Pound Falls As Triple Dip Fears Fuelled

Sterling has fallen to a two-and-a-half-year low against the dollar after manufacturing figures for February revealed a fall in output.

The closely watched Markit/CIPS purchasing managers' index showed a slump in activity to 47.9 - well below the 50 level which separates growth from contraction.

It was the first time since last November the sector's activity shrunk, and followed 50.2 in January.

The value of the pound slipped following the data, and fell below $1.50 on Friday afternoon - its lowest since the middle of 2010. 

Sterling has only been beneath the $1.50 mark for four of the 200 years since the US Declaration of Independence.

The last time it was at this level was briefly during the 2010 election and coalition-building process, and before that the 2008/09 recession.

Chris Williamson, chief economist at Markit, said the manufacturing data increased the chance that Britain will slip back into recession. 

"The return to contraction of the manufacturing sector is a big surprise and represents a major set-back to hopes that the UK economy can return to growth in the first quarter and may avoid a triple-dip recession," he said.

"The data so far this year point to manufacturing output falling by as much as 0.5%, meaning a strong rebound is needed in March to prevent the sector from acting as a drag on the economy as a whole in the first quarter."

The struggling sector contributed to the UK's worse-than-expected 0.3% decline in output in the fourth quarter of last year, and a negative reading for the first quarter of 2013 would see the UK enter a triple-dip recession.

Nawaz Ali, a market analyst with Western Union, said the manufacturing data could increase pressure on the Bank of England (BoE) to launch a new round of asset purchasing - or quantitative easing - as early as next week.

"The data is a major setback for sterling and the size of the manufacturing decline indicates that there is still a chance the British economy may suffer an unprecedented triple-dip recession," he said.

"The data also adds to growing concerns that not only could the BoE re-start monetary printing in March, the central bank's new flexible inflation strategy puts it in a position to launch a prolonged period of asset purchases, similar to what the US have done and what the Bank of Japan is planning to do."

More quantitative easing is likely to hit sterling further because it increases its supply and drives the currency's exchange value lower.

So far this year, sterling - which was also hit by Moody's downgrade of the UK's credit rating - has lost 7.5% against the dollar.

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Pressure On First Buyers As House Prices Rise

By Nick Martin, Sky Correspondent

House prices edged up month-on-month in both January and February this year, bringing good news for homeowners but adding pressure on first-time buyers.

Building society Nationwide said it was cautiously optimistic that activity will pick up in the months ahead.

It comes after reports revealed more young people were living with their parents while trying to save for a deposit for a property. 

According to the Halifax, the average age of a first-time buyer is 30 years old - up from 29 in 2011.

There has been a significant increase in the proportion of first time buyers receiving financial help in recent years.

The Council of Mortgage Lenders (CML) estimate that 65% of first time buyers of had financial assistance in mid 2012 compared with 31% in mid-2005.

Kirsty Gilmore, 26, from Bristol, has been living at home for 18 months and has saved more than £30,000. But that is still not enough to buy a property. She says the market is so competitive it is hard to get a good price.

"I want to have my own place, I want to start a family and have a home to call my own, not just my mum and dad's.

"You feel a bit excluded from society - nobody cares and you're stuck in this rut really - and everyone else my age is," she told Sky News.

Mortgage approvals for home buyers have dipped for the first time since a Government scheme to boost lending was launched last August, Bank of England figures showed.

There were 54,719 approvals in January, showing a 2% decline compared with an 11-month high recorded the previous month and marking the first time that there has been a month-on-month decrease since July.

Mortgage approvals for house purchases had been on a steady upward path since the Government's Funding for Lending scheme, which aims to help borrowers by giving lenders access to cheap finance, was launched at the start of August.

The latest figures echo recent findings from the CML, with some analysts blaming the recent bad weather.

Housing minister Mark Prisk said the Government was trying to help first time buyers get onto the property ladder.

"Many people have to rely on the bank of mum and dad - so what we are trying to do with the builders and the Government by putting equity loans forward is make those deposit affordable for first time buyers. It's already helped 17,000 people. We hope it will help 27,000."

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Obama Signs Order To Start Spending Cuts

President Barack Obama has signed an order authorising $85bn cuts in domestic and defence spending following the failure of efforts to strike a deal with Republicans on cutting the US deficit.

Mr Obama and Republican leaders in the House and Senate declared themselves still deadlocked after a last-minute White House meeting last night.

The two sides are at odds over the president's insistence on increasing tax revenue as part of any plan to tackle the country's $16.6trn debt.

Mr Obama signed the order which officially enacts the across-the-board reductions - known as a "sequester" in government budget language. Under the law, the president had until midnight.

The $85bn cuts apply to the remainder of the 2013 fiscal year, which ends on September 30. But the legislation that requires the spending reduction will continue slashing government spending by about $1trn more over a 10-year period.

Speaking after the White House meeting, Mr Obama said: "Let's be clear, none of this is necessary."

He blamed the deadlock on Republicans who he said refused to close tax loopholes that benefit the wealthy, adding that "the pain will be real" for the American people.

"I am not a dictator. I'm the president," Mr Obama said, warning he could not force his Republican foes to "do the right thing," or make the Secret Service barricade Republicans leaders in a room until a deal is done.

"These cuts will hurt our economy, will cost us jobs and to set it right both sides need to be able to compromise," Mr Obama added.

