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INFLATION could peak as high as 10 per cent in the next couple of years, a leading policy think tank has warned, forcing a crippling spike in interest rates up to around eight per cent.
Andrew Lilico, the chief economist at the Policy Exchange think tank, believes that once the economic recovery kicks in properly in late 2011 and early 2012, rapid growth in the money supply will see inf lation jump to levels not seen since the early 1990s.
Lilico predicts that the consequent sharp rise in interest rates will send inflation even higher to around 10 per cent – and that a base rate of around eight per cent will be required to keep prices from spi- ralling even further out of control.
“All of this is the optimistic case – what happens if the government gets policy right and its policies work,” the über-bearish economist added.
Official figures from the Office for National Statistics are this week expected to confirm that the UK econ- omy registered positive growth of around 1.1 per cent in the second quarter.
However, Bank of England gover- nor Mervyn King last week admitted that inflation is likely to stay above the two per cent target at least until the end of next year.
MINING giant BHP Billiton could be left with a diplomatic crisis on its hands if it does not move swiftly to address growing investor disquiet over the cost of the company’s mam- moth $40bn (£26bn) hostile bid for Canadian fertiliser giant PotashCorp.
BHP will this week attempt to calm shareholder fears at a gruelling series of roadshows across the globe, organ- ised in line with its full-year results.
Its efforts come after the first investors broke ranks to shoot down the deal. Last week, one of the compa- ny’s largest Australian investors, Perpetual, said the firm should launch a share buy-back in place of the acquisition of PotashCorp.
BHP’s UK shareholders will prove equally difficult to convince of the rationale for a deal, particularly given fears over the cost of financing the takeover through debt alone.
George Godber, a fund manager at Matterley who reduced his holding in the stock sharply when the bid was announced, said there is widespread scepticism over the deal among insti- tutional investors in the City.
“BHP Billiton is a wonderful compa- ny and very well run,” he said. “But with the amount of debt the compa- ny is taking on, it is paying a very full multiple for PotashCorp. I am a big strategic bull on agricultural consoli-
PLANS TO SAIL
dation, but I’d much prefer to see them do a $20bn buyback and buy something smaller. $130 per share doesn’t feel like a knock out price and the danger is that BHP will have to pay up if it really wants these assets.”
knight” counter-bid for the Canadian company focused at the weekend on China, after state-owned chemical group Sinochem said it would pay “close attention” to BHP’s bid. PotashCorp already owns a 22 per cent chunk of Sinochem’s fertiliser
Analysts expect further interest from Chinese companies as the bid battle heats up, while rival miners Vale and Rio Tinto have also been touted as potential – though less like- ly – candidates to propose a tie-up.
MICHAEL Grade has come under fresh fire for his performance as chairman at Pinewood Studios, with activist investor Crystal Amber call- ing another meeting at this week’s results announcement to discuss his departure from the firm.
“We are meeting with the manage- ment team on Wednesday, and are in correspondence with other share- holders,” Crystal Amber chief execu- tive Richard Bernstein told City A.M.
“Our problem isn’t with the other shareholders; it’s with the manage- ment of Pinewood.”
Crystal Amber has upped its stake in the film maker from 18 to 27 per cent since Pinewood’s AGM in June, when it urged Grade to step down fol- lowing poor performance.
However smaller shareholders Aberdeen Asset Management and SVG Capital, which hold 10.1 and 7.6 per cent stakes respectively, remain staunchly loyal to the chief executive.
“We are wholly supportive of Grade, and the campaign against him is damaging and wrong,” a spokesper- son for SVG told City A.M. yesterday. “You’ve got to ask whether the calls are a smokescreen for Crystal Amber’s own poor performance.”
Grade, who is also chairman at online grocer Ocado, has withstood several attempts to oust him from Pinewood since he joined in 1999.
Since 2004 the firm’s profit before tax has fallen 56 per cent from £10.1m to £4.4m, while its operating margin has decreased from 33.5 per cent to just 18.9 per cent.
PRESSURE is mounting on the gov- ernment to rethink the details of its plans to transform the financial regu- latory structure in the UK, which sen- ior bankers have warned could close off avenues for discussion between regulators and the industry.
