PRESS DIGEST - Financial Times - June 5

GROWTH ALERT OVER FALLING PRICES

The Organisation for Economic Co-operation and Development said that a ten per cent fall in property prices by the end of 2009 will slow Britain's growth rate significantly and make the economy more vulnerable than most to the global credit crisis. The OECD expects the UK economy to slow by 1.8 per cent in 2008 and 1.4 per cent in 2009 and has advised the Bank of England to keep interest rates on hold for the rest of 2008. The OECD's predictions are in line with the Bank's latest central forecasts but are considerably more pessimistic than the Treasury's.

UPTURN IN COSTS FUELS HIGHER PAY DEALS

Data published on Thursday by Incomes Data Services reveals that the rising costs of energy and food are feeding through to higher private sector wage settlements. The median level of annual wage increases in the three months to the end of April rose to 3.8 per cent, compared with the figure of 3.5 per cent for most of the previous 18 months. Nearly half of pay settlements in April were at or above four per cent.

JOBS GO AS SERVICE SECTOR EXPANSION STALLS

The latest survey by the Chartered Institute of Purchasing and Supply and research group NTC reveals that growth in the service sector is stalling and that the number of companies shedding jobs has risen sharply as worries over the economic outlook has led to their clients making spending cuts. For the first time in five years the Cips index of service sector activity fell below the threshold of 50 that indicates stagnation, dropping from 50.4 to 49.8 in May. The employment index fell from 51 to 46.5, the biggest fall in the survey's 12-year history

DARLING DENIES THAT FISCAL RULES ARE IN JEOPARDY

Alistair Darling on Wednesday rejected claims by the Commons select committee that the government is about to break its own fiscal rules, in spite of his decision to borrow another 2.7 billion pounds this year to defuse the ten pence tax row. Darling's room for manoeuvre in his autumn pre-Budget report is extremely limited with pressure from Labour MPs for further tax cuts to help low income families. The chancellor refused to commit to extending the 2.7 billion pound compensation package beyond the 2009 Budget even though MPs on the committee warned that withdrawing it could leave 13 million households worse off.

CALL FOR EXTRA VAT TO REPLACE TAX ON PROFITS

An influential team of economists is calling for corporation tax to be scrapped and replaced by extra value added tax. The proposal, designed to address the growing difficulties faced by the Treasury in taxing international businesses, is part of a submission to a review of the tax system undertaken for the Institute of Fiscal Studies. Researchers at the IFS and the UCLA at Berkeley say that the growing mobility of capital and profits has created 'significant difficulties' in taxing corporate income where it is earned or where investors live.

INTEREST IN RBS INSURANCE ASSETS GATHERS PACE

Allstate and Zurich Financial Services(ZURN.VX) are among the companies that have submitted bids for Royal Bank of Scotland's(RBS.L) insurance assets. Indicative proposals for the insurance businesses were due to have been submitted a week ago but the deadline was put back after two potential bidders asked for more time. There are suggestions that Allianz(ALVG.DE) and Travellers have also submitted bids. RBS is looking for a net four billion pounds from the disposal of its insurance business and the prospect of a competitive process will be a relief to the company after several bidders walked away from the auction.

BARRATT AT 14-YEAR LOW AS UBS FORECASTS DRASTIC DIVIDEND CUTS

Shares in Barratt Developments(BDEV.L) dropped 8.2 per cent to 143.75 pence on Wednesday, a near 14-year low. Traders blamed the sell-off on a research note from UBS. Analyst Mark Stockdale said that housebuilders would be looking for ways to save cash as mortgage approvals and pricing trends are still deteriorating. Mr Stockdale said: 'We think dividend cuts are inevitable in the current environment and are logical given focus on cash generation, the need to prevent refinancing at large spreads and in the context of potential capital raising.' Other housebuilders also saw shares drop with Taylor Wimpey(TW.L) losing 5.2 per cent to 78 pence, Bovis Homes(BVS.L) losing 5.6 per cent to 388 pence and Redrow(RDW.L) losing 4.1 per cent to 214 pence.

GFK COULD STILL MAKE OUTRIGHT MOVE FOR TNS

Market research group GfK may still launch an outright bid for its rival Taylor Nelson SofresTNS.L as shareholders bet against its 'merger of equals' succeeding in the face of a rival offer from WPP Group(WPP.L). One investment banker has commented that a clause in this week's merger document saying that GfK would be 'free to work on any alternative proposal involving GfK and TNS' and 'use information provided to it by TNS' during the merger discussions is very unusual and that he had 'never seen a clause like this before'. Analysts think that WPP would have to bid between 280 pence and 300 pence to turn TNS shareholders' heads.