US Speaker of the House John Boehner walked out of the meeting

Republican John Boehner, speaker of the House of Representatives, walked out of the meeting to say there would be no compromise as long as Mr Obama insisted on higher tax revenue.

Republicans are standing fast against further increasing taxes and will not compromise on achieving debt reduction through spending cuts alone.

The opposition party is still feeling the sting from its most conservative members after agreeing at the end of 2012 to allow the expiration of Bush-era tax cuts for Americans earning $400,000 or more a year.

Friday's meeting was the first the two sides have held this year on the budget battle, and it lasted less than an hour.

The immediate impact of the cuts on the public is uncertain, but they will carve 5% from domestic agencies and 8% from the Pentagon between now and October 1.

Defence officials say they will be forced to reduce the working week of 800,000 civilian employees, scale back flight hours of warplanes and postpone some equipment maintenance.

The deployment of a second aircraft carrier to the Persian Gulf has also been cancelled.

The US Navy will gradually stand down several hundred planes starting in April, the Air Force will curtail flying hours and the Army will cut back training for all units except those deploying to Afghanistan.

Several major programmes will be unaffected, including the Social Security pension programme, the Medicaid health care programme for the poor and food stamps.

Pentagon chief Chuck Hagel warned that the budget cuts will endanger the US military's ability to conduct its missions.

"This will have a major impact on training and readiness," he said. "Later this month, we intend to issue preliminary notifications to thousands of civilian employees who will be furloughed."

Mr Hagel also acknowledged that the budget cuts "will cause pain, particularly among our civilian workforce and their families".

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Exclusive: Treasury 'Panic' Over EU Bonus Cap

By Mark Kleinman, City Editor

The Government has embarked on a desperate damage limitation effort to persuade major City employers that they still have a future in London despite proposals from Brussels that will hamper their ability to pay bumper bonuses.

I have learnt that Charles Roxburgh, the director-general of financial services at the Treasury, has contacted a string of major UK and European banks in an attempt to reassure them that the Government would continue to fight the proposals agreed by European Union governments and officials last night.

The blueprint would see bank bonuses capped at one year's salary, or twice that level with the explicit approval of a super-majority of shareholders.

Britain has publicly attacked the idea, saying that it will damage the City, Europe's largest financial centre.

Speaking in Latvia today, David Cameron argued against the new rules while Boris Johnson, the Mayor of London, called them the "most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman empire".

Mr Roxburgh's intervention underlines the scale of nervousness within the Government that a bonus cap could force an exodus of banks to financial centres outside the UK, such as Zurich and New York.

"The message was that they still have some bargaining power, but they are in a state of total panic," one banker said of the Treasury's effort to communicate with banks on Thursday.

It also highlights a tricky position for the Treasury, which has publicly attacked banks for their payment of bonuses to employees.

Today, the largely state-backed Royal Bank of Scotland unveiled a £607m bonus pot for its staff for their work in 2012.

Critics of the EU proposals, which would come into force next year assuming they are ratified in May, say they could increase risk in the banking system by forcing up base salaries to enable the continued payment of large bonuses.

Britain is expected to outline its position further at a meeting of European finance ministers in Brussels next Tuesday. George Osborne, the Chancellor, may attend the summit.

The Treasury declined to comment.

Simon Lewis, chief executive of the Association for Financial Markets in Europe, which represents the major investment banks, said:

"We recognise that progress has been made towards conclusion of the negotiations on CRD4 [Capital Requirements Directive 4].

"Much detail still has to be clarified, but the outline agreement on this new regime for European banks is a major step forward in creating a stable framework within which the industry can plan for the future.

"The package also balances a requirement for enhanced financial standards with the need to support economic growth – for example in showing flexibility over liquidity provisions and counterparty credit risk.

"We have yet to see the detailed text, but unfortunately CRD4 also includes measures on compensation that will increase fixed costs at a crucial time of bank restructuring.

"The outcome will be an inflexible cost base, contributing to greater risk in banks. This will seriously harm European competitiveness and have a negative impact on the real economy."

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RBS Boss: Spring Cleaning Drives £5.16bn Loss

The Royal Bank of Scotland boss has said "spring-cleaning" continues after his firm reported a pre-tax loss in 2012 of £5.16bn.

RBS chief executive Stephen Hester said: "This company is going through a pretty thorough spring-cleaning. It is a pretty dusty job.

"We are spring-cleaning this house and it is looking shinier."

But the markets reacted swiftly and by close of trading shares on the FTSE 100 were down 6.6%, at 323p.

The share price of RBS is at a fraction of its pre-crisis level

The bank's £5bn-plus loss was in part due to provisions RBS has made for customer redress for payment protection insurance (PPI) mis-selling and other so-called bad practices.

It said the annual return was impacted heavily by a £4.64bn "accounting charge for improved own credit" as bond repurchase value on cash market credit spreads rose 340 basis points.

However, the firm's bankers will still share a bonus pool of £607m - including £215m for investment bankers.

In 2011 the total bonus pot was around 25% higher, at £789m.

When asked to justify the £607m payout, Mr Hester said: "We are a very big company so the numbers end up being substantial, but they are much smaller than other banks.

