BBC News - UK borrowing £64bn more than forecast, says IFS report

UK borrowing is likely to be £64bn higher in 2014-15 than forecast, according to a closely watched report.

Chancellor George Osborne is under pressure to change economic policy

The Institute for Fiscal Studies (IFS) says that a weaker-than-expected economy will mean the government has to borrow a lot more, unless it imposes tax rises and further spending cuts.

Public service spending could fall by a third by 2018, the IFS said.

The cuts could lead to the loss of about 1.2 million public sector jobs, it said in its Green Budget 2013.

Reuters News - U.S. awaiting EU political signal for trade talks: official

By Doug Palmer

WASHINGTON | Tue Feb 5, 2013 6:09pm EST

(Reuters) - The United States needs a strong political signal from European Union leaders to put proposed talks on a transatlantic trade agreement into high gear, a U.S. senior administration official said on Tuesday.

"What we're really focused on is making sure the Europeans are fully committed to the talks and have the political will to take on the difficult issues," the official said ahead of meetings on Wednesday with EU Trade Commissioner Karel De Gucht.

The world's largest trading partners have been discussing the possibility of launching trade talks since at least November 2011, when PresidentBarack Obama and his European counterparts created a high-level task force to examine the idea.

De Gucht is in Washington for talks with U.S. Trade Representative Ron Kirk and other U.S. officials on the task force's recommendations, which were supposed to be given to U.S. and EU leaders by the end of last year.

A interim report released in June made a preliminary recommendation for talks on a "comprehensive" trade pact.

No date has been set for releasing the final recommendations, although De Gucht said last week they were essentially complete.

Leaders from the 27 EU member states are expected to discuss the proposed trade talks and the task force's recommendations at a European Council meeting on Thursday.

"We hope they'll use that council meeting as an opportunity to send a clear message about their political will to do what is necessary to make this work," the senior U.S. said, speaking on condition that he not be identified.

The United States has long been frustrated with EU restrictions on U.S. farm products it says are not based on any scientific evidence of health risk.

It has pressed the EU to address those concerns as a sign it is serious about the trade talks. On Monday, the EU dropped its ban on U.S. live pigs and on beef washed in lactic acid to clean pathogens.

The EU may also consider easing restrictions on imports of U.S. animal fat, known as tallow, used in biofuels.

Since tariffs between the United States and the EU are already relatively low. The main benefits from the talks are expected to come from harmonizing standards and reducing regulatory barriers to trade.

U.S. Vice President Joe Biden, in speech on Saturday in Munich, touted the potential job-creating benefits of a transatlantic trade pact, but dragged out a car metaphor U.S. officials have repeatedly used to express their wariness about getting stuck in endless negotiations with the EU.

"If we go down that road, we should try to do it on one tank of gas and avoid protracted rounds of negotiations," Biden said.

U.S. officials were stung by the Doha round of world trade talks, which began in 2001 and have never come to a conclusion because of sharp disagreements between the United States, the EU and developing countries.

Still, talks between the United States and the EU could easily take more than a year because of the complexity of the issues involved.

(Editing by Philip Barbara)

Reuters News - Euro, shares recover as European worries recede

1 of 8. Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange January 4, 2013.

Credit: Reuters/Remote/Joachim Herrmann

By Richard Hubbard

LONDON | Tue Feb 5, 2013 5:37am EST

(Reuters) - European shares and the euro steadied on Tuesday, a day after a sharp selloff caused by rising political risks in southern Europe, as new data confirmed the region's economy is showing clear signs of recovery.

The euro, which had taken the brunt of the selling and fallen from a high of over $1.37 at the end of last week to below $1.35 on Monday, recovered to be up 0.1 percent at $1.3530.

European shares which have tracked a similar path from closing near two-year highs on Friday to shedding most of the year's gains in Monday's sell-off, also staged a modest advance.

Most analysts see this week's gyrations as a necessary correction to a rally linked to signs of increasing euro zone economic stability and an improving global outlook, underpinned by the easier monetary policies of major central banks.

"What we are looking at, at the moment, is a correction, a consolidation or even a 'baby risk-off'," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, referring to investors selling higher risk assets.

"Nevertheless our working hypothesis remains that, after the correction, the trends in place before will continue, as the two main drivers are still there - namely central banks continuing to inject liquidity and more and more proof of an economic recovery," he added.

The markets regained composure on Tuesday after new data confirmed the euro zone's still struggling economy was starting to turn around.

Markit's Eurozone Composite PMI, which gauges business activity across thousands of companies and is seen as good gauge of future growth, rose in January to a 10-month high of 48.6 - though this still means the region's economy is contracting.

"The euro zone is showing clear signs of healing, with the downturn easing sharply in January and the region moving closer to stabilization in the first quarter," said Chris Williamson, chief economist at Markit.

