email@example.comFollow me on Twitter: @allisterheath
UK service sector swingsback into output growth
THE BIGGEST sector in the UK economy swung back into growthin January, banishing fears of atriple-dip recession.Markit’s purchasing managers’index (PMI) for services jumpedfrom 48.9 in December to 51.5 inthe first month of 2013, indicat-ing a rebound from slight declineto moderate improvement. With the January improvementin manufacturing activity, thismeant the all-industry compositeoutput index also moved intoexpansion, from 49.9 inDecember, suggesting marginalcontraction, to 52.0 in January. Analysts hailed the upbeat dataas squashing fears the economy would register a second straightquarter of falling GDP, and there-fore a third technical recession in just over four years. A return toeconomic growth, after outputshrank 0.3 per cent in the finalthree months of 2012, would be amassive boon to the credibility of chancellor George Osborne.Chris Williamson, chief econo-mist at Markit said: “A huge sighof relief accompanies these num- bers, as a return to growth in theservice sector greatly reduces thelikelihood of the UK falling back into a triple-dip recession.”
Turner defends permanent printing
Lord Turner, outgoing chairman of theFinancial Services Authority, has launchedan impassioned defence of financinggovernment spending by printing money,arguing that within limits it “absolutelymdefinitely [does] not lead to inflation.Speaking ahead of a valedictory speech inLondon today, Lord Turner, who appliedto be the next Bank of England governor,called for “intellectual clarity” ineconomic policy, including breaking thetaboo that permanently printing moneyto pay for government is always bad.
Swiss banks end partner liability
Pictet and Lombard Odier, two ofSwitzerland’s oldest private banks, havebroken with more than 200 years ofhistory by calling time on their existenceas unlimited liability partnerships.
Amazon launches virtual currency
Amazon is launching a virtual currencythrough which it will subsidise developers joining its service. Amazon said it wouldgive out “tens of millions of dollars” ofAmazon Coins to spend on apps andgames. Developers will get 70 per cent ofthe currency spent to convert to dollars.
University cities “best” for business
University cities led by Cambridge cametop in a league table assessing Britain’sbest places to do business. Oxford andEdinburgh take the second and thirdplaces in Santander’s Town and City Index
Kingfisher Airlines “lost £1m a day”
Kingfisher Airlines lost £1 million a day inthe final three months of last year, aperiod during which none of its aircraftmade a commercial flight. The carrierfounded in 2005 has never made a profit.
Compensation to 6,000 dead savers
More than 370,000 policyholders who hadtheir pensions wiped out by the collapseof Equitable Life have been paid partialcompensation, but 6,000 payments wentto estates of those who died waiting for it.
HMRC charge taxpayers twice
Up to a thousand taxpayers paying onlinethrough the BillPay system, managed bySantander Corporate Banking werecharged more than once for their tax billlast week due to a system failure at HMRC.
Lego to lay off 380 in Denmark
Lego said it will lay off hundreds ofworkers in Denmark in order to move itsassembly and packaging activities closerto “core markets.” in the Czech Republic,Hungary and Mexico
Pringles boosts Kellogg sales
Kellogg sales jumped 18 per cent in thefourth quarter, helped by its recentacquisitions of Pringles crisps, growth inLatin America and improving results inNorth America.
THE HOUSE of Commons backed gay marriage overwhelmingly lastnight, although more Tory MPs voted against David Cameron than with him.136 Conservative MPs opposedthe bill, which will allow same sexmarriage for the first time inBritain, while 127 backed it and 40abstained. 12 Tory ministers,including Owen Paterson, theenvironment secretary, and David Jones, the Welsh secretary,opposed the bill.Despite less than half of Conservative MPs voting in favourof the bill, widespread supportfrom Labour and the LiberalDemocrats pushed it through. 400 voted in favour, with 175 against.217 Labour MPs backed gay marriage with 22 opposed, while44 Lib Dems voted for the billagainst four who voted against it.London MPs to vote against the bill included Tories Sir MalcolmRifkind (Kensington) and DavidEvennett (Bexleyheath andCrayford), Lib Dem Sarah Teather(Brent Central) and Labour’sStephen Pound (Ealing North).Cameron said the vote was “animportant step forward for outcountry”. The bill will now bescrutinised in the House of Lords.