RBS has lost £2.02bn through Ulster Bank since January 2011

"We believe that we are doing a responsible job on bonus restraint while acknowledging our staff are badly needed."

The bonus reduction was done to help recoup cash to pay for its recent Libor-rigging settlement with UK and US authorities.

Last month RBS reached an agreement with the Financial Services Authority and US authorities over Libor and other rate fixings to include penalties of £381m.

Ulster Bank, which was hit by massive IT woes similar to NatWest last year, made a loss of £1.04bn in 2012.

RBS saw reduced income in its UK retail arm, its UK corporate division, international banking and at Ulster, while income for private wealth and US arms remained flat.

The disgraced ex-boss Fred Goodwin reigned over the previous RBS regime

Mr Hester admitted 2012 had been a "chastening" year to "put right past mistakes", with losses up significantly from £1.2bn in 2011.

The company revealed it took a £450m charge in the last three months of 2012 over PPI mis-selling, taking its cumulative provision to £2.2bn.

By December 31 a total of £1.3bn had been paid out in redress over the scandal.

The bank said: "Our target is for 2013 to be the last big year of restructuring. There will be important work still to do, but an increasingly sound base from which to work.

"As the spotlight shifts to the 'new RBS' post restructuring, we are determined that it will show a leading UK bank striving to be a really good bank."

RBS saw changed fortunes in its core business, with retail and commercial sector income down 6% but markets up 68%.

Both RBS and NatWest were hit by IT failures last summer

The bank added: "RBS is four years into its recovery plan and good progress has been made. We are a much smaller, more focused and stronger bank.

"By serving customers well RBS can become one of the most respected, valued and stable of banks. That is our goal."

In its annual report the bank, which was bailed-out in Britain's biggest ever corporate disaster, said there is an intention to float an estimated 25% of its stake in US banking arm Citizens.

This move was welcomed by Chancellor George Osborne who said: "The Government's strategy is for RBS to be a stronger and safer bank, which in time can be returned to full private ownership.

"I have been very clear that I want to see RBS as a British-based bank, focused on serving British businesses and consumers, with a smaller international investment bank to support that activity rather than to rival it."

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Lloyds: Osborne Plans Taxpayer Stake Sale

By Mark Kleinman, City Editor

The Government will signal today that it will begin the sell-off of its stake in Lloyds Banking Group when the lender's share price hits 61p - a far lower level than previously thought.

I have learnt that UK Financial Investments (UKFI), which manages the taxpayer's 39% stake in Lloyds, and the Treasury will indicate today that the privatisation of the Government's stake can begin within months.

The 61p level is the price at which the stake - bought in 2008 at the height of the banking crisis - is booked at in the national accounts.

The £1.48m bonus awarded to Lloyds boss Antonio Horta-Osorio can vest if the Government sells at least one-third of its stake above 61p, Lloyds confirmed today.

"This award is subject to the normal performance adjustment policy and will only vest if a share price of 73.6p has been reached for a given period of time or the Government has sold at least 33 per cent of its shareholding at prices above 61p," Lloyds said, confirming a report on Sky News.

"The Board believes that these additional conditions are in the interests of all shareholders and support our common aim of repaying the taxpayer.

"HM Treasury has informed us that 61p is the average price at which the equity support provided to Lloyds Banking Group is recorded in the Public Finances."

The news comes as Lloyds reported a loss for last year of £570m, down from £3.5bn in 2011.

The loss was attributable to a £3.5bn provision during 2012 for mis-selling payment protection insurance, £1.5bn of which was taken during the fourth quarter.

Lloyds paid out £365m in bonuses for the year, with an employee average of £3900.

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Bankers' Bonuses: EU Agrees Cap On Payments

European Union officials have agreed a provisional deal to cap bankers' bonuses, despite the UK Government's efforts to protect the country's dominant financial services sector.

The plan would see the maximum payout set at a year's salary but that could be increased to two year's salary with shareholder approval.

The Treasury opposed the idea because it feared that limits could cost jobs in the City and prompt firms to leave for more favourable shores.

The measures are part of a sweeping overhaul of EU banking rules, which are designed to ensure that banks in the future have enough capital to withstand financial shocks.

Wednesday night's agreement, reached during an eight-hour session between EU lawmakers, the EU Commission and representatives of the bloc's 27 governments in Brussels, ensures the package can take effect next year.

Currently there is no legal pay limit on top bankers and traders, who can earn performance bonuses many times their base salaries.

But public outrage has grown across Europe over large payments to executives of banks that received huge state bailouts during the financial crisis.

Supporters of the bonus cap say the payments encouraged bankers to take massive risks at the expense of the long-term future of their businesses, which helped to destabilise the financial system.

Othmar Karas, the European Parliament's chief negotiator, said: "For the first time in the history of EU financial market regulation, we will cap bankers' bonuses.

"The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs."

Final approval by parliament and government leaders of the package is expected to be a formality.

Britain had tried to rally other EU governments behind its position but failed to garner enough support.

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High St Crisis: Chain Closures Accelerating

The bloodbath on Britain's high streets has accelerated dramatically with the rate of major chain store closures increasing ten-fold, hitting 20 per day in 2012.

Analysis by PwC and the Local Data Company found that year-on-year, the net reduction in the number of stores climbed from 174 closures in 2011 to 1,779 closures in 2012 with the pace intensifying even further since.