But the data also highlighted a growing divergence in the euro zone between the performance of its biggest economy, Germany, and those of other partners, leaving some lingering doubts about the region's prospects.

Markit's composite German PMI chalked up its biggest one-month rise since August 2009, reaching its highest since June 2011. But in neighboring France it fell to its lowest level in nearly four years.

"The downturn we saw at the end of last year is starting to peter out, but I don't think we're going to see any spectacular growth yet," said Peter Westaway, chief European economist at Vanguard Asset Management.

After the data the broad FTSE Eurofirst 300 index of top European shares was up 0.5 percent while London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were between flat and 0.5 percent higher.

Analysts said the euro and equity market could see further volatility on Thursday when the European Central Bank holds its monthly policy meeting and President Mario Draghi is due to address a news conference.

GLOBAL CORRECTION

MSCI's world equity index was down around 0.2 percent reflecting an earlier sell-off across Asia when investors joined in the global correction in prices and ignored positive economic news fromChina.

The HSBC China services purchasing managers' index rose to a four-month high of 54 in January, underlining the strengthening momentum in the world's second-biggest economy, which is expected to grow 8.1 percent this year.

The MSCI index of Asia-Pacific shares outside Japan was down 0.9 percent, led by a steep 1.7 percent fall in Hong Kong shares, after the pan-Asian index had climbed to an 18-month high on Monday.

Investors will next look at data from the vast U.S. services sector, due later on Tuesday, to gauge the monetary policy outlook; recent releases have painted a mostly upbeat picture of the world's largest economy.

U.S. stock index futures pointed to a slightly firmer open on Wall Street ahead of the data after the renewed worries about the euro zone saw the S&P 500 index post its worst day since November on Monday.

BONDS STEADY

Bond markets were also stabilizing on Tuesday after the sudden upsurge in political worries about Spain and Italy had sparked a sharp rise in yields on peripheral euro zone debt and fresh demand for safe-haven German government bonds.

Spanish 10-year government bond yields eased back 1.5 basis points to 5.43 percent, while equivalent Italian yields were a single tick lower at 4.47 percent.

German Bunds meanwhile rose slightly to be up 1.5 basis points at 1.63 percent.

Commodity markets were moving in opposing directions.

Oil, which has dropped almost 1.5 percent since the start of the month, had inched up to $115.60 per barrel, while growth-attuned copper, platinum and palladium all slipped from multi-month highs, dragged down by patchy U.S. data and a stronger dollar.

Gold, which has been trapped in a tight $1,660 to $1,680 range since late last week, again saw little movement with investors increasingly wondering whether its 12-year rally is now over.

Monetary stimulus was a key driver of gold's rise in the last few years, and an improving U.S. economy has stirred thoughts that the Federal Reserve might curtail the bond-buying that has dominated its support efforts.

"There was some physical buying interest around $1,660, but not much at this level," said Ronald Leung, a dealer at Lee Cheong Gold Dealers in Hong Kong.

"People are mostly waiting for more data from the United States to assess how the economy is and whether quantitative easing will continue."

(Additional reporting by Marc Jones and Atul Prakash; Editing by Alastair Macdonald)

Reuters News - Fed officials see brighter global economic outlook

William Dudley, President and CEO of the Federal Reserve Bank of New York, speaks during the Asia Society and Economic Club of New York luncheon, in New York, September 24, 2012.

Credit: Reuters/Chip East

By Alister Bull and Jonathan Spicer

WASHINGTON/NEW YORK | Fri Feb 1, 2013 1:47pm EST

(Reuters) - Two top Federal Reserve officials painted a picture of cautious optimism on Friday for the U.S.economy in 2013, helped by stronger global growth as the central bank aggressively prints money to curb the nation's lofty rate of unemployment.

The Fed this week decided to keep buying bonds at a $85 billion monthly pace, and hold interest rates near zero until the jobless rate falls to 6.5 percent, so long as inflation does not threaten to rise above a threshold of 2.5 percent.

U.S. unemployment edged up 0.1 percentage point to 7.9 percent in January, and the economy shrank slightly in the final quarter of 2012.

But New York Federal Reserve President William Dudley and St. Louis Fed chief James Bullard, who both voted in favor of the U.S. central bank's policy decision this week, saw reasons to be cheerful about the year ahead.

Their remarks are the first public comments by Fed policy-makers since the central bank issued a statement on Wednesday outlining its decision to keep in place an unprecedented level of monetary stimulus, which has tripled its balance sheet to almost $3 trillion since 2008.

"I think a lot of uncertainties that were around this economy in 2012 have come off the table," Bullard told Bloomberg Television in an interview.

"The (U.S.) election has come off. Some of the fiscal risk that was in the U.S. has come off. The European situation has settled down a lot. China looks like it will have a better year. Emergingmarkets generally...will have a better year," he said.

