UK government borrowing unexpectedly falls to £6.8 billion in April

UK government borrowing fell unexpectedly to £6.8 billion in April, down from £9.3 billion a year earlier.

UK government borrowing unexpectedly falls to £6.8 billion in AprilIt is the lowest April government borrowing figure since April 2008, when public borrowing stood at £2.5 billion.

The Office for National Statistics (ONS) also revised its previous estimate of borrowing for the full financial year up slightly to £87.7 billion, from £87.3 billion.

But that was still comfortably below the government’s target of £90.3 billion.

As it is the start of the financial year little can be gleaned from the public borrowing figures as yet.

And as the ONS itself warned last week, borrowing figures in the first few months of the financial year are often subject to revisions.

In his March Budget, Chancellor George Osborne forecast public sector net borrowing would amount to £75.3 billion this financial year.

Last month, official figures showed the economy grew by 0.3% in the three months to the end of March, compared with 0.6% in the last three months of the year.

Mr Osborne plans to hold a new Budget on 8 July, when he is expected to outline his strategy to eliminate the deficit by the end of 2017 and achieve a Budget surplus in 2018-19.

It is expected he will outline £30 billion of spending cuts to government departments, including £12 billion of cuts to welfare spending.

It is also possible the chancellor may revise the government’s borrowing targets.

A Treasury spokesman said the borrowing figures showed the government’s deficit reduction plan was working, with borrowing in April £2.5 billion lower than the same month a year ago.

“We have more than halved the deficit, but at just under 5%, it is still one of the highest in the developed world,” the Treasury official said.

“There is no shortcut to fixing the public finances, so we have to continue with the hard work of identifying savings and making reforms necessary to finish the job and build a resilient economy.”

UK inflation rate turns negative

The main measure of UK inflation turned negative in April for the first time on record- with the rate falling to -0.1%.

UK inflation rate turns negativeIt is the first time that the Consumer Price Index (CPI) inflation has turned negative since 1960, based on comparable historic estimates, the Office for National Statistics said.

The biggest contribution to the fall came from a drop in air and sea fares.

Bank of England governor Mark Carney said he expected inflation to remain very low over the next few months.

But Mr Carney added that “over the course of the year, as we get towards the end, inflation should start to pick up towards our 2% target”.

The latest inflation figures show that transport costs were 2.8% lower in April than the same time a year ago, while food was 3.0% cheaper.

Chancellor George Osborne said the inflation figure should not be mistaken for “damaging deflation”.

He added that the lower cost of living – driven by last year’s fall in oil prices – would be a welcome relief for family budgets, in an environment in which average wages were finally beginning to rise.

“Of course, we have to remain vigilant to deflationary risks and our system is well equipped to deal with them, should they arise,” Mr Osborne added.

The latest inflation figure means that a basket of goods and services that cost £100 in April 2014 would have cost £99.90 in April this year.

The last time we saw a price fall in the UK was March 1960, before even I was born, when there was a drop (probably) of 0.6%.

Almost nothing changed between March and April’s inflation figures- the ONS says that the thing that did move, which was the price of air fares and sea fares, was depressed by the timing of Easter.

The prices that are used to calculate the CPI are collected in a few days in the middle of the month. In 2014, Easter fell during those days, which meant transport fares were inflated.

This year it didn’t, so fares were lower, which means today’s tiny deflation may be seen as a technical effect.

3i surges on strong earnings leading UK shares higher

UK shares gained value on London trading after falls overnight on Wall Street and in most of Asia.

3i surges on strong earnings leading UK shares higherThe benchmark FTSE 100 gained 0.34% to close at 6,973.04.

Private equity firm 3i Group was the biggest gainer which rose 3% after a strong set of full year results.

The company, which owns the Agent Provocateur lingerie business, says its net asset value had increased by 14% to 396p a share.

Mondi was another big winner in the FTSE 100, adding nearly 2.8%.

On Wednesday, shares in the packaging company jumped nearly 9% after the company reported a 29% rise in first-quarter operating profits.

Three of the five biggest losers on the 100 share index were companies going ex-dividend which means that anyone buying those shares will not receive the next dividend payments.