Of particular concern to the banks is the new Prudential Regulation Authority (PRA), which will answer only to the Bank of England and will not be required to hold an annual meeting or host regular consultation sessions with leading members of the industry.
and others is not there when it comes to rule changes,” one source said yes- terday.
Others warned that the second new regulatory body, the Consumer Protection and Markets Authority (CPMA), does not go far enough in acknowledging the importance of a coherent system of market regula- tion, despite it broadly replicating current practices in terms of consult- ing with the industry.
Angela Knight, chief executive of the British Bankers’ Association, said: “It’s clear that further work needs to be done on both the openness of the PRA and on recognition by the CPMA of the importance of regulating the UK markets, which are some of the deepest and most liquid in the world.”
Osborne revealed the sweeping plans for regu- latory change in June, abolishing the tripartite system and handing Bank of England governor Mervyn King responsibility for maintaining the overall stability of the financial sys- tem. Hector Sants, who had said he would step down as Financial Services Authority chief executive, will now assume the top job at the PRA.
The Labour party is £20m in debt and
“on the verge of bankruptcy”, former
deputy Prime Minister John Prescott
warned yesterday. The 72-year-old ex-
ship’s steward, who is campaigning to
become party treasurer, said Labour
needed to find smarter and more cost-
effective ways to take on the cash-rich
Conservatives. In an implicit criticism of
former leaders Tony Blair and Gordon
Brown, Prescott told the Scottish
Parliament’s Festival of Politics: “The poli-
tics of organisation are equally important
as the politics of ideas. We forgot about
the organisation bit.”
The tide of firms delisting from the
Alternative Investment Market (Aim)
will finally bottom out over the second
half of the year, heralding a return to
growth for the junior market next year.
Deloitte predicts the number of firms on
the market will reach a low point of
1,200, a drop of almost 30 per cent from
its peak of 1,694 in 2007. Firms left the
market in droves during the crisis, as the
cost of maintaining a listing put undue
pressure on balance sheets.
Virgin Atlantic pilots have warned the
firm’s managers not to push them as the
two sides meet in last-ditch talks over
working hours. The pilots are claiming
Virgin has reneged on a deal allowing
them a minimum number of scheduled
days off every year. Under the rota they
currently work under they receive the
same number of days off as an office
worker but when the days fall is not eas-
ily predictable. The union representing
the pilots has not called a vote on what
action it is willing to take but has not
ruled out striking.
The UK’s biggest provider of carehomes
won an eleventh hour stay of execution
when three quarters of its lenders agreed
an extension on its debt repayment. The
beleaguered Four Seasons will now have
an extra two years to pay off part of its
£600m debt pile. The welcome news
comes just a year after the firm agreed
an £800m debt-for-equity swap with
RBS, which now owns 40 per cent of the
business. It’s latest figures show a 5.2
per cent revenue hike to £460.7m but a
dip in profit to just £928,000.
Authority chief Hector Sants is set to take up the chief executive’s
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The US state department will formu- late a company specific “policy” to address export licence approvals for BAE Systems and its subsidiaries fol- lowing an analysis of the UK defence group’s guilty plea to criminal charges in March and discussions with BAE representatives, a depart- ment official said.
Brokers who allowed high-frequency traders to have access to the markets without undertaking proper checks on them face potential fines as part of a clampdown following the “flash crash”. The Financial Industry Regulatory Association is undertak- ing a “sweep” of broker-dealers that offer market access to high-frequency traders.
David Cameron and other British min- isters will “get out there” lobbying Russia and other oil-rich countries to give UK energy companies new busi- ness, according to Charles Hendry, the energy minister. In the past few weeks, the government has called a meeting of ambassadors informing them that British politicians are actively looking to help UK businesses secure big deals abroad.
Psion, the British company that moved into smartphones 20 years before they were fashionable, has developed cutting edge technology to help save American footballers from dying of heat stroke. Psion, which crashed out of the FTSE 100 when the dotcom bubble burst in 2000, has helped create a helmet with built-in sensor.
It has moved into banking, pet insur- ance and telecoms, but Tesco will expand its reach further this week with the launch of the UK’s first ever “drive-thru” supermarket. The service will allow customers to pick up their weekly shop without leaving their car.