A combination of factors - from the consumer spending squeeze to poor business models - is being blamed.

The rate of closures among independent shops is not even included in the figures.

2012 was a year in which a string of retail chains collapsed including Comet, JJB Sports, Ethel Austin and Peacocks.

Camera chain Jessops has been among the failed firms

They were joined, mostly after poor Christmas sales, by the likes of HMV, Jessops and Blockbuster.

Many were accused of being too tied to costly high street operations and failing to overcome strong supermarket and internet competition by selling attractively online.

The data also revealed that across multiple retailers in 500 town centres card, computer games, clothes, banks, health foods, jewellers, travel agents, recruitment agencies and sports goods shops were among the hardest hit in 2012.

Pound shops, pawnbrokers, charity shops, cheque cashing (payday loans), betting shops, supermarkets and coffee shops bucked the trend of a dying high street and actually showed growth during the year.

Additionally, analysis of the three months between December 2012 and February 2013 shows that the potential rate of closures - principally through administrations- would accelerate to 28 per day for this period.

Mike Jervis, insolvency partner and retail specialist at PwC said: "2012 saw more retail chains go into insolvency than ever before.

"The failed chains generally shared two problems - too many stores and too little multi-channel activity.

"A number of them had failed to deal with their underlying issues by hiding behind light touch restructuring processes, especially Company Voluntary Arrangements.

"2013 has seen the downward trend become even worse," he said, adding: "If underperforming retailers are to avoid becoming part of these statistics for next year, their shopping baskets should contain an acute knowledge of their customers and their customers' needs."

Those were, Mr Jervis said; "Robust cashflow planning; honest analysis of the performance of existing and potential new stores; the bravery to admit mistakes regarding products and stores before dealing with them; clinical attention to costs; early engagement with banks, landlords and suppliers; appropriate debt and capital structures."

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RBS: 'Bad Practice' Drives £5.16bn Loss

The 82% taxpayer-owned Royal Bank of Scotland has reported a pre-tax loss in 2012 of £5.16bn.

The significant loss was in part to provisions RBS has made for customer redress for payment protection insurance (PPI) mis-selling and other so-called bad practices.

It said the annual return was impacted heavily by a £4.64bn "accounting charge for improved own credit".

However bankers will still share a bonus pool of £607m, including £215m for investment bankers.

In 2011 the total bonus pot was around 25% higher, at £789m.

The bonus reduction was done to help recoup cash to pay for its recent Libor-rigging settlement with UK and US authorities.

RBS chief executive Stephen Hester admitted 2012 had been a "chastening" year to "put right past mistakes".

The losses were up significantly, from £1.2bn in 2011.

The company took a £450m charge in the last three months of 2012 over PPI mis-selling, taking its cumulative provision to £2.2bn.

By December 31 a total of £1.3bn had been paid out in redress over the scandal.

The bank said: "Our target is for 2013 to be the last big year of restructuring. There will be important work still to do, but an increasingly sound base from which to work.

"As the spotlight shifts to the 'new RBS' post restructuring, we are determined that it will show a leading UK bank striving to be a really good bank."

RBS saw changed fortunes in its core business, with retail and commercial sector income down 6% but markets up 68%.

The bank added: "RBS is four years into its recovery plan and good progress has been made. We are a much smaller, more focused and stronger bank.

"By serving customers well RBS can become one of the most respected, valued and stable of banks. That is our goal."

In its annual report the bank, which was bailed-out in Britain's biggest ever corporate disaster, said there is an intentional to partially float its US banking arm Citizens.

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British Gas Sees Profit Up 11% To £606m

British Gas has reported a profit increase for the full year up 11% to £606m.

The company said it performed well in the financial year to December 31, despite a weak economy and energy cost increases.

It said: "This is having a real impact for both residential and business customers and, against this backdrop, it is important that we continue to focus on improving customer service and reducing costs."

British Gas is the UK residential arm of energy giant Centrica.

Overall, group adjusted operating profits rose 14% to £2.7bn, but Centrica said it paid more than £1bn in tax and invested £2.7bn in 2012.

Centrica said the sharp profit increase at British Gas residential came after last year's colder-than-normal weather saw gas use leap 12%, despite a fall in customer accounts.

The company said the number of residential customers dropped 1% in the year to 15.7 million, compared to 15.9 million in 2011.

The results are likely to raise questions over the fairness of energy bill increases after British Gas raised tariffs by 6% for around 8.4 million households at the end of last year.

To help thwart criticism the company provided a breakdown of the average customer bill, which is said totaled £1,188 a year.

It said the average wholesale energy cost for a customer was £568, delivery to the home was £283, environmental and social policies £112 and tax of £72.

The company said its own operating costs were £104, leaving a profit of £49.

On Tuesday Sky City Editor revealed that the company would announce its ambitions to become a big player in North America and the global energy sector.

He revealed that Mark Hanafin, the executive who runs Centrica Energy, the division focused on exploiting UK and Norwegian gas reserves, will head a new unit focused on broader international upstream effort.

Centrica also confirmed that British Gas managing director Phil Bentley would leave the company this year.

More follows...

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Israel: G4S Drawn Into Row Over Prison Death

By Sam Kiley, Middle East Correspondent, in Sa'ir, West Bank

The British company responsible for the Olympic security debacle is under pressure from human rights campaigners to sever its relationship with Israel's prison service after the mysterious death of a Palestinian, allegedly during questioning by Israel's secret police.