U.S. lawmakers on Thursday voted to allow the federal government to keep borrowing money until at least May 19, averting a potential collision with the U.S. debt limit that could have caused the nation to default on its debt obligations.

Politicians had already sidestepped potential tax hikes on all Americans at the start of 2013 by agreeing to raise taxes only on families who make more than $450,000 a year.

SLOWING BOND PURCHASES?

Bullard, who is viewed as a centrist on the Fed's 19-member policy committee, said that continued improvements in the labor market during the course of the year would put the Fed "in a position to slow down or stop the purchases."

A closely watched employment report released by the U.S. government earlier on Friday showed that 157,000 new jobs were created in January, while the previous two months' scale of employment creation was also revised higher. U.S. stocks rallied on the news.

"Things aren't perfect. But things are definitely improving, and that will actually be helpful for the U.S. outlook," Dudley told the New York Bankers Association in a speech that was mostly focused on revamping the wholesale funding market.

"If the rest of the world gets healthier, the demand for U.S. goods and services will increase and that will provide support to our own economy," he said.

With the Fed forecasting unemployment to decline only slowly over the next two years, economists do not expect it to begin raising interest rates until 2015 and see bond purchases continuing for the rest of this year and possibly into 2014.

However, minutes of the Fed's December 11-12 meeting, which were released with a three-week lag, showed that several policymakers wanted to slow or halt the buying well before the end of 2013.

Bullard, who had opposed the third round of bond purchases when it was announced in September, said he voted to back its continuation at the most recent meeting because it was a decision to keep policy steady.

"I felt that was probably the right thing to do at this meeting and so I was in agreement with the chairman and the majority in this case," he said.

However, he made clear that the central bank's policy committee continued to wrestle with quantitative easing.

Nor was there any consensus on providing markets with more clues on when the purchases will end, beyond current Fed guidance that it will look for a substantial improvement in the labor market outlook in weighing when to stop.

"I don't think we have any more agreement among members at this point," he said.

Some Fed officials favor adopting numerical economic thresholds to guide expectations of when buying will end. But Fed-watchers doubt the committee will be able to quickly come to a consensus over this matter, and it may prove impossible.

(Reporting By Alister Bull)

BBC News - George Osborne backs bank break-up powers

The UK's big banks will be separated if they fail to follow new rules to ring-fence risky investment operations from High Street outlets, Chancellor George Osborne has announced.

Watch live: Chancellor George Osborne giving his speech on banks

He has said taxpayers are angry at banks' behaviour and will never again be expected to bail them out.

His speech comes on the same day the government introduces its Banking Reform Bill in Parliament.

Customers will also be able to switch bank accounts to a rival within a week.

Mr Osborne had previously warned against "unpicking the consensus" over structural reform of the sector.

But the chancellor appears now to have accepted a major recommendation of last year's Parliamentary Commission on Banking Standards which called for a reserve power to "electrify the ring-fence" if banks did not implement reforms.

The Independent Commission on Banking, led by Sir John Vickers in 2011, had concluded that ring-fencing was the best way to protect "core" retail banking activities from any future investment banking losses.

Mr Osborne said in his speech, at JP Morgan's administration offices in Bournemouth, that banks had failed to take responsibility for their actions and people were still angry, five years after the financial crisis.

He referred to greed and corruption over banks' fixing of the Libor interest rate, but said that staying angry about bankers' behaviour would not fix the system.

Recklessness by banks' so-called "casino operations" was blamed for dragging the financial system to the brink of collapse. The reputation of banks has been further undermined by scandals such as the mis-selling of payment protection insurance and the rigging of the Libor interest rate.

Under the reforms, investment and High Street banks will also have different chief executives.

Less money

"When the [financial] crisis hit, the fire was then so great that the whole economy was sacrificed to put it out," Mr Osborne said. "The British people need to know that lessons have been learnt. And they have."

He said his predecessor Alastair Darling felt he had no option but to bail Royal Bank of Scotland out.

"Not just RBS on the High Street, but the trading positions in Asia, the mortgage books in sub-prime America, the property punts in Dubai.

"I want to make sure that the next time a chancellor faces that decision they have a choice. To keep the bank branches going, the cash machines operating, while letting the investment arm fail."

Shadow Treasury minister Chris Leslie said: "If the chancellor is now being dragged towards a partial climb down, this is a step in the right direction.

"We must see fundamental cultural change in our banks. If this does not happen then banks will need to be split up completely, as we made clear in the autumn."

But Anthony Browne, chief executive of the British Bankers' Association, said the legislation would create "uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses".

He said it would damage London's attractiveness as a global financial centre.

Mr Osborne's speech comes at the start of a year of change for the UK financial regulation.