GlaxoSmithKline, Kingfisher and Aberdeen Asset Management all shed more than 1%.

On the currency markets, the Pound hit a five month high against the dollar, trading at $1.5748, but was little changed against the euro at €1.3868.

FTSE 100 flat despite strong UK shop sales

Shares in the Next shop group rose after the retailer reported stronger than expected sales- but the FTSE was held back by falling mining stocks.

FTSE 100 flat despite strong UK shop salesNext said that full-price sales for the 13 weeks to 25 April climbed 3.2%, helped by April’s warm weather, and its shares rose more than 3%.

But after a mixed morning, the FTSE 100 was down 3.36 points at 7,027.17.

Mining shares pulled the index lower after Antofagasta cut its copper output forecast.

Shares in Antofagasta fell 3.4% and other miners also dropped, with BHP Billiton down 2.6% and Rio Tinto 1.6% lower.

Shares in Barclays slipped 0.75% after the bank announced it was setting aside a further £800m to cover the cost of settling an investigation into foreign exchange rate-rigging. Barclays also took a further £150m hit to cover payment protection insurance (PPI) mis-selling.

The top riser in the FTSE 100 was Weir Group. The company said first quarter orders from its oil and gas business were down 23%, but this was not as bad as expected and its shares rose 4.1%.

Weir also said it cut costs at its oil and gas business by a further £10m.

In the FTSE 250, shares in Greggs rose 3.3% after the bakery chain announced a £20m special dividend.

Greggs said the dividend would replace a previously-proposed share buyback.

The firm also reported a 5.9% increase in same-store sales in the 16 weeks to 25 April, beating expectations.

On the currency markets, the Pound rose 0.19% against the dollar to $1.5368 and slipped 0.04% against the euro to €1.3968.

UK economic growth slows to 0.3pc

The rate of economic UK growth has halved in the three months to the end of March- marking the slowest quarterly growth for two years.

UK economic growth slows to 0.3pcThe UK economy grew by 0.3% in the quarter according to the Office for National Statistics (ONS) said.

That compares with 0.6% in the last three months of 2014.

The figures, which come nine days before the general election, suggest a “temporary” slowdown in the economy, analysts said.

The ONS said the economy was 2.4% larger than the same period a year earlier.

Growth of 0.5% in the services industry was offset by a 1.6% fall in the pace of economic output in construction.

The UK services sector accounts for around three quarters of economic growth, with construction, manufacturing and production accounting for the remaining quarter.

The Chancellor, George Osborne, said: “It’s good news that the economy has continued to grow, but we have reached a critical moment. Today is a reminder that you can’t take the recovery for granted and the future of our economy is on the ballot paper at this election.”

Liberal Democrat Chief Secretary to the Treasury Danny Alexander, said the figures were still progress but a warning too.

He added it was vital his party were part of the next government to ensure the “fair and balanced approach needed to secure this recovery”.

For reasons no one can quite explain, construction in Britain has been lousy for six months.

The production industries have been especially hurt by the oil price collapse, which has led to something of a crisis in the North Sea. Excluding oil and gas, quarter-on-quarter growth would have been 0.1 of a percentage point higher at 0.4%.

But nor has manufacturing been sparkling: it showed growth of just 0.1%. And perhaps because of the strengthening pound, the growth rate of our manufacturers has progressively decelerated in a straight line from 1.4% a year ago

More unexpectedly, some service industries in which the UK is a world leader – finance, engineering and architecture – have had a poor few months.

One possible explanation of their slowing growth is that demand for our services and goods in important export markets – especially China and the US – may be a bit worse than official figures show. That could be a sign of trouble ahead.

So thank goodness for our domestic facing services.

Or to put it another way, if we weren’t a nation of shoppers and restaurant eaters, there would be very little growth at all. The output of distribution, hotels and restaurants increased by 1.2% in the quarter – only slightly slower than at the end of last year.

The figures represent a first estimate of economic growth and are based on less than half of the total data required for the final output estimate.

But the ONS said that while estimates are subject to revision as more data become available, the revisions are typically small between the preliminary and third estimates.

Annuity rates at record low after pension changes

The average annual income from a standard annuity has fallen to a record low within only weeks of a major overhaul of the pension system.