War on Want called on G4S, which provides services to the Israeli Prison Authority, to end all dealings with the Israeli Prison Authority (IPA) after lawyers for Arafat Jadarat, 30, claimed that an autopsy showed that he had been tortured while in Israeli custody.

Mr Jadarat, who died in Meggido Prison last week, was given a military hero's funeral in Sa'ir. Islamic Jihad gunmen fired volleys into the air and Palestinian Authority soldiers escorted his body to its grave.

At least 8,000 people crammed into the streets to pay their respects and demand "revenge". Islamic Jihad published a flyer vowing to strike back at Israel soon.

The scenes provoked speculation as to whether the Palestinians were starting a new intifada (uprising) in the wake of escalating violence involving Jewish settlers, Israel's security forces, and the Palestinians this year.

War on Want demanded that G4S "withdraws from contracts to supply Israeli prisons", in the wake of his alleged torture at the Al Jalameh interrogation centre on the West Bank.

Huge crowds turned out for the funeral of Arafat Jadarat

G4S's failure to recruit enough security guards for the London Olympics resulted in the Armed Forces deploying 18,000 personnel to fill the gap. It is now is reported to have supplied equipment to major facilities run by the IPA. Its signs are prominently displayed around Meggido jail.

War on Want senior campaigner Rafeef Ziadah said: "G4S provides equipment and services to Israeli prisons where Palestinian political prisoners, including child prisoners, are detained and tortured. 

"This British company is profiting from human rights abuses against the Palestinian people. The terrible death of Arafat Jaradat highlights the urgent need for G4S to ends its complicity in Israel's prison system."

These claims are disputed by Israeli authorities who insist that prisoners are not subjected to any torture.

Mr Jaradat, a father of two who worked at a West Bank petrol station, was arrested for allegedly throwing stones at Israeli forces.

Israeli officials said first that he had died in detention of a heart attack but now suggest that more tests were needed to establish his cause of death. They have offered to open his autopsy reports to independent experts for assessment.

Israeli Prime Minister Benjamin Netanyahu's office said on Monday that he was consulting with security officials, while UN envoy Robert Serry warned that "mounting tensions present a real risk of destabilisation".

An Israeli border policeman with a stun grenade during clashes in Hebron

Palestinian protests have been mounted with increasing anger over the last week in support of the 4,600 Palestinians held by Israel.

Palestinian and Israeli officials traded accusations on Monday, each saying the other was trying to exploit the latest unrest for political gains.

The Palestinian president, Mahmoud Abbas, said Israel is trying to provoke the Palestinians with what he said are increasingly lethal methods.

"However they try to drag us to that place, we won't be dragged," said Mr Abbas. "We won't be dragged, but they (Israelis) have to bear the responsibility."

Israeli government spokesman Mark Regev alleged that Mr Abbas' self-rule government in the West Bank is inciting violence against Israel. Palestinian officials have called for more solidarity rallies for the prisoners.

US president Barack Obama is due to visit Israel and the West Bank next month.

Mr Abbas has frequently rejected a return to Palestinian violence but made an end to the building of Jewish settlements on the West Bank a condition of returning to talks.

Mr Obama's visit, his first, has come about largely as a result of European pressure. London, Paris and Berlin all fear that the opportunity for a peaceful end to the Israeli occupation of the West Bank is rapidly fading.

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Italy Election: Split Vote Leads To Stalemate

Results in crucial elections in Italy show no clear winner and raise the possibility of a hung parliament.

The uncertainty does not help the nation's efforts to pass the tough reforms it needs to heal its economic woes and prevent a new round of global financial turmoil.

In the lower chamber of parliament, the Democratic Party leader Pier Luigi Bersani and his leftist coalition scraped a razor-thin victory over Silvio Berlusconi's centre-right, winning by 29.55% to 29.18% with 99.9% of the ballots counted.

Grillo: his protest group M5S appears the real winner

But in the 305-seat Senate, preliminary results from the interior ministry showed that the coalition led by former Prime Minister Mr Berlusconi could win 110 seats to the left's 97 seats, with neither group winning a majority, which is required in both chambers of parliament to form a government.

This leaves Italy in a state of limbo with a hung parliament that is unprecedented in its post-war history.

Bersani: narrow victory for his leftist coalition in the lower chamber

"It is clear to everyone that this is a very delicate situation for the country," Mr Luigi Bersani said.

US stocks closed sharply lower with the Dow Jones Industrial Average down 1.55% on the news. Stocks in Tokyo opened 1.83% lower.

The new Five Star Movement (M5S) led by former comedian-turned activist Beppe Grillo, who has stirred anger at politicians and budget cuts, became the country's third political force, creating dozens of new lawmakers.

Comparing single parties without coalitions, the M5S is now the biggest party in the lower house with 25.55% to the Democratic Party's 25.41% - a shock success that analysts predicted would reverberate around an austerity-weary Europe.

"This is fantastic! We will be an extraordinary force!" Mr Grillo said on his website, warning mainstream politicians they would "only last a few more months".

"We'll have 110 people in parliament and we'll be millions outside."

