shoring up sterling to prevent "stagflation", where a free-falling pound aggravates import inflation even as growth flatlines.

Others say the gloom is probably overdone.

Standard Life Investments director Jonathan Gibbs said he is skeptical stagflation has taken hold, and that even if such a toxic combination persisted, it would not mean a repeat of the dire 1970s economic and investment environment the term evokes.

"We would argue that the medium-term return environment is continuing to improve," said Gibbs. UK markets' exposure to global reflation and recovery rather than the sluggish domestic economy is helping drive equity and real estate performance, he added, while investors are also seeking inflation protection.

The slow beginnings of a worldwide shift in asset allocations from expensive low-yielding bonds to equities is also a support for the stock market, which hit five-year highs this week, Gibbs said.

Citi economist Robert Buckland said the rally in UK and U.S. equities is driven mainly by valuations, with the state of the domestic economy almost beside the point, and reflects a similar rebound of earnings per share (EPS) back above 2007 levels.

Cyclically-adjusted price/earnings estimates for British stocks are still about 15 percent below 40-year averages despite recent gains.

"If economic growth, or lack of it, was all that mattered, then we would expect the GEMs (Global Emerging Markets) and Asia ex-Japan equity markets to be hitting all-time highs, which is not the case," Buckland wrote.

STERLING OFFSET

But for overseas investors, who according to the Office for National Statistics own more than 40 percent of Britain's stock market, the key issue may be the performance of sterling.

A dollar-based fund invested in the FTSE 100, which has gained 10 percent in 2013, would have seen its gains reduced to just 3 percent once the falling pound is taken into account.

With 10-year gilts offering annual yields of less than 2 percent, a sustained exchange rate move like the one we've seen this year is also a potential wipeout for bond investors.

And as few expect any let-up in government's fiscal squeeze in next week's annual budget, the pound will ultimately take its cue from whether the central bank moves again to support the economy by printing more money to buy bonds.

That's why yields on gilts, a third of which are already owned by the Bank of England, remain so low despite rising inflation expectations, the loss of Britain's triple-A credit rating and a general retreat from core government debt.

Sub-2-percent 10-year yields stand in stark contrast to 10-year inflation expectations as high as 3.3 percent, as read from the inflation-protected bond market.

Bank of England minutes next week will reveal whether King still favors more bond-buying and if he's winning the debate among fellow monetary policymakers. Beyond that, new governor Mark Carney is widely expected to be given a more dovish mandate when he takes over from King in July.

So if strength in gilts is at least partly a monetary illusion conjured up by current and expected quantitative easing, is the FTSE's surge - to all-time highs on total returns indices - also a QE distortion?

Buckland at Citi said there was little to back that up.

"If QE has been important in driving share prices up, it seems to be more through its fundamental support of EPS than its ability to inflate valuations," he said. "Some of this support might come from the ability of QE to weaken the currency and so boost stock market EPS."

The pounds' fall, then, is a double-edged sword, as the 'currency wars' debate and Japan's reflation push attests.

While some investors see a healing global economy and employment data that is more upbeat than backward-looking growth figures as supporting King's line, others feel the pound will continue to feel the heat for a variety of reasons.

Scott Thiel, Head of European and Global Bonds at the world's biggest asset manager BlackRock, told Reuters earlier this month the pound had further to fall, reflecting political uncertainty as much as the economic picture.

He cited questions about the stability of the governing coalition, rifts within the ruling Conservative Party and a promised referendum on European Union membership.

"Introducing the idea of British vote on European Union membership is a negative for how investors view the UK. A 'No' vote would be negative because of the amount of connectivity between the UK and EU is so unbelievably high," Thiel said.

"If you're starting a company ... you need a multi-year plan.

"If there is the possibility that in five to six years you're going to have to go through this Y2K-type problem, it will impede your 'animal spirits', as it were - your decision to hire, or open a new plant."

source: abs-cbnnews.com