Wednesday newspaper round-up: BoE, Euro break-up, Tesco
01 Aug, 2012 06:52
Four leading economists have called on the Bank of England's Monetary Policy Committee to cut interest rates from their already historic low in an attempt to kickstart growth. The members of The Times' Shadow MPC - Michael Saunders, UK economist at Citigroup; Sushil Wadhwani, of Wadhwani Asset Management; Sir Steve Robson, the former second permanent secretary to the Treasury; and Charles Goodhart, of the London School of Economics - urged the Bank to cut rates by a quarter point to 0.25 per cent. "The economic outlook has worsened since the July meeting and inflation prospects have improved further. More stimulus is needed to prevent inflation falling below target over time," Mr Saunders said before the MPC's two-day meeting, which begins today. Wadhwani and Mr Saunders also voted for more money to be pumped into the flagging economy through quantitative easing.
Britain's heavily indebted economy would suffer a deeper slump than Germany's in the immediate aftermath of a break-up of the euro, a leading consultancy has predicted. Fathom Financial Consulting estimates that the UK's economic output would drop by 5.2% in 2013 in the case of an implosion of the single currency and a full-blown banking collapse. That compares with a 5% decline in gross domestic product in Germany and a 4.3% drop in the United States. The UK would suffer disproportionately in part because of its large financial sector and overvalued housing market. A flood of cash into sterling would also drive up the pound and crush exports, Danny Gabay, a director at Fathom, said. Speaking at the consultancy's Monetary Policy Forum, he said that the Bank of England would have to print £1tn in its quantitative easing programme to stop the pound from skyrocketing, The Times reports.
The Serious Fraud Office vowed to press on with its controversial fraud investigation into property entrepreneur Robert Tchenguiz despite suffering a damning High Court judgment on the case. The SFO said the inquiry would continue with "renewed focus and vigour", just hours after a High Court judge found it had illegally obtained search warrants used in dawn raids against Mr Tchenguiz and his brother Vincent. The decision means the multi-million pound investigation into Mr Tchenguiz's links with failed Icelandic bank Kaupthing could run into a fourth year. Work carried out by the SFO in relation to the Tchenguiz investigation had already been labelled incompetent by the judge presiding over the judicial review into their arrests and the searches of their properties, The Telegraph says.
Apple was "literally betting the company" when it introduced the iPhone, a US court heard on the first full day of a patent trial in which the US company is squaring up against Korean rival Samsung. The keenly-anticipated clash has been called the 'patent battle of the century' in which the competitors are suing each other for billions of dollars in damages for alleged infringements of patents used in their phones. Apple "were about to enter a field dominated by giants," Harold McElhinny, a lawyer for Apple, told jurors at the court in San Jose, California. But its designers created a "phone the world had never seen before." In Apple's opening statement, jurors were shown an internal review that Samsung did of the iPhone in late 2007 in which it is described as "beautiful" and "easy to copy." Apple is seeking more than $2.5bn (£1.6bn) in damages from Samsung, which has in turned sued Apple, according to The Telegraph.
Switzerland is facing the consequences of a vow to keep the franc weak. Figures released by the Swiss National Bank on Tuesday show that its euro holdings have ballooned in the second quarter of the year, as the bank battles haven demand from investors and struggles to maintain a ceiling of SFr1.20 against the single currency. But that strategy carries risks. One of these is that they'll be holding an asset that's viewed as being very poor quality says Steven Englander, foreign exchange strategist at Citigroup. Furthermore, The SNB is also creating a headache for other central banks, faced with rising demand for their currencies as Switzerland embarks on its rebalancing act. "Sweden will need to set monetary policy now with the SNB in mind," says Mr Yu. As well, Geoffrey Kendrick, foreign currency analyst at Nomura, estimates that, even if the central bank bought no more euros, it still needs to sell SFr20bn of euros to return to the same proportion of holdings it had in the first quarter. Offloading that could push the single currency sharply lower against other big currencies such as the dollar, The Financial Times writes.
Tesco was dealt a blow yesterday after ratings agency Standard & Poor's said it was considering cutting its credit rating and suggested that the retailer sell off businesses to cut its debt. S&P did not alter its "A-/A-2" rating - a grade that denotes an "excellent" business risk profile - but changed its outlook from "stable" to "negative" due to concerns about "weakening" profits at the supermarket giant. In January Tesco issued its first profit warning in 20 years, a shock that was blamed on UK shoppers turning their backs on its stores. "We believe that in light of currently difficult industry conditions, a trend of weakening profitability and low top-line growth will continue," said S&P. Its analysts said Tesco boss Philip Clarke's plans to revitalise the business by hiring more staff and revamping stores would "negatively affect its trading margins", and added: "In our opinion, market conditions will continue to be extremely competitive, particularly in the UK, with high pricing pressure throughout the industry," The Guardian reports.