Berlusconi: doing better in the Senate

European capitals fear the lack of a clear winner could bring fresh instability to the eurozone's third largest economy after Germany and France and plunge it back into the debt crisis storm.

Some Democratic Party officials suggested fresh elections may have to be held within a few months after a reform of Italy's complex electoral laws. Others said some form of agreement could be found with the anti-austerity Five Star Movement.

Political analysts suggested a possible return to the grand coalition agreement between right and left seen over the past 18 months, or even dissolving the Senate alone to hold fresh elections for only one chamber of parliament.

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Horsemeat: Whitbread To Boost Food Standards

The Whitbread pub, which discovered horsemeat in two of its food products, has said it will offer to set new food standards to help restore public confidence.

The group said it would also impose a testing regime on all processed meats provided by suppliers and introduce a new system of certification.

It also revealed it would assist the Food Standards Agency (FSA)  "in setting tougher new standards" and controls to apply right throughout the restaurant industry".

The move comes after horsemeat was found in lasagne and beef burgers sold in its food outlets.

It operates the Beefeater, Table Table and Brewers Fayre pub chains.

Chief executive Andy Harrison said: "We have been dismayed by the recent discovery of equine DNA in two of our restaurant products.

"This is not just a Whitbread problem, but a wider issue of quality control within parts of the processed meat supply chain, which supplies a number of restaurants and retailers."

Whitbread also operates Premier Inns and Costa coffee chains.

The new testing regime announcement comes as Whitbread revealed its latest group results.

The company saw sales rise 2.7% in the 11 weeks to February 14.

It revealed that sales at Costa were up 5.5%.

The coffee group has reaped benefits from consumer displeasure at US-based rival Starbucks, which was revealed late last year to have paid virtually no corporation tax.

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Doughty Cable Float Sparks Listings Market

By Mark Kleinman, City Editor

One of Britain's biggest privately-owned manufacturing groups is being groomed for a stock market listing, in a move that reflects brightening sentiment about the global economy.

I have learnt that the owner of HellermannTyton, which specialises in making cable ties and fasteners for a wide range of industrial purposes, is preparing to file for a flotation of the company.

Doughty Hanson, the private equity firm which has owned HellermannTyton since acquiring it in 2005 for about £300m, has appointed Goldman Sachs and JP Morgan, the investment banks, to work on the listing. London is a strong contender to host the flotation although Doughty is also expected to consider other locations.

The appointment of the two banks - with others expected to be hired - comes amid a resurgent appetite for stock market flotations. In recent weeks Crest Nicholson, the housebuilder, and Countrywide Holdings, the estate agency chain, have announced listing plans.

A glut of other companies, including Global Switch, the data centre operator, Merlin Entertainment Group, the owner of Alton Towers, and Royal Mail, are all expected to announce initial public offerings of shares in the next year.

Doughty Hanson's decision to pursue an IPO of HellermannTyton this year is significant because the buyout firm has aborted two previous attempts to sell the company. UBS, and subsequently DC Advisory Partners, were hired to find a buyer for the manufacturer in 2011 and 2012 respectively, but neither effort was successful.

Improving economic sentiment in some of the core markets to which HellermannTyton sells its products means that a sale of the company, rather than a flotation, is not impossible.

The value that Doughty Hanson is seeking is unclear, although it reportedly put a price tag of up to £800m on HellermannTyton during the two earlier processes.

HellermannTyton operates two manufacturing plants in the UK and employs hundreds of people at the sites in Manchester and Plymouth. It is headquartered in Luxembourg and its main UK base is in Crawley, West Sussex.

Doughty Hanson, whose co-founder Nigel Doughty, the former owner of Nottingham Forest FC, died last year, is a prominent participant in the UK's private equity industry. It owns stakes in companies such as Vue Entertainment, the cinema operator, and Tumi, the luggage and consumer products manufacturer.

It bought HellermannTyton from Spirent, the industrial group. Since the takeover seven years ago, Doughty Hanson has grown HellermannTyton's core business in the automotive and electrical sectors. The manufacturer now has operations in 34 countries and 19,000 customers.

Spokesmen for Doughty Hanson and HellermannTyton declined to comment.

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One In Three 'Unable To Save For The Future'

Some 15 million Britons - almost a third of the population - are living on a "financial precipice" with no money put aside for the future, a report has warned.

The tough economy and the need to help other family members struggling with high living costs means few are managing to put away anything in savings.

Some 31% of people are failing to save any cash at all, according to the Savings and Investment report by Scottish Widows.

And of the two-thirds of people who are managing to add to their nest eggs, some 32% said they had less than £1,000 put away - not even enough to pay someone's average mortgage and council tax costs for a month - the report said

One quarter of the 5,000 people surveyed who have families said they had given loans to their children.

Parents said that they had handed out loans averaging £15,000 to help their sons and daughters buy their first home or go to university.

A quarter of mums and dads said this had forced them to cut back on their own savings, while one in 12 said this had stopped them saving altogether.

Older generations are also feeling the strain, with grandparents lending £3,665 on average to their grandchildren, the report found.

Two-thirds of people said that a general lack of any spare cash is holding back their ability to save.

As well as rising living costs such as food, energy bills, rents and petrol making life harder for savers, rates on savings accounts have been plummeting in recent months, meaning they face an even tougher struggle to make any real returns.

