PRESS DIGEST - Financial Times - June 12

Financial Times

BANK WARNS OF NEGATIVE EQUITY DANGER

The Bank of England has said negative equity in the housing market could be more dangerous for the financial system and the economy than it was in the collapse of the 1990s. The bank points to estimates that between seven percent and 11 percent of owner occupiers with mortgages are in negative equity, but expects the true level will be at the upper end of this range. The current situation compares with negative equity levels of mid-1995, when house prices were close to the bottom of the slump. However, the impact of the financial crisis on banks means that deterioration in the housing market could have more profound effects on the banking system.

PUBLIC EXPECTS 2.4 PERCENT INFLATION OVER THE YEAR

The public's expectation of 2.4 percent inflation is close to the Bank of England's target of two percent, according to a survey by the bank and market researchers GfK NOP. The expected inflation rate has dropped sharply over the last year after reaching a peak of 4.4 percent last August. However, concerns that the global recession would result in the kind of price falls seen in the Great Depression have not been reflected in the public's outlook. Howard Archer, an economist at HIS Global Insight, surmised that the modest rise in the public's inflation expectations "dilutes fears that deflation could become a long-term serious problem for the UK economy".

JOBS TOLL COULD PEAK "BELOW THREE MILLION BY 2010"

Various economists have begun revising their forecasts downwards amid signs the recession may be coming to an early end and suggestions that unemployment could peak at just below three million next year. Alan Clarke, of BNP Paribas, who previously predicted a 3.5m jobless peak, said he now expected unemployment to peak at 2.9m in 2010. Ray Barrell, of the National Institute for Economic and Social Research, said unemployment may not exceed three million, while Morgan Stanley's Melanie Baker said she expected a peak of around 2.7m.

WOOLWORTHS DEAL WITH BBC IN COURT

BBC Worldwide [BBC.UL] and the administrator of collapsed chain F.W. Woolworth will appear before a High Court judge on Friday to settle a dispute over the value of their 2Entertain joint venture. The outcome of the case could affect government plans to secure the funding of public service broadcasting, since 2Entertain forms part of a new joint venture between BBCW and Channel 4. BBCW was prepared to pay 100 million pounds for Woolworths' 40 percent stake just ahead of its collapse, but now argues that the original property rights deal lapsed when the retailer went into administration. Woolworths' administrators and creditors argue there was no such lapse.

BAXI CLOSE TO DE DIETRICH DEAL

UK boiler manufacturer Baxi is close to agreeing a 1.7 billion euro merger with Dutch rival De Dietrich Remeha Group, in a move designed to address its debt problem. BC Partners and Electra Partners, Baxi's private equity owners, would invest 100 million euros in the merged business as part of the deal, leaving them with a stake just below 50 percent. Negotiations are expected to be completed by the summer, but would need the approval of Baxi's lenders. If the deal is blocked, Baxi may struggle to repay 445 million pounds of debt set to mature between now and 2014.

MAXXED-OUT: PICCADILLY CIRCUS SNUB

The Crown Estate, which manages the monarchy's property portfolio, has reached a compromise regarding a prime retail outlet in London's Piccadilly Circus after opposing the opening of a TK Maxx outlet. The discount clothing retailer had agreed with leaseholder Criterion Capital to open a store on the site, but the deal was blocked by the Crown Estate since the lease insists on a "high class" retail unit. Criterion will now open its own souvenir store called Cool Britannia on the site previously occupied by Virgin Megastore.

DE LA RUE WINS BIOMETRIC PASSPORTS CONTRACT

Banknote printer De La Rue (DLAR.L) has secured a 400 million pound contract to supply the UK's new biometric passports, beating rival 3M. The 10-year contract forms part of the Home Office's 4.7 billion pound plan to upgrade passports and introduce ID cards. James Hussey, chief executive of De La Rue, said the deal reinforces the company's "strong growth in the identity sector". Last month the group also gained a five-year extension of its contract with the Bank of England to print all UK paper currency.

FINE WEATHER BOOSTS HOME RETAIL GROUP SALES