Live Blog

April 16, 2014, 10:44am

The former chairman of the Co-op bank, Paul Flowers, has been charged with offences over class A and class C drugs.

Flowers held the role until last summer, when it was alleged by the Mail on Sunday that he had been using illegal narcotics, including crystal meth.

It was revealed in January that Flowers had been chosen for the job because he did so well in psychometric tests, despite a lack of financial experience.

West Yorkshire Police said in a statement that "Paul Flowers, 63, of Hollingwood Drive, Bradford, has been charged with two offences of possession of a Class A drug and one offence of possession of a Class C drug."

A statement from the Crown Prosuection Service's Clare Stevens said that "following a review of the evidence, I have concluded that there is sufficient evidence and it is in the public interest to charge Paul Flowers ... relating to an incident on 9 November 2013."

Flowers has been specifically charged for the possession of cocaine, methamphetamine and ketamine. He has been bailed, and will appear before Leeds Magistrates' Court on 7 May.

April 16, 2014, 10:20am

The shock fall seen in Eurozone inflation in March has been confirmed this morning.

A final revision of Eurozone inflation for March has come in at 0.5 per cent - confirming the four-year low preliminary reading and stoking concerns that the economic area could slip into deflation, as disinflation continues.

Below the European Central Bank one per cent "danger zone" for six months in a row, it'll heap yet more pressure on the central lender to act, and to act swiftly. 

Month-on-month, the consumer price index rose 0.9 per cent - below expectations of a 1.0 per cent increase.

Core consumer prices rose 0.7 per cent, just ahead of the 0.8 per cent estimate.

The largest upward impacts came from tobacco and restaurants, said Eurostat, which releases the figures. Dairy products also pushed prices up, while vehicle fuel, telecoms and heating oil had the biggest downward impacts.

In the EU, annual inflation was at 0.6 per cent in March, down from 0.8 per cent in February and 1.9 per cent a year earlier.

Source: Eurostat

This week, ECB president Mario Draghi signalled that he might now be heeding fears that the strength of the euro could negatively impact both growth and inflation.

A lower euro could be “crucial to fend off deflation”, says Capital Economics, although action from the ECB is far from certain.

April 16, 2014, 9:41am

BRITAIN’S railways are being funded increasingly by passengers as the government trims back its subsidies.

In the last financial year, customers stumped up £7.7bn, or 59.2 per cent of the network’s £12.3bn running costs, or even more if you include the £700m paid out in parking charges.

The Office of Rail Regulation said this increase, from 58.5 per cent two years ago, reflects the rising popularity of rail travel more than above-inflation fare increases.

In any case, passengers using unregulated fares, such as discounted advance tickets and first class upgrades, are coughing up £5bn, or two-thirds of all passenger income.

How much each passenger is subsidised by the government varies massively depending on where in the country they are travelling.

South West Trains, for example, is able to completely offset public subsidies with the £843m in fares it takes a year, while Northern Rail, a more rural set of routes, takes 69 per cent of its funding from the government.

An average English journey is subsidised by the state to the tune of £2.19, compared to £7.60 in Scotland and £9.33 in Wales. 

While many London-bound passengers are currently shouldering more of the funding burden than travellers in, say, Aberystwyth, the subsidy disparity means much-needed local services to the likes of Giggleswick and Cark can be run even at times when the routes are not funding themselves. The numbers will also vary depending on which lines are being upgraded or require lots of maintenance.

And commuters in the capital shouldn’t feel too hard done by – the recently revamped London Overground took 49 per cent of its running costs in public subsidies last year.

Network Rail, the public sector body that maintains the railways, is having its state funding cut by a fifth over the next five years, meaning the level of contribution from passengers, and the £204m that train operators paid out in dividends last year, will become increasingly important. 

April 16, 2014, 9:31am

Perhaps finally an ease to consumer budgets, and a chance that the "cost of living crisis" meme may start to fade away.

For the first time since July 2009, the Office for National Statistics' measure of average earnings growth may now exceed headline inflation.

Yesterday saw headline consumer price inflation fall to a four and a half year low of 1.6 per cent in the year to March, down from 1.7 per cent.

Average earnings growth has come in at 1.7 per cent for the three months to February, equal to that month's inflation figure. The volatile single month figure for earnings growth showed a 1.9 per cent rise in February - exceeding inflation and signalling the real wage growth we've been waiting for.

This shouldn't be a temporary phenomenon - Capital Economics' Paul Hollingsworth says that survey measures of workers' pay "continue to point to a strong pick-up in earnings growth."  But despite this, the headline three month measure excluding bonuses is up just 1.4 per cent, and real earnings remain 10 per cent below their 2008 peak. Our economics reporter Michael Bird writes that analysts fear we face a lost decade for earnings.