Iain McGowan, head of savings and investments at Scottish Widows, said: "When we are faced with immediate financial commitments, such as mortgage payments and day-to-day living expenses, then it is absolutely necessary to give these pressing needs priority.

"However, taking a wholly short-term view of our finances will mean we are unprepared for the financial needs and challenges that lie ahead in the future."

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Pound 'At Risk' After AAA Credit Rating Blow

Global financial markets are to deliver their first response to the decision of a major credit agency to strip the UK of its prized AAA credit rating today.

Senior Conservatives have rallied round Chancellor George Osborne in the wake of the decision by agency Moody's, predicting it will have little impact on the Government's borrowing costs.

But there are fears that sterling will be hit hard in the wake of the news.

Tory backbenchers also upped calls for tax and spending cuts to kick-start growth, warning that next month's Budget is the "last chance saloon".

Meanwhile, Labour reiterated its calls for borrowing to be increased in the short term to fund a fiscal stimulus.

Explaining its move on Friday, Moody's pointed to "subdued" growth prospects in the UK and a "high and rising debt burden".

It now expects the "period of sluggish growth" to "extend into the second half of the decade".

Business Secretary Vince Cable dismissed the downgrade as "largely symbolic".

The Liberal Democrat told the BBC's Andrew Marr Show: "In terms of the real economy there is no reason why the downgrade should have any impact.

"If you remember last year the US was downgraded, the economy grew strongly relative to Europe... and France had a downgrade last year, its interest rates that it borrows long term in the markets are only a little above ours.

"These things do not necessarily affect the real economy but they reflect the fact that we are going through a very difficult time and we are trying to balance the need to get the deficit and the budget under control with the need to get back to economic growth."

Lord Lawson has warned of a 'run on sterling'

Tory former chancellor Ken Clarke warned it would take years to regain the top credit rating and return to "sensible economic growth".

But he said the coalition should "stick to" its policy, adding: "I think the way in which we will recover confidence is making clear we're a strong firm Government, that the strategy we're on is the one that is eventually going to get things better and that the alternatives frankly are a bit odd."

Former Conservative chancellor, Lord Lawson, insisted the "basic thrust" of the Government's policy was right, but he also warned that ministers and the Bank of England had to be careful not to trigger a run on the pound.

The peer told Sky News' Dermot Murnaghan programme: "I hope there won't be a run on sterling.

"I think it would be a very great mistake if anyone in the Government or Bank of England gave the impression we would like to see a further depreciation of sterling. That would not be clever, that would not be sensible, that would not be helpful."

Former Labour chancellor Alistair Darling said he had been "extremely doubtful" of the Government's strategy ever since 2010.

He told the Murnaghan programme: "I think that when they were elected they very unwisely staked their reputation on maintaining the AAA credit rating that they had, they compared us to Greece, they said they could eradicate the structural deficit by 2015.

"These were wildly optimistic claims and they were perhaps made because of inexperience and maybe a touch of recklessness.

"But the result is that they have sustained quite substantial political damage, but more importantly for the country the economic harm of yet another another blow to confidence. I think that is very, very important, they have been following the wrong economic strategy, but they are paying a very, very heavy price for it."

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Myners: Ex-Minister Courted For Tabloid Role

By Mark Kleinman, City Editor

Lord Myners, former chairman of The Guardian's parent company, has been approached about chairing a new venture that is targeting a foothold in Britain's cut-throat tabloid newspaper market.

I understand that the board of Phoenix Newspaper Publishing has sounded out Lord Myners about chairing the company, which is in talks with Trinity Mirror about a deal to take control of the Sunday People.

Friends of Lord Myners said today that he was "flattered" by the interest from Phoenix but suggested that he was likely to reject the invitation to chair the company.

A City Minister in the last Labour administration, Lord Myners has rebuilt an extensive boardroom career since the 2010 general election.

He is a non-executive director of MegaFon, the London-listed Russian telecoms group, and chairman of the UK activities of Cevian Capital, a well-known activist shareholder.

Among the companies where he has previously held directorships are Land Securities, the property company, and Marks & Spencer.

Phoenix has been trying for more than a year to raise millions of pounds in funding to support the development of a new tabloid title that would target the vacuum left by the demise of the News Of The World.

Dozens of potential investors have been approached about putting money into the vehicle, and insiders say that Phoenix is optimistic that it will secure the necessary backing in the coming months.

The executives behind the venture, who include Sue Douglas, the former Sunday Express editor, and Rupert Howell, the former ITV commercial director, plan to relaunch Trinity Mirror's title as News of the People.

They believe there is an opportunity to pick up many of the estimated 1.3m News Of The World customers who stopped buying a Sunday newspaper when News International closed it during the phone-hacking scandal in 2011.

Last month, Trinity Mirror confirmed the talks with Phoenix, saying: "Trinity Mirror plc confirms that it has been approached by a group of investors who have expressed an interest in working with the Group to invest in and develop the Sunday People.

"Discussions are at a very preliminary stage and there is nothing further to report. A further announcement will be made as and when appropriate."

Phoenix and Lord Myners both declined to comment.

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AAA Credit Rating Lost: Osborne Defiant

George Osborne has come under attack over what Labour calls his "catastrophic economic policy failure" after the UK lost its top-grade AAA credit rating.

International agency Moody's downgraded it by one notch to AA1, citing slow growth and a rising debt burden.

