The UK Monetary Policy Committee voted to expand quantitative easing (QE) by a further £50bn at its July meeting, ending a two-month pause in asset purchases. The CBI said that it had become increasingly clear that an expansion of QE was imminent following a faster-than-expected fall in inflation and an apparent slowing in global economic momentum. It added that the direct impact may only be modest and that consideration should be given to investing in a broader set of assets than just sovereign gilts.
Meanwhile, the European Central Bank cut its main interest rate for the first time since last December, from 1.0% to a record low of 0.75%. The cut was widely expected, since leading indicators suggest that growth has slowed across most members of the Eurozone in recent months.
Earlier, a number of new measures to tackle the Eurozone crisis were announced following last week’s EU summit. The most important is allowing the monetary union’s main bailout funds, the EFSF and ESM, to intervene directly in Eurozone banks rather than having to lend via troubled sovereigns, alongside a new single bank supervision mechanism for the Eurozone. However, this will not be implemented until at least the end of 2012, and no further details are yet known. In addition, the conditions for the EFSF/ESM to intervene in the bond markets of troubled sovereigns will be eased, and a €120bn growth package will be delivered across the EU.
May’s Eurozone lending data confirmed anecdotal evidence that Greece suffered an increase in deposit flight in May amid uncertainty over its general election. The year-on-year fall in deposits accelerated to 18.8%, from 16.3% in April. Meanwhile, there was further divergence in lending growth between the Eurozone core and periphery. Lending to non-financial corporations rose 1.9% and 2.7% in the year to May in Germany and France respectively, but fell 0.5% and 4.2% in Italy and Spain.
Lending growth was also subdued in the UK. Net mortgage lending fell from £1.0bn to £0.6bn in May, while year-on-year growth was a very subdued 0.8% for the sixth-consecutive month. Lending to UK businesses fell 3.1% in the year to May, slightly better than the 3.5% fall in the year to April.
The fall in UK real GDP in the first quarter of 2012 was unrevised at 0.3% in the latest Quarterly National Accounts. However, there were a series of revisions to growth in previous years following a routine methodology update, the most interesting of which was a revision of the peak-to-trough fall in GDP in the 2008-09 recession from 7.1% to 6.3%. In the latest quarter, business investment growth was revised up, but this was offset by downward revisions of growth in net trade and household consumption. According to the new estimates, a fall in inventory building was the main contributor to the fall in GDP for the second-consecutive quarter, while government consumption was the main upward contributor to GDP.
The CBI’s Distributive Trades Survey reported that retail sales rose strongly in the year to June and at the fastest pace since December 2010. However, retailers continued to report that sales were below average for the time of year. Meanwhile, the Financial Services Survey reported strong growth in business volumes in the second quarter, but that optimism about the general business situation had fallen.
Eurozone survey indicators remained gloomy. The European Commission’s Economic Sentiment Indicator fell for the third-consecutive month and to its lowest level since October 2009. The indicator declined to a five-month low in France and its lowest level since May 2010 in Germany, but it remained much weaker in Italy and Spain.
Following representation from interested parties the government has announced that it no longer intends to proceed with the proposed capping of some tax reliefs including charitable giving.
Plans to cap tax relief on charitable donations have been scrapped by Chancellor George Osborne in a reversal of one of the measures announced in the Budget.
The cap, which was designed to limit relief at £50,000 or 25% of income, was proposed in the Budget but resulted in protests from charities who were concerned that they could lose a significant proportion of their income.
The government has confirmed that it will be pressing ahead with the cap on income tax reliefs for wealthy people which do not relate to charitable donations.
Since the Budget announcement, the Treasury has been holding discussions with charities and major donors to discuss the scale of impact which they believed the cap could have on charitable giving.
John Low, Chief Executive of the Charities Aid Foundation, said:
‘We are delighted that the Government has responded to the challenging calls from philanthropists and charities across the country and taken the bold decision to exempt charitable donations from the cap on tax relief.’
‘We realise the Government is responding to truly exceptional financial circumstances and is having to make tough decisions about public finances. We acknowledge and welcome the Chancellor’s decision to do the right thing and exempt charity donations from the cap. We thank Ministers for the support they have shown to charities large and small, which are so vital to the health of our country.’
Internet links: BBC news CAF press release
The Office for National Statistics has published a report looking at those working beyond state pension age. The report, ‘Older Workers in the Labour Market – 2012′ includes some interesting statistics:
- The number of people of state pension age and above in employment has nearly doubled over the past two decades, from 753,000 in 1993 to 1.4 million in 2011.
- Older workers are far more likely to be self-employed than their younger counterparts: 32% compared with 13%.
- Around two-thirds of the older workers are part-time but they are generally doing this shorter role with the same employer. Eight in every 10 of older workers have been with their employer for five years or more.
- Men working later in life tend to stay on in higher skill roles while women tend to stay on in lower skill roles.
- Just over a half (51%) of older workers are in small organisations of fewer than 25 employees.
To read more access the link below.
Internet link: Office for National Statistics