Annuity rates at record low after pension changesThe popularity of annuities- bought from a pension pot and guaranteeing a fixed, regular income for life – fell after the the shake up was announced last year.

However since 6 April retirees have been able to do what they wish with their pension pot, but it may be taxed.

Financial data service Moneyfacts said new retirees would be hit by low rates.

Before the pension changes came in those who were retiring could cash in up to 25% of their pension pot as a tax-free lump sum.

They then had two options: reinvest their pension pot – or keep their current investments – and take an income from their funds as they needed. The second option open to them was to take out an annuity.

The changes that have now come into force mean those due to retire now can do whatever they like with 100% of their pension pot, for example invest in property, although they still only receive the first 25% tax free.

After this plan was announced in the 2014 Budget, the sale of annuities plunged. This drop in demand was part of the reason for a 5.7% fall in the average annual income payable from a standard annuity in 2014, according to Moneyfacts.

This year, a further drop has taken the income from standard annuities without guarantees to a record low.

A healthy 65-year-old with a pension pot of £10,000 would be able to swap it for a standard annuity income of £476 a year, down 5.9% since the beginning of the year.

The equivalent person with a £50,000 pension pot would get £2,550, a fall of 6.4% over the same period.

UK pension changes 2015

  • People aged 55 and over can withdraw any amount from a Defined Contribution (DC) scheme, subject to income tax
  • Tax changes make it easier to pass pension savings on to descendants
  • Many people with Defined Benefits (DB) schemes will be allowed to transfer to DC plans
  • All retirees will have access to free guidance from the government’s Pension Wise service
  • Existing annuity holders unaffected for the time being, but there are plans for them to be able to sell their annuity

UK inflation rate remains zero in March

The UK’s inflation rate remained at it’s record low of 0pc in March- according to the Office for National Statistics.

UK inflation rate remains zero in MarchCheaper clothing and footwear, offset by a rise in petrol prices, helped to maintain the rate at 0% for a second month according to the official figures by the ONS.

The figure was the lowest rate of Consumer Prices Index (CPI) inflation since estimates of the measure began in the late 1980s.

It means the cost of living is broadly the same as it was a year earlier.

However, the ONS said that if the rate of inflation was calculated to two decimal places, prices were 0.01% lower than a year before – the first fall on record for the CPI measure.

One of the main reasons the CPI rate remained broadly unchanged was rising petrol and diesel prices between February and March, the ONS said.

But an overall fall in fuel prices over the past year has been a major contributor to low inflation, it added.

The CPI figure leaves inflation well below the Bank of England’s 2% target.

There had been speculation that the CPI rate – as measured to one decimal place – would fall below zero in March, and there remains a possibility that the rate could fall in the coming months.

However, few economists think the UK is at risk of the type of entrenched deflation that Japan has suffered from.

In March, inflation as measured by the Retail Prices Index (RPI) fell to 0.9% from 1.0% the previous month, the Office for National Statistics said.

Like CPI, RPI inflation is calculated from a sample of retail goods and services. However, RPI is calculated differently and includes data such as mortgage repayments.

UK budget deficit shrinks after bumper tax revenues

The UK government is on course to meets it’s borrowing targets as UK records it’s smallest budget deficit for February since 2008.

UK budget deficit shrinks after bumper tax revenuesBritain’s borrowing bill shrunk by more than a third on a monthly measure as the government received its biggest income tax receipts for February since 2008.

The Government raised £4.2 billion in self-assessed income tax for the last month, helping borrowing fall by £3.5 billion to £6.9 billion from the same period last year, according to the Office for National Statistics (ONS).

Economists had expected borrowing to come in at £8.4 billion.

The improved figures mean the government borrowed £81.8 billion over the first 11 months of the financial year to bridge the gap between revenues and spending. This is down by £9.7 billon during the corresponding period in 2013/14, helping the Chancellor meet his target to get Britain’s public finances back into the black.

Income tax receipts rebounded sharply from April 2014 to February 2015, and now stand at their highest level since records began in 1997/98 at £153.9 billion, am increase of £7.1 billion from the same period a year earlier.