The Chancellor said the coalition would not "run away" from its economic problems and it was determined to stick by its plan for recovery.

The downgrade is a major blow for Mr Osborne, who has been coming under increasing pressure to take action to stimulate the economy.

In the last election, Mr Osborne made safeguarding Britain's credit rating one of his key pledges.

He has used maintaining the rating for government bonds as one of the main arguments for the Government's austerity programme.

The Chancellor insisted the Government was delivering on its commitment to tackle the UK's debt.

He said: "We have a stark reminder of the debt problems facing our country - and the clearest possible warning to anyone who thinks we can run away from dealing with those problems.

"We are not going to run away from our problems, we are going to overcome them."

He added: "In the end, the test of our credibility as a country is there every day in the markets when we borrow money on behalf of this country from investors all around the world.

Moody's said it did not expect Britain's slow recovery to change

"At the moment we can do that very cheaply with very low interest rates precisely because people have confidence that we have got a plan, we've got to stick to that plan and we are going to deliver that plan."

Labour's shadow chancellor Ed Balls told Sky News: "They (the Government) are paying the price for an absolute catastrophic failure of economic policy and everybody can see that now pretty much other than the chancellor and the prime minister.

"Until they face up to reality, we're just going to have more of the same."

Moody's said Britain's recovery was proving to be significantly slower than previous rebounds from recession and it did not expect the situation to change.

"(There's) increasing clarity that, despite considerable structural economic strengths, the UK's economic growth will remain sluggish over the next few years," it said.

Moody's is the first of the major credit rating agencies to knock the UK off of its top rating.

The ratings agency also cut the Bank of England's AAA rating by one notch, also to AA1. The US' top credit rating was downgraded by one notch in 2011.

Sky's Economics Editor Ed Conway said: "The fact that Britain has lost its AAA crown for the first time since credit ratings were given to the UK back in the 1970s, is a really big blow to Britain's reputation.

"It's something of an economic blow, but in a way it's more of a political problem for George Osborne. He made a key part of the Conservative election pledge to safeguard Britain's credit rating."

Moody's said that the British economy is constrained both by the troubled global economy and the drag from businesses and the Government slashing its debt burdens.

"Moreover, while the Government's recent Funding for Lending Scheme has the potential to support a surge in growth, Moody's believes the risks to the growth outlook remain skewed to the downside," it said.

Labour has insisted that withdrawing demand from the economy has put it more at risk by stunting growth.

Mr Balls said: "This credit rating downgrade is a humiliating blow to a prime minister and chancellor who said keeping our AAA rating was the test of their economic and political credibility.

"In the Budget the government must urgently take action to kick-start our flatlining economy and realise that we need growth to get the deficit down. If David Cameron and George Osborne fail to do so and put political pride above the national economic interest we face more long-term damage and pain for businesses and families."

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Exclusive: RBS Mis-Selling Bill To Add £1.1bn

By Mark Kleinman, City Editor

The state-backed Royal Bank of Scotland (RBS) will next week set aside another £1.1bn to compensate customers for mis-selling products to consumers and small businesses.

I can reveal that the bank is preparing to say in its full-year results announcement next Thursday that it is increasing its provision for mis-selling interest rate swaps by roughly £700m, which will take its cumulative bill to £750m.

City sources say that RBS will also announce that it is raising its payment protection insurance (PPI) mis-selling bill by just over £400m, meaning it will have put aside just over £2.1bn for its part in the industry-wide scandal.

The new provisions will further elevate the total bill for Britain's biggest banks from two of the sector's biggest mis-selling episodes. RBS's new PPI charge will mean that the four major lenders have had to provide more than £11bn for compensation, while its hit on interest rate hedging products will enlarge the industry bill to £1.6bn.

Neither of those figures will, however, include imminent upward revisions in both categories by both HSBC and Lloyds Banking Group, which also report full-year results in the next ten days.

Both RBS and Lloyds, which are 82% and 39% owned by British taxpayers respectively, will report losses for 2012.

RBS is also expected to confirm that it is examining a separation of its US retail banking business, Citizens, through a stock market listing in the US, in a move that over time could raise billions of pounds for the British lender.

George Osborne, the Chancellor, is likely to welcome the move when he appears in front of the Parliamentary Commission on Banking Standards on Monday.

Both Mr Osborne and David Cameron have been increasing the pressure on RBS's management, led by chief executive Stephen Hester, to accelerate the group's restructuring.

Mr Hester is expected to respond next week by pointing to a further retrenchment of its investment banking operations. RBS, he is understood to be preparing to say, will continue to reshape its operations into a British retail bank that is also able to support the international business objectives of core UK clients.

The new provisions for PPI and swaps mis-selling will reflect ongoing claims trends and the recent agreement between the major banks and the Financial Services Authority to offer redress to small business customers according to a defined framework.

Barclays added another £1bn to its own mis-selling tab when it reported its full-year results earlier this month.

The major banks have grudgingly accepted the swaps settlement with the City regulator although they have argued that many of the cases for which they will have to pay compensation should not be categorised as mis-selling.

They have also pointed to the vast numbers of bogus PPI claims they have received, many of which have been paid out anyway. The industry has been discussing the imposition of a time limit on PPI mis-selling claims although at least one major bank is lukewarm about the idea.

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