PRESS DIGEST - Financial Times - Feb 14

Financial Times

KING SAYS ECONOMIC OUTLOOK IS BLEAK

Mervyn King predicted the economy is likely to come close to a halt in coming months and has warned Britons must face up to a 'genuine reduction in our standard of living'. The comments from the governor of the Bank of England have dashed market expectations of aggressive interest rate cuts. Mr King said there was a reasonable chance the economy would contract in coming months but he said inflation would rise so steeply that it was 'more likely than not' that he would have to write another letter to the Chancellor explaining why inflation had risen above the target of two per cent.

CITY BONUSES ON THE RISE AMID RECRUITING GLOOM

A study published by Morgan McKinley reveals that over a third of City staff received higher bonus payments than last year and 70 per cent said payouts exceeded or matched expectations. This year the Treasury is closely watching City bonus payments so as to gauge the scale of any slowdown in the financial sector and its implications for tax receipts. The study says the outlook for City recruitment has become worse due to the credit crunch but this has not fed through to bonus payments. Last month 11,000 candidates chased 8,000 vacancies in the City and wage inflation showed skilled people were still in short supply.

HOUSE VALUES LIKELY TO FALL SAYS KING

Following the release of the Bank of England's latest quarterly inflation report, Mervyn King, the governor of the Bank, told a news conference the housing market should expect prices to fall in real terms for as long as the next four years, however, he added there should now be a long period of stability in house prices. Mr King also dashed hopes that the Bank would endorse proposals to unclog the wholesale mortgage securities market, saying the government should be chary of appearing to favour one form of lending over another.

PRIVATE EQUITY CREATING JOBS, SAYS BVCA

A report published on Wednesday by the British Private Equity and Venture Capital Association says businesses backed by private equity have been creating jobs much faster than other private sector companies. In the five years to April 2007, UK private equity-backed companies increased their worldwide staff by around eight per cent a year, this compares to a figure of 0.4 per cent for FTSE 100 companies and 3 per cent for the FTSE 250. The report also says private equity-backed companies have increased R&D and investment spending faster than the national average with exports and sales also growing faster over the last five years.