January and February are traditionally the biggest months of the year for tax receipts as self employed workers and top rate taxpayers make payments for income earned in 2013-14.

Last month saw Britain record its biggest budget surplus since the financial crisis.

The Treasury said the figures showed Britain’s plans for deficit reduction were “working” but warned that Britain was still “borrowing £1 for every £10 we spend and have more to do.”

“Today’s figures show the public finances improved in February by £3.5 billion compared to a year ago, with borrowing in February a third lower than it was this time last year” said HM Treasury.

In his last Budget of the parliament, Chancellor George Osborne promised to use government windfalls from the sale of bank assets and lower debt interest costs to begin paying down Britain’s debt mountain.

But Britain’s debt mountain still rose by £83.6 billion compared with February 2014, and currently stands at £1.46 trillion, equating to 79.6pc of GDP.

The Office for Budget Responsibility forecasts debt levels will finally begin falling in 2015/16.

FTSE 100 was almost unchanged today- despite strong results from Lloyds and IAG.

The FTSE 100 ended the day down just 3.1 points at 6,946.66.

FTSE 100 was almost unchanged today- despite strong results from Lloyds and IAG.Shares in BA owner IAG rose 3.7% after the company reported a big jump in full year profits and raised its 2015 forecast by 20%.

Lloyds Banking Group climbed 0.6% after it posted rising profits and confirmed it would resume paying a dividend.

The rest of the banking sector was mixed. Standard Chartered shares gained 1.5% as investors continued to react to Thursday’s news that its chief executive, Peter Sands, is to be replaced by ex-JP Morgan banker Bill Winters.

However, shares in Royal Bank of Scotland shed 5% a day after it announced another full year loss.

In other market news, publisher Pearson rose 1.7% after reporting underlying adjusted annual operating profits of 5%, in line with analysts’ expectations. Investors were cheered by Pearson’s pledge that earnings growth would resume this year after a two year restructuring programme.

Bookmaker William Hill fared less well, falling 3.3% after releasing first quarter results that showed revenues had fallen below expectations.

Shares in property website Rightmove jumped more than 13.4% after it reported a 26% rise in full year profit to £122 million.

On the currency markets, the Pound rose 0.2% against the dollar to $1.5437 and by 0.2% against the euro to €1.3790.

Oil prices- Opec members split over output cuts

The oil cartel OPEC is split over how to react to the sharp slump in oil prices.

Oil prices- Opec members split over output cutsSaudi Arabia has indicated it will not push for output cuts to help push up oil prices, as Opec oil producers prepare for their meeting on Thursday.

The oil market will “stabilise itself eventually”, said Saudi Oil Minister Ali al-Naimi. Saudi Arabia is the largest producer of the 12 members of the Organization of the Petroleum Exporting Countries (Opec).

Among the Opec members, Venezuela and Iraq have called for output cuts as the price of Brent crude has plunged 30% since June, triggered by a sharp rise in US shale oil output and weakening global demand.

There is speculation that tomorrow Opec could announce its first cut in oil production since 2009 in an attempt to support the oil price.

However, fellow Opec member United Arab Emirates’s (UAE) Oil Minister Suhail bin Mohammed al-Mazroui appeared to side with Saudi Arabia, indicating it would not push for a cut in production, saying “the market will fix itself ultimately”.

“We are not going to panic, this is not the first time, this is not a crisis that requires us to panic … we have seen (prices) way lower. We are not interested in the short fixes because we know they will not last,” Mr al-Mazroui told Reuters.

The responses from Saudi Arabia and UAE come a day after non-Opec member Russia, which produces an estimated 11% of global oil, said it would not co-operate with any production cut.

Following a meeting with Saudi Arabia, Venezuela and Mexico representatives, Russian Energy Minister Alexander Novak said the country’s energy companies would produce around the same amount of oil next year as they did in 2014.

He told reporters in Moscow he was sceptical that Opec would decide on Thursday to cut output quotas.

The heated debate over how to react to the sharp fall in oil prices has led to some suggesting that Thursday’s meeting could last longer much longer than usual.

“It might take a bit longer than the ordinary meetings,” said one delegate. “They must agree, even if they have to stay here for two days. It is a matter of death or survival for budgets.”