The Financial Services Authority is being replaced by two bodies. The Prudential Regulation Authority, part of the Bank of England, will regulate financial firms, and the Financial Conduct Authority (FCA) will oversee consumer protection.

And later this year Mark Carney will become the new governor of the Bank of England, replacing Sir Mervyn King.

Reuters News - U.S. backs off goal of one million electric cars by 2015

A plug is seen coming from the Chevrolet Volt electric car during the North American International Auto Show in Detroit, Michigan January 13, 2009.

Credit: Reuters/Mark Blinch

By Ayesha Rascoe and Deepa Seetharaman

WASHINGTON/DETROIT | Thu Jan 31, 2013 4:28pm EST

(Reuters) - The U.S. Department of Energy on Thursday eased off President Barack Obama'sstated goal of putting 1 million electric cars on the road by 2015, and laid out what experts called a more realistic strategy of promoting advanced-drive vehicles and lowering their cost over the next nine years.

Since Obama announced the goal in his 2011 State of the Union speech, auto analysts and executives have doubted American consumers would buy a million electric vehicles by 2015.

"Whether we meet that goal in 2015 or 2016, that's less important than that we're on the right path to get many millions of these vehicles on the road," an Energy Department official said, in advance of remarks by Energy Secretary Steven Chu in a speech at the Washington D.C. auto show.

The proposal to lower electric vehicle costs represents the first look at how U.S. auto policy may take shape during Obama's next four years. His first term saw a flurry of initiatives related to the auto industry, beginning with government rescues of General Motors Co and Chrysler Group LLC.

Chu told reporters after his speech that he was excited by the advances in vehicle technology.

Asked about the 1 million electric vehicles goal, Chu said: "It's ambitious, but we'll see what happens."

Promoting plug-in hybrids and electric vehicles has been another long-running focus for the White House, which has also pushed for more stringent standards on fuel economy. Overall, U.S. federal policies to promote electric vehicles will cost $7.5 billion through 2019, the Congressional Budget Office said in September.

That includes $2.4 billion in grants to lithium-ion battery makers and projects to promote electric vehicles as well as $3.1 billion in loans to auto companies, intended to spur production of fuel-efficient vehicles.

But demand for hybrids and electric vehicles has been weaker than expected. Last year, nearly 488,000 hybrids, plug-in hybrids and electric cars were sold in the United States, accounting for 3.3 percent of the overall auto market, according to green-car website Hybridcars.com.

For the administration to meet its 2015 goal, electrified vehicles would have double their market share to roughly 6 percent of the U.S. auto market, which automotive consulting firm Polk estimates will reach 16.2 million vehicles that year.

Poor demand has hurt lithium-ion battery makers, pushing two DOE grant recipients, A123 Systems Inc and EnerDel, to file for bankruptcy protection.

Dow Chemical Co took a $1.1 billion charge last year, related in part to a writedown of its lithium-ion battery business, Dow-Kokam LLC.

Under the new strategy outlined on Thursday, the DOE is supporting research into new battery technologies and manufacturing methods that would lower the cost of lightweight materials and improve vehicles' fuel-efficiency.

Chu stressed that it was important to set high goals for electric car technology, because advanced vehicles will eventually be competing with internal combustion vehicles that get 45 miles per gallon fuel economy.

The DOE also confirmed its goal to lower the cost of lithium-ion batteries to $300 per kilowatt hour by 2015 from the present $650. The department eventually hopes to get the cost down $125 per kilowatt hour.

Ultimately, the department's goal is to have about 500 companies offer workplace charging over the next five years. Several companies are already on board, including Google Inc, Verizon and General Electric Co.

(Editing by Matthew Lewis and David Gregorio)

BBC News - China manufacturing growth in slowdown

China has reported a slowdown in manufacturing growth, underlining the challenges its new leaders face in spurring economic growth.

A sustained recovery in China's manufacturing sector is key to its economic growth

China's Purchasing Managers' Index (PMI), which surveys big firms, fell to 50.4 in January from 50.6 in December.

However, HSBC said its PMI for China, which surveys smaller firms, rose to 52.3 in January, from 51.5.

Analysts said volatility in the two measures was normal and the underlying trend was that of a recovery.

The PMI is a key indicator of activity in the sector and a reading above 50 shows expansion.

"The economy is in the midst of mid-cycle upswing... there is sufficient economic momentum and political impetus to ensure a continuation of the current expansionary phase," said Alistair Thornton, senior China economist at IHS Global Insight.

He added that manufacturing activity usually slows around the Chinese New Year, while a colder-than-normal winter had caused problems for some firms.

The political situation may also have had an impact, he said.

"Businesses may be taking a wait-and-see attitude prior to the government transition in March.

"It is important not to rush to the conclusion that the economy is taking a nose-dive again."