MPs back gaymarriage butCameron defied
A triple-dip recession would be a hammer blow to chancellor George Osborne
BY JAMES TITCOMBBY BEN SOUTHWOOD
To contact the newsdesk email firstname.lastname@example.org
F you have savings, which assetclass you choose to allocate your wealth to is one of the mostimportant decisions you will evermake. It is vital to look at very long-term returns, and there is no betterplace to find this information thanCredit Suisse’s global investmentreturns yearbook, published today.Over the last 113 years, the real valueof UK equities, with dividends rein- vested, grew by a factor of 316.0, com-pared to 5.5 for bonds and 2.9 for bills.In other words, the very long-termperformance of equities – not justtheir capital gains or indice values, but crucially with reinvested income– is gigantically superior. Another way to look at the figures is annualisedreal returns: equities delivered 5.2 percent a year, bonds 1.5 per cent, and bills 0.9 per cent since 1900. The problem with these figures,
We will have to save far more as investment returns dwindle
WEDNESDAY 6 FEBRUARY 2013
however, is that nobody has a 113-yearinvestment horizon. Even multi-decade periods can vary substantially from these very long-run outcomes,an issue for real world investors.Investors who buy and sell at the worst times will massively underper-form. Wall Street suffered a real capi-tal loss of 67 per cent in 1929-32,followed by a huge rebound of 50 percent in 1933. It suffered a real capitalloss of 39 per cent in 2008, followed by a 23 per cent rebound in 2009. InBritain, there was a real capital loss of 36 per cent in 1920, then a gain of 75per cent in 1921-22. The 1970s werecrazy: UK equities collapsed 74 percent in real terms in 1973-74, beforesurging 86 per cent in 1975.It is clear that the world today – andprobably for the next few decades – will be very different to what we haveseen in recent decades. From 1950 todate, the real return on world equities was 6.8 per cent per year; from 1980,it was 6.4 per cent. The world bondreturns were 3.7 per cent and 6.4 percent, far higher than normal in thelast 33 years. We have just come out of a period of exceptionally high returnsfor many asset classes: even cash gavea high real return, averaging 2.7 percent per year since 1980, far morethan in previous decades.Perhaps most interestingly of all,the Credit Suisse data shows how sav-a year on an all-equity fund. Assume a 25-year old entering adefined contribution pension scheme with the hope of retiring at 65 on half their salary. If the after-costs realinvestment return is 4 per cent, they will need to contribute 10 per cent of their salary. A more realistic assump-tion is that the after-costs real return will now be 1-2 per cent. This requiresa contribution rate of a crippling16-20 per cent, the authors calculate –and that is if they start at the age of 25. If they start any later, then the per-centage will be much higher. Who do you know saves a quarter ora third of their salary for their pen-sion? A horrible crisis is looming,caused by low returns, one worsethan almost anybody realises.agely equity investors have been ham-mered in recent years. Over the first13 years of the 21st century, the realreturn on the world equity index was just 0.1 per cent per year. Real bondreturns stayed extraordinarily high at6.1 per cent per year –but the long bull market in bonds, which startedin 1982, is now over, in a dramaticand hugely important shift. The research’s conclusions aredepressing. The high returns madefrom stock market investments in thesecond half of the 20th century wereabnormal; the same is true of thehigh bond markets returns made of the last 30 years and the high infla-tion-adjusted interest rates since 1980. The future will be one of much lowerreturns. Credit Suisse estimates thatover the next three decades, globalinvestors can expect to earn a realreturn of a maximum of 3.5 per centIn a note Colin Edwards at theCentre for Economics and BusinessResearch (CEBR) agreed that the sizeof the service sector –it makes upabout three quarters of GDP –meant expansion there was evi-dence the UK economy wouldreturn to expansion.“Barring another dramatic turn of events, early signs suggest that theUK will more likely than not avoidcontraction in the first quarter atside-step a triple-dip recession,”Edwards forecasted.But other analysts stressed thatthe levels remained well-below pre-crisis norms.
UK services rebound to quash triple-dip fears
S o u r c e : M a r k i t