Simultaneously, the latest unemployment data sees the headline level of unemployment falling below the seven per cent level. Unemployment was last sub-seven per cent more than five years ago, and was seen at 6.9 per cent in the three months to February. That's down from 7.2 per cent last month. Analysts had been forecasting a drop to 7.1 per cent. The claimant count fell by 30,4000 in the month of March.

At below seven per cent, the unemployment rate is now where the Bank of England had said it would consider hiking interest rates, before it introduced a more qualitative form of guidance. Societe Generale's Kit Juckes call the figures we've seen this morning "unambiguously strong data."

April 16, 2014, 8:32am

RSA Insurance's attempts to renew itself continue.

The insurer announced the "agreed resignation" of its UK and Western Europe CEO Adrian Brown this morning.

That sees Brown resign from the board, but continuing in his executive role until a successor is found. Brown's final departure date is expected to be somewhere in the second half of 2014.

Brown had been with RSA for 25 years, and has been CEO of the UK business since 2008. Group chief executive Stephen Hester said that "we are grateful for all he has done". Jon Hancock, head of UK Commercial Lines and Mark Christer, head of UK Personal Lines, remain responsible for any RSA broker related business and strategies.

Brown said in the RSA's release that he has "enormous affection for the group and confidence in its future" but that "the time is right for me to take up a new challenge and for the business to seek fresh leadership." This is the latest top level change to management, after the resignation of the group's former chief executive at the end of 2013, Simon Lee, who has since been replaced by ex-RBS top dog, Stephen Hester.

Last week, the insurer announced that 95.69 per cent of its rights issue had been bought by investors, raising £773m for the group - what many investors saw as a rescue rights issue after the company suffered at the end of 2013. The company had a poor year after some accounting irregularities at one division and an increase in claims as a result of extreme weather events.

Shares collapsed at the end of last year, falling from a November 2013 peak of 129p to 90p in December.  And despite the success of the recent rights issue, and an upgrade from S&P, the company has been unable to regain a sure-footing. RSA stock is currently up just under 0.3 per cent this morning, at a shade under 93p.

April 16, 2014, 7:51am

European bourses are expected to open higher today.

After a very choppy day yesterday, US markets closed up, despite Russian claims that Ukraine’s “close to civil war”.

Weak GDP data from China - growth slowed to 7.4 per cent in the first quarter - could add jitters to markets, though, but there's also UK unemployment numbers to focus on.

The Chinese government targets growth of 7.5 per cent, although there’s speculation that could be revised lower over coming months.

Industrial production data for March was more optimistic, at 8.8 per cent from 8.6 per cent in February.

Corporate data

Tesco’s announced a 6.9 per cent in underlying pre-tax profit to £3.05bn and a 1.4 per cent fall in like-for-like sales.

The UK’s biggest house builder Persimmon says Help to Buy has helped it sell 5,000 homes.

Reckitt Benckiser has reported a four per cent rise in like-for-like sales in the first quarter, to £2.2bn. It added that a spin-off is a serious option when it comes to decisions from a review of its pharmaceuticals business.

Luxury brand Burberry has reported a 19 per cent increase in revenue to £1.2bn for the six months to the end of March.

Credit Suisse announced earlier that its net profit slumped by over a third in the first quarter, to 859m Swiss francs, as its investment bank continues to disappoint.

And the chief executive of RSA’s UK and western European business has resigned.

Data in focus

  • 9.30am: UK Feb unemployment rate
  • 10.00am: EU March inflation
  • 12.00pm: US weekly mortgage applications
  • 1.30pm: US March housing starts
  • 2.15pm: US March industrial production
  • 7.00pm: US Fed’s beige book 
April 16, 2014, 7:50am

Housebuilder Persimmon has seen its total forward sales revenue climb 35 per cent higher compared to what it was in 2013.

The company also has 7,200 new homes sold forward into the private sale market for 2014, 38 per cent ahead of the same point in 2013. The average selling price climbed three per cent to £200,400.

Persimmon has now sold 5,000 homes with the assistance of the government's controversial Help to Buy shared equity scheme. 2,203 of these homes were legally completed in 2013.

The government's decision to extend Help to Buy to 2020 was welcomed by Persimmon, who said the move "provides welcome support to potential new home purchasers for this additional four year period."

Persimmon said its strategy remained focused on exercising capital discipline, while expanding the business as market conditions allow. The company is also committed to returning £1.9bn of surplus capital to shareholders over the period to 2021.

April 16, 2014, 7:41am

Tesco, the world's third-largest supermarket, has announced a 6.9 per cent drop in full-year underlying profit before tax, to £3.05bn.

Over the next three years, it's hoping to stake a claim as the multichannel, middle-market store.

But the question is how easy that'll be in a climate of booming discounters and high-end stores, where consumers can choose price or quality, and falling sales suggest they're not quite sure where Tesco now fits in. 

Group trading profit declined to £3.3bn - that’s a six per cent fall from a year earlier, and almost seven per cent at constant exchange rates.

