British small business lending has remained sluggish and the construction sector has shrunk again, prompting a downbeat outlook for growth as the Bank of England began its two day monetary policy committee meeting. Striking falls in construction output were mostly responsible for the economy shrinking in late 2011 and early 2012, and threaten to push Britain back into recession. For the past couple of months the MPC has been divided over which response to take ranging from either restarting purchases of government bonds or other measures. Yesterday’s data sheds light on the challenges facing the MPC. The Markt / Cips construction data was weaker than expected as cold weather hit demand. A recent Bank of England survey showed banks preferred to lend to homebuyers and big companies than small businesses over the past three months. (the Guardian)
British tax payers will have to pay £38.2 million as part of a deal struck by European leaders to rescue Cyprus as the troubled country’s president warned of difficult days ahead and a new finance minister was sworn in. There will be a $10bn rescue deal between Cyprus and the so called “troika” of the European Commission, European Central bank and IMF which would help to restore the health of the economy. The IMF agreed to contribute $1bn towards the country’s bail out through a 3 year loan of which Britain is liable for 4.51%. (Daily Telegraph Business, Szu Ping Chan)
Yesterday a group of MPs argued that ministers should make the flat-rate pension more generous to ensure people have an incentive to save for their old age. Under Government plans people will have to work for 35 years to qualify for the new state pension. But the current system of pensioner benefits means that elderly people who have not worked will only be slightly worse off than those who have. George Osborne announced that the single tier scheme is being brought forward by a year to 2016. By starting the single tier pension a year earlier about 400,000 more people will qualify for the pension. The single tier pension will affect around 40 million people of working age when it comes into force, and will run alongside the Government’s plans to enrol people automatically into work place pensions in the coming years. The plans mean millions of workers may have to pay more tax through increased national insurance contributions if they are part of final salary occupational pension schemes. (Daily Telegraph, Peter Dominiczak)
Insurer Prudential is buying more than 500 houses and flats to let in London and the south of England, in a calculated bet on years of good returns from ‘Generation Rent’. In a deal worth £105.4m, the Pru’s real-estate management arm, Prupim, is buying a portfolio of 534 private rental units from upmarket house builder Berkeley. This is the first time in a generation that a large institutional investor has dabbled in the UK’s £840bn rental market, It might signal a return to the pre-1945 era when insurance firms and other large funds, had substantial property portfolios.
British housing reached a landmark this year demonstrated by the fact for the first time since the 1960s more people are living in privately rented accommodation than social housing. The latest English Housing Survey 2011 and 2012, published by the Department for Communities and Local Government in March, shows 3.84 million people live in the private sector, a shade higher than 3.8 million in social housing. The surge in the private rental market is reflected by a fall in ownership levels – two thirds (65%) of all households are owner occupiers, down from a peak of 71% in 2003. For many years seen as the lot of hard-up students or young footloose professionals, renting is becoming the “new normal” for millions, according to housing campaigners. (Guardian, Jennifer Rankin)
The Bank of England predicts borrowing problems for small businesses. Banks reported that demand for credit among small and medium sized firms had fallen over the quarter. The bank survey highlighted that lenders commented that confidence in the economic outlook remained fragile and that was weighing on demand. SME’s continue to be left out by lenders. A few lenders said that some companies might have been repelled from applying for credit due to a belief that lenders have little appetite for risk. Banks did not expect to increase lending to firms in the coming quarter, despite expected rising demand. This news comes after the Chancellor told MP’s that the state of the banks still deleveraging after the explosion of their balance sheets is one of the biggest problems that the UK economy must confront. (Telegraph, Emma Rowley, the FT)