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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