British manufacturing shrank at its fastest rate for three years in July, highlighting the perilous state of the economy as the Chancellor, George Osborne, launched his Funding for Lending programme to encourage banks to lend more to businesses and households. The Markit/Cips PMI manufacturing index dropped unexpectedly sharply from 48.4 in June to 45.5 in July – any measure below 50 indicates the sector is shrinking. This is the first major economic indicator suggesting the third quarter in Britain has got off to an even worse start than the second. Osman Ismail, an economist with the Centre for Economics and Business Research, said: “This data offers a first glimpse at how manufacturing performance may develop in the third quarter, and there remains little to be cheerful about. The manufacturing recessions in both the UK and the eurozone are set to drag on, placing continued downward pressure on economic growth during the second half of the year.” The Institution of Mechanical Engineers said the drop for a third month running was “deeply worrying” and called on the Government to launch a “detailed manufacturing and industrial strategy”. The data came as the Government kicked off its £80bn Funding for Lending scheme – its latest attempt to encourage banks to increase loans to homeowners and businesses –against a backdrop of bleak new figures on Britain’s manufacturing and housing markets. Reports The Independent.
FASHION chain Next insisted the UK was not in recession yesterday as it raised its profit forecast. Chief executive Lord Wolfson said he did “not for one second believe” recent official figures showing that the economy contracted by 0.7% in the three months to the end June. “It is not possible for an economy to fall by that amount while employment figures rise. My sense is that the economy is flatlining. The underlying picture is getting better,” he added. He was speaking as Next reported a forecast beating 4.5 per cent rise in total sales in the 26 weeks to July, helping it raise annual profit forecasts to between £575million and £620million from a previously predicted £560million to £610million. Its shares soared 208p to 3427p. Says The Express.
Olympus, the Japanese camera giant still reeling from the corruption exposed by British whistleblower Michael Woodford, was yesterday thrown into yet another scandal as it admitted being under investigation for bribery. The maker of medical endoscopes is being investigated for travel, meal and entertainment expenses lavished by its US subsidiary on doctors in Brazil. Referring to the US Department of Justice, new chairman Yasuyuki Kimoto told Bloomberg: “We understand DOJ is trying to gather lots of information on us.” The latest scandal to break out around the stricken company emerged just hours after a medical equipment maker that was an Olympus shareholder sued it over last year’s accounting fraud. Terumo holds a 2.5% stake in the company and is suing for the collapse in the value of that stake since the crisis broke last year. Some analysts interpreted its claim as a tactic to pressurise the company into accepting a Terumo plan to invest $640m (£408m) into Olympus. Mr Woodford issued a statement in which he said that he never had responsibility for the division involved in the Brazilian payments. According to The Independent.
Bank of England policymakers are facing mounting pressure to turn to further emergency measures to boost the recovery as the economic outlook becomes increasingly bleak. The Bank’s Monetary Policy Committee (MPC) is expected to hold quantitative easing levels at £375 billion after last month’s £50 billion injection while interest rates will be kept at record lows of 0.5% Economic growth figures released since the nine-strong panel’s July meeting revealed a sharper-than-expected decline in output between April and June. The outlook darkened as a key purchasing managers’ survey revealed the worst manufacturing performance in three years in July and initial reports suggested the retail sector was not receiving the Olympic Games boost to business previously expected. The focus will also be on the eurozone, where the European Central Bank (ECB) will reveal its own policy decision for the month after its boss recently pledged to do whatever it takes to save the single currency. Says The Express.
Senior Treasury sources late last night played down suggestions that the Government is prepared to spend £5bn buying the remaining 12% stake of RBS that isn’t already under state control. The Government has been holding a series of talks over how to boost bank lending to British businesses and some ministers are believed to have raised a full takeover of RBS as one possible option. News of the proposal comes as an £80bn scheme designed to increase the flow of credit to homeowners and businesses has been dubbed an “interest rate subsidy to banks”. There are fears that the Funding For Lending (FFL) scheme, a joint Bank of England and Treasury project, will join the ranks of a series of Government initiatives that have failed to encourage banks to lend. George Osborne, the Chancellor, confirmed today that FFL is likely to replace the National Loan Guarantee Scheme (NLGS), the flagship £20bn “credit easing” programme he launched in March. So says The Telegraph.
Central bankers play down claims by European politicians about the ‘unlimited firepower’ for bailout funds
European politicians and central bankers were at odds on Wednesday on the eve of a crucial meeting of eurozone policymakers that has encouraged speculation about “unlimited firepower” for bailout funds to resolve the crisis. While Mario Monti, the Italian prime minister, spoke hopefully of the eurozone’s bailout fund being granted a banking licence and access to endless funding from the European Central Bank, Jens Weidmann, head of Germany’s powerful Bundesbank, strongly opposed radical action. The 23-strong governing council of the ECB will meet on today (Thursday) in Frankfurt for the first time since the ECB chief, Mario Draghi, declared a no-holds-barred fight to save the euro last week in London. Draghi’s pledge to “do whatever it takes” to save the currency and the confidence he voiced that “it will be enough” triggered a euro rally over the past week and curbed bond market pressure on Spain and Italy. Opines The Guardian