Lidl, the cut-price supermarket, is dip- ping its toes into the world of electric- ity trading dominated by banks and utilities – as it seeks to deal with increasing energy bill volatility. The supermarket is setting up its own power trading desk, after UK man- agers taught themselves how to trade using dealing platforms. It is usually the banks and major utilities that trade on the complex markets driven by oil, gas and coal prices.
Christina Domecq, the web entrepre- neur who left the text messaging firm Spinvox under a cloud, has staged a swift return to business. She has been appointed to run Phreadz, a social networking start-up company based in San Francisco. A scion of the Domecq sherry family, she was signed up by Georges Daou, a serial technology investor who made his fortune selling IT to healthcare firms.
Indian government officials will fly in to De La Rue’s plant in Overton, Hampshire, this week to investigate production errors that sent the ban- knote printer’s shares into a tailspin and forced its boss to quit. The prob- lems concern De La Rue’s largest con- tract, to supply watermarked banknote paper to the Reserve Bank of India.
Robert Tchenguiz is trying to remove the trustee of his family trust amid attempts by his lender, the failed Icelandic bank Kaupthing, to seize what’s left of the property tycoon’s depleted fortune. The Times has learnt that Mr Tchenguiz, once worth more than £1 billion, has asked a court in Guernsey to remove Investec as the trustee of Tchenguiz Discretionary Trust.
An American-backed plan to extract oil shale from rocks beneath the Holy Land has triggered fierce opposition in Israel. The Union for Environmental Defence is seeking an injunction from the country’s Supreme Court to block the project, which intends to produce a type of crude from a vast deposit in the Adullam valley.
WEST END retail rents are set to soar further in the wake of a record £700 per square foot lease secured by Spanish retailer Desigual.
The fashion chain will pay the eye- watering sum for the lucrative win- dow-side parts of the shop floor, as part of a deal with property investor Prupim last week.
Desigual’s rent has smashed the previous record for Oxford Street retail space, set in 2009 by Sunglass Hut with a £615 per square foot lease agreement.
Disney, Prupim’s outgoing tenants at 360 Oxford Street, paid around £540 per square foot for the window display in the premises opposite Bond Street Tube station.
Several retail giants including O2, Mango and All Saints are thought to have made bids for the 6,500 square foot shop, in a sign of heightened competition for flagship retail spots in the capital.
“It’s a very big jump in rents, thanks to added demand for a pres- ence on Oxford Street coupled with a
continued lack of supply,” said Richard Scott, director of central London retail agencies at Jones Lang Lasalle. “There is a wealth of new players trying to get onto Oxford Street, all willing to pay very high rents. It sets a precedent for future leases or rent reviews, though it’s purely in line with demand.”
Large West End retailers including Gap face rent renewals in the coming months. Retailers in the area enjoyed a bumper rise in sales last month, up 9.6 per cent year on year compared to a 1.3 per cent UK average, further making the case for a hike in rents.
“Retailers don’t pay top rents in the West End to get their names out there. They pay because the footfall is the highest in the capital,” said Scott. “Rents in places like Westfields are lower, but so is turnover, and compa- nies will fight to remain on Oxford Street.”
West End retail space commands some of the highest rents in the coun- try. London was the fourth most expensive city for retail space in the world in the first three months of 2010, according to CBRE, in part due to the rise in the West End.
Rent soars for best West End window space
SUGGESTIONS of a cabinet rift between George Osborne and Iain Duncan Smith were scotched by a sen- ior minister yesterday, but Whitehall sources insisted the pair were at log- gerheads.
David Willetts, the universities minister, said he was “not aware” of any acrimony between the chancellor and Duncan Smith, the work and
pensions secretary. “All I can say is that all of us are working hard on sav- ing money in our departments,” he added.
But friends of Duncan Smith said he was frustrated by Treasury offi- cials working for Osborne, who he says treat his staff with disrespect. Clare Lombardelli, the Treasury man- darin in charge of welfare reform, has been identified by Duncan Smith as one of the key culprits.
£3bn up-front cost of Duncan Smith’s welfare reforms, insisting the Department of Work and Pensions make £10bn of cuts elsewhere to help fund the plans.
A source close to Duncan Smith suggested he would resign if the chancellor blocks his welfare reforms. “Iain didn’t come back into politics for vanity. He’s got one simple aim: to reform the benefits system. If he can’t, there will be little reason for him to stay in government.”
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