PRESS DIGEST - Financial Times - July 11

Financial Times

LENDERS RAISE COST OF FIXED-RATE MORTGAGES

In defiance of calls by ministers for more competition to revive the housing market, banks rescued with billions of pounds of taxpayers' money are among some of Britain's biggest lenders that have increased the cost of popular fixed-rate mortgage deals. While the Bank of England's base rate stands at 0.5 percent, Northern Rock (NRKx.L), for example, has raised the cost of some of its deals by as much as 0.6 of a percentage point, increasing its two year fixed-rate to 5.09 percent. On Friday, the Royal Bank of Scotland (RBS.L), in which taxpayers have a 70 percent stake, withdrew some of its best mortgage deals from its website. The move by Northern Rock will intensify concerns that the government failed to extract sufficient concessions from banks in return for taxpayer rescues.

FACTORIES HIT BY HIGH OIL PRICES

Rising oil prices increased costs for manufacturers last month, even though the prices of goods leaving the factory gate in June were far weaker than expected, suggesting inflationary pressures are under control. Figures released by the Office for National Statistics reveal a fall of 1.2 percent in the year to June in the output price index for sales of manufactured goods, with a fall of 0.2 percent in the month of June alone. Falling prices for chemicals and other manufactured products still outweighed the effects of increased oil prices. Howard Archer of IHS Global Insight noted the one-month decline in producer prices was the biggest since late 2001.

HOUSE PRICES SHOW SIGNS OF STABILITY

According to the FT House Price Index for June, house prices in England and Wales fell again last month but at the slowest rate since April 2008, confirming other data that the housing market is stabilising. House prices declined by an average of 0.3 percent, with the year-on-year fall coming in at 13.1 percent. The FT survey also revealed a pick-up in the number of transactions. Housing transactions in May were ahead by 43 percent from those in February compared with an average rise of 36 percent between those two months over the past nine years. The absolute number of transactions in May, however, is down by 62 percent from the average number of homes sold for the month in the years 2000-08. "Overall the evidence suggests that the market is bottoming out but the potential for further reductions remains, not least because of the acute undersupply of mortgages," said Peter Williams, chairman of Acadametrics, which compiles the index for the FT.

SOUTH KOREA CLOSE TO EU TRADE DEAL

Member states gave a generally positive reception on Friday to a proposed trade agreement between the European Union and South Korea. Although some states, particularly Italy and Portugal, continued to express reservations, several participants expressed growing belief that the deal was now on track to gain final approval before the end of the year. The meeting on Friday was seen as a crucial moment for a deal that would be the EU's largest ever, and its first in Asia. In spite of fierce opposition from Europe's carmakers, Baroness Ashton, the EU trade commissioner, has been determined to push the agreement through.

BA BRACED FOR UNION SHOWDOWN

British Airways (BAY.L) and its shareholders face a stormy annual meeting next week as the carrier's battle with its trade unions breaks into the open. Unite, the main BA union, which represents 28,000 of BA's 40,000 staff members, plans to picket the meeting in force. In the face of demands by BA's chief executive Willie Walsh for permanent labour reforms as well as cost-cutting, Unite believes Walsh is not interested in simply reducing costs to steer the company through the current crisis. It fears he plans to use the deep global recession to drive through "ideological" change. The changes proposed include a new disciplinary and grievances code removing contractual rights and protections. BA refused to make a comment on the labour talks.

C&W DEFENDS PAY PLAN AS ABI OBJECTS TO SCHEME'S EXTENSION

Cable & Wireless (CW.L) is preparing to face down shareholders who are opposed to a shake-up of the company's executive pay policy which could increase rewards for managers. C&W is not expected to provide concessions to investors after the Association of British Insurers voiced strong concerns about the pay proposals. The telecoms company is proposing to extend the pay-out period for its long-term incentive plan and the move could increase the cash going to its managers led by John Pluthero, head of UK business. The ABI objects to the fact that the share awards have not been based on actual salaries this year and Peter Montagnon, director of investment at the ABI, said the pay proposals raised "broader questions of governance" at C&W.

SAINSBURY FACES STIFF COMPETITION IN SEARCH FOR CHAIRMAN

J Sainsbury (SBRY.L) is facing stiff competition over David Tyler, one of the contenders for the post of chairman. Tyler, who is currently chairman of Logica (LOG.L), is also a possible candidate for Experian (EXPN.L) which is searching for a new chairman to replace John Pearce, recently named chairman of Standard Chartered (STAN.L). Sainsbury has already had a number of suitable candidates snapped up by other companies, but one headhunter suggested the supermarket chain was likely to have the upper hand in the competition, given its higher profile.

CENTRICA LAUNCHES 1.3 BILLION POUND VENTURE BID