PRESS DIGEST - Financial Times - May 13

Financial Times

MOUNTING SIGNS OF ECONOMIC SLOWDOWN

Economic figures released on Monday show inflationary pressures are increasing to levels not seen in almost 20 years, and new data due on Tuesday are expected to show significant parts of the economy are staggering. A monthly survey from the Royal Institution of Chartered Surveyors published on Tuesday reveals 19 in every 20 estate agents have reported a fall in prices in April. The British Retail Consortium says the annual growth of total spending in its members' stores has fallen to its lowest rate for three years. Figures from the Office for National Statistics revealed on Monday that the prices of manufactured goods registered in April their fastest rate of increase since 1986, and it appears almost certain that Bank of England governor Mervyn King will need to write his second letter in 18 months to explain the rise in inflation more than one percentage point over the two percent target.

WARNING ON RISK TO GOOD PENSION SCHEMES

Pension consultants and the Association of British Insurers are warning that measures aimed at stopping rogue employers abusing the new system of personal accounts due in 2012 may lead to the closure of robust existing pensions. Under government proposals, all income, including bonuses and overtime, will count as part of the eight percent of earnings that will be put into the new personal pensions. Many existing pension schemes do not account for fluctuating parts of pay such as bonuses, overtime and commission, as pensionable pay, and the issue will arise when employers will have to endlessly check whether the amount they are putting into their pension scheme matches the eight percent of total pay. 'This complication is likely to result in many employers taking the opportunity to close their existing pension scheme and move to personal accounts,' said Roger Mattingly of the Society of Pension Consultants.

UPGRADING IS STILL BIG BUSINESS

From builders' merchants to niche artisan kitchen designers, a range of businesses has benefited from the home improvement wave over the past decade. Although the slowdown in the housing market has affected demand for such services and products, the effect does not appear to be as great as expected. It appears that if people cannot move, they decide to invest in their existing property. 'Our customers are clearly investing in their homes for the long term rather than focusing on purely aesthetic quick fixes [...]', said Kerry McCulloch, manager of John Lewis's furnishing and fittings advice service. Companies also benefiting include the kitchen supplier Galiform (GFRM.L: Quote, Profile, Research), though some city analysts suspect that the latter firm has benefited from the consumer slowdown taking longer to catch up.

HSBC WARNS US CRISIS WILL CONTINUE

Revealing that it had set aside 5.8 billion dollars due to the credit turmoil in the first quarter of 2008, HSBC (HSBA.L: Quote, Profile, Research) warned on Monday that the US housing downturn could last for another year. 'We don't think this is a 2008 event, it's a 2009 event,' said chief executive Michael Geoghegan. The bank put down to 'misunderstanding or error' the questions raised by the activist investor Knight Vink on the bank's subprime loan numbers. Vink argued that the loans were valued on HSBC's balance sheet at 23 billion dollars more than their market value.