UK sales fell 0.1 per cent to £4.8bn, while revenue remained flat. The struggling store saw like-for-like sales excluding VAT and petrol fall 1.4 per cent in 2013.

The yearly profit falls, the second Tesco's announced, are in line with already low expectations. Shares have jumped this morning, gaining over 4.5 per cent. But yhey are, however, at a ten-year low, meaning the bounce is more about nasty surprises already being priced in - a sigh of relief, rather than a cheer. 

Not just the UK

Tesco has also been affected by the tougher economic climate in several parts of the Eurozone, with sales falling 0.4 per cent to £1.1bn. At constant rates, that’s a two per cent drop. An impairment charge meant a £734m loss of value for its European business.

It’s also taking a £540m goodwill impairment charge in China, confirming its Chinese business is now classified as a discontinued operation, following its partnership with CRE.

Despite announcing on Monday that it’s taking its F&F clothes business to the US, Tesco has been heavily slimming its global presence. 

The significant drop in performance follows reports by the FT last night that chief executive Philip Clarke, who has headed up the store since 2011, has faced calls from a top shareholder to step down, following several attempts to turn things around which just aren't having the desired effects. 

Defending the fortunes of Tesco on Radio 4's Today programme this morning, Clarke said of his own role: : "I intend to see the job through". 

Too many popular players to turn things around?

He said the focus for the company now is on establishing "multichannel leadership" and improving current stores. Tesco's bank will shortly be offering current accounts, and last year it launched home delivery in five countries and sold over half a million Hudls, its budget tablet.

Clarke explained the firm's plan to "refresh" 650 stores over the next year, meaning a three year turnaround period. 

The advent of German discounters Lidl and Aldi - which have seen growth of around 30 per cent - has hit large discounters like Tesco hard.

The concern and criticism is that Tesco, having been knocked off its perch, is now caught between discounters and high-end stores, in an arguably saturdated market, with no clear way forward. 

But Clarke remained confident that there's light at the end of the tunnel and, following the crucial three-year period, Tesco will be firmly established as a middle-market retailer, which offers low prices and good quality - all under one roof.

It remains to be seen how convinced investors will be. Analysts at Shore Capital have called the results "very worrying": 

With respect to the future, we cannot hide our concern about Tesco's immediate financial and share price prospects and so the return for its shareholders.

Most fundamentally we return to the core UK market where trading momentum at the start of the second month of 2014/15 appears to be very worrying, with market data suggesting down high single digits.

Accordingly, we harbour ongoing concerns about scope for further downgrades to our already heavily marked down recent estimates for the core chain.

When it comes to outlook, Tesco said:

We expect the challenging consumer environment, competitive intensity, and the rapid pace of change in retailing to continue in 2014/15.  …we are focusing on increasing loyalty and improving sales which will lead to sustainable profits and returns over the medium term, consistent with our financial guiderails.

Tesco said it’ll maintain a final dividend of 10.13p per share, meaning a full year dividend of 14.76p per share.

April 16, 2014, 7:25am

Fashion heavyweight Burberry has reported a boost in revenue of 19 per cent to £1.3bn for the six months to 31 March.

Retail revenue also rose by 13 per cent to £928m, with comparable sales growth in line with the company's expectations. Burberry saw digital outperform in all regions, while eleven stores were opened including the flagship Kerry Centre in Shanghai.

Angela Ahrendts, chief executive officer, commented:

With the management transition well underway, Burberry begins a new year with Beauty firmly established as the fifth product division and investment in flagship markets, such as Shanghai, further increasing the brand's appeal to the core luxury customer at home and when travelling.

However, the luxury brand warned that currency exchange rates were a material headwind. If exchange rates remain at current levels, retail/wholesale profit for 2014 would be reduced by roughly £30m.

April 16, 2014, 6:32am

Asian shares have been given a boost after US technology stocks led a better performance on Wall Street.

Japanese tech and telecoms group SoftBank, enjoyed a strong rise in the wake of a solid earnings report from Chinese affiliate Alibaba.

Official data showed the Chinese economy grew at the slowest rate for 18 months in the first quarter of 2014. However, at 7.4 per cent, growth was better than the Bloomberg consensus of 7.3 per cent. The data also showed a rebound in fixed asset investment growth and industrial production for the month of March.

London-based consultancy Capital Economics, believe Chinese policy makers are relatively relaxed about the current pace of growth. Premier Li Keqiang has already ruled out major stimulus measures and is unlikely to change stance after today's figures. The labour market appears to be in relatively good shape, with wage growth again outstripping output growth.

Japan's Nikkei is enjoying a rise of 2.4 per cent, while the Topix is also seeing strong gains of two per cent. The Hong Kong Hang Seng Index is up 0.6 per cent, while the Shanghai Stock Exchange Composite Index has so far added 0.2 per cent. South Korea's Kospi has advanced 0.1 per cent.

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