Bank could relax liquidity rules

The Bank of England is expected to launch the latest plank in its strategy to kickstart lending next week with a move to free up billions of pounds held by banks.

Experts believe the Bank's Financial Policy Committee (FPC) will recommend plans next Friday to relax rules requiring banks to hold large amounts of cash as a buffer.

Members of the committee, which oversees financial stability, have already signalled the move as the Bank looks at ways to get the flow of credit moving.

It would be the next step in the Bank's battle to ward off a tightening credit squeeze, following the announcement last week of a £100 billion-plus scheme to boost bank lending.

The Bank revealed it was working on a new "funding for lending" scheme, while this week it held its first £5 billion monthly auction under a six-month loan facility programme.

Bank governor Sir Mervyn King, who chairs the FPC, hinted on unveiling the schemes last week that the Bank may also look at relaxing liquidity rules.

He said: "In current exceptional conditions, where central banks stand ready to provide extraordinary amounts of liquidity, against a wide range of collateral, the need for banks to hold large liquid asset buffers is much diminished, and I hope regulators around the world will take note."

His deputy Paul Tucker - who is also on the FPC - has said regulators should look at freeing up hefty cash buffers.

It has long been argued that the increasing requirements for banks to keep cash by as a cushion is holding back aims to lend more to the economy. However, it is not thought the Bank is planning to relax capital reserve rules that protect banks in the event of financial stress.

Allowing banks to tap into their liquidity buffers would also allow them to make use of the cash boost offered under the £325 billion Quantitative Easing (QE) programme. The Bank is widely predicted to extend QE in the coming months as the eurozone crisis threatens to make credit more expensive for banks and as they seek to hoard cash.

©Press Association

Osborne in eurozone economy warning

Britain's prospects for economic recovery are being "killed off" by the crisis in the eurozone, Chancellor George Osborne has warned.

In a stark message to the leaders of the 17-nation single currency bloc, Mr Osborne said they were facing a "moment of truth" which could determine the future of the entire continent for years to come.

In some of his strongest comments to date, the Chancellor voiced his exasperation at the repeated failure of the eurozone nations to find a permanent solution to end the financial turmoil.

Writing in The Sunday Telegraph he said: "The lesson of the last two years is that treating the latest symptom does not cure the underlying conditions."

While there were signs a solution to the latest bout of uncertainty in the Spanish banking system was on the cards, Mr Osborne said it would not be enough to end the threat to the UK economy.

"Our recovery - already facing powerful headwinds from high oil prices and the debt burden left behind by the boom years - is being killed off by the crisis on our doorstep," he said.

"I know from talking to British businesses that our country is bursting with entrepreneurial spirit and exciting investment plans that are being held back because of uncertainty about the future. That's why a resolution of the eurozone crisis would do more than anything else to give our economy a boost."

He added: "The British Government is clear that it is strongly in Britain's interests for our biggest export market to succeed; the risks for us of a disorderly outcome are huge."

With the prospect of further turmoil in the wake of the of the forthcoming re-run of the Greek elections, the Chancellor called on the eurozone countries to take decisive action to end the instability. He said: "We are approaching a moment of truth for the eurozone. After more than two years of uncertainty, instability and slow growth, decisions taken over the next few months could determine the economic future of the whole European continent for the next decade and beyond."

He again underlined the need for greater fiscal integration - with more pooling of financial resources and the creation of a banking union - across the currency bloc, saying: "The solution in the eurozone doesn't have to be a full-blown United States of the Eurozone, but if it is to be successful it is likely to include most of the mechanisms that make other currencies work."

©Press Association

UK Credit Rating cut to AA-minus

Rating agency Egan-Jones cut the credit rating for the United Kingdom on Monday to AA-minus with a negative outlook from AA, the latest in a string of European sovereign downgrades from the agency.

"The over-riding concern is whether the country will be able to continue to cut its deficit in the face of weaker economic conditions and a possible deterioration in the country's financial sector," Egan-Jones said in a statement.

"Unfortunately, we expect that the UK's debt/GDP (ratio) will continue to rise and the country will remain pressed."
The United Kingdom currently has a AAA rating from both Standard and Poor's and Fitch Ratings and an Aaa rating from Moody's Investors Service.

The economy contracted by 0.3 percent between January and March and growth in the second quarter is endangered by the mounting worries about the survival of the euro.

Egan-Jones has recently cut the sovereign ratings for Italy and for Spain, in each case citing the weak economy and banking sectors.

(Reporting by Luciana Lopez; Editing by James Dalgleish)

UK retail sales slide at fastest pace in 2 years in April

Retail sales fell at their fastest monthly pace in more than two years in April, after a record drop in fuel sales and a weather-related drop in clothing sales, official data showed on Wednesday.

The weak start into the second quarter highlights the ongoing weakness of the economy and may raise speculation about another cash boost from the Bank of England.

The Office for National Statistics said retail sales volumes fell 2.3 percent on the month - its biggest drop since January 2010 and more than twice as fast as forecast. The fall mo re than reversed an upwardly revised 2 percent rise in March.

On the year, sales fell 1.1 percent - confounding economists' forecasts for an annual rise of 1.0 percent.

The ONS said the monthly decline was driven by a record drop in fuel sales following panic buying of fuel in March that had resulted in petrol stations being unable to restock in time in April.

Record rainfall in April meanwhile depressed sales of clothing and footwear, which fell at its sharpest monthly pace since June 2008.

Business surveys had already indicated that the retailers struggled in April, though the CBI survey had also shown that retailers were more confident about the month ahead.

However, with inflation still outpacing meagre wage increases and the euro zone crisis still denting confidence, many Britons remain reluctant to increase spending.

Recent news from major retailers has painted a negative picture of the retail sector's performance.

Britain's biggest clothing retailer Marks & Spencer slashed its sales growth forecast on Tuesday, signalling it expects consumer spending to remain weak as the government focuses on cutting debt and the economy struggles to grow.

Last April record temperatures and an extra holiday for the Royal Wedding boosted retail sales but this year April was Britain's wettest since records began, which is likely to have weighed on this year's figures.

©Reuters 2012