UK Growth Forecast Set to be Cut 
Later today the Bank of England are set to release their inflation report, their first assessment of the economy since the country went back into recession.

In the last report from the Bank of England, the central bank forecast that GDP growth for the UK would be around 1.2 percent for this year and 2.8 percent for the following year; whilst inflation was predicted to hit its 2 percent target in the final quarter of 2012 and fall as low as 1.5 percent in 2013.

However, ahead of the report which will be unveiled later today, it is widely expected that Sir Mervyn King will cut the Bank of England’s forecast for the UK economic growth to 0.75 percent during 2012, with one economist saying: “The economy hasn't grown for six months, and the headline second quarter GDP data are unlikely to stray much above zero, even if the underlying picture is more robust.”

Along with cutting the forecast for GDP growth, the Bank of England are also expected to stick by their earlier expectations that inflation will fall to its target by the end of the year, despite inflation not falling as expected and the consumer price index rising to 3.5 percent in March.

Despite the figures are expected to paint a gloomy picture for the remaining months of the year, many economists are predicting that the downward revisions for next year will not be much lower than the 2.8 forecast in the last report.

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Businesses Warned Over Final Pension Schemes 
New research has suggested that over the next three years, British businesses will face a £100 billion drain on their finances as they continue to top up ailing final pension schemes.

The warning, which comes from the Pension Corporation comes as the pension deficit continues to rise, with the research suggesting that as much as thirteen percent of a companies’ total £750 billion of cash balances will be required to prevent deficits rising further – which will take money away from vital investment such as jobs and growth.

The additional money is required to ease the deficits, despite businesses already contributing £80 billion of deficit reduction payments over the last three years.

Along with warning businesses that extra finances are required to stop soaring pension deficits, British businesses have also been advised that more final salary pension schemes could be forced to close, with the research saying: “UK plc has been swimming hard upstream, with lots of effort being expended, but not making any real progress against the powerful deficit current.

“Trustees with open schemes remain fearful that even these will be closed to future accrual because of the ever increasing burden placed on companies.”

Four years ago, forty-three percent of final salary schemes were open to new members, and only twelve percent were closed to future accrual. However, today only sixteen percent of final salary pension schemes in the private sector remain open to new members, whilst twenty-four percent have been closed to future accrual for existing members.

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Tax Refunds to Come Early 
It has been revealed that up to 3.5 million taxpayers could be in line for a tax refund, from as early as next week, as HMRC begin reconciling employer and employee PAYE year-end.

The process of reconciling employer and employee tax accounts happens each year and results in millions of people receiving notifications of refunds or the need to pay more tax if they have been on the wrong tax code previously; with HMRC estimating that 3.5 million could be in line for a tax refund, whilst a further 1.6 million will be advised they have underpaid tax throughout the year.

It has expected that those who are due a rebate will get an average windfall of £379, while the typical shortfall for those who have not paid enough is £537, PAYE adjustments for the tax year 2011/2012.

Stephen Banyard, acting director general for personal tax, said: "We are pleased that we are able to start this process more quickly than in previous years, giving money back to those we owe and delivering certainty to those with something to pay.

"We are improving the PAYE system further through the introduction of Real Time Information (RTI), which will make it easier for employers and pension providers to administer as they will tell HMRC about PAYE payments at the time they are made - as opposed to only at the end of the year - reducing the need for corrective actions at a later stage."

The letters advising taxpayers that they are either due a tax rebate or are required to pay additional tax are to be sent out from May 17th 2012, with the last being sent in October 2012; and HMRC have said that anyone who receives a letter doesn’t need to do anything, as any tax owed will be taken throughout the year via an alteration in the tax code.

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UK Investment Funds to Land Windfall 
British investment funds could be in line to receive a £16 billion windfall, following a decision by a European Court, which ruled that taxes charged by France on dividends paid by French companies to foreign investors should not be subject to withholding tax.

Currently, under French tax rules, dividends paid to certain funds which are not resident in France are taxed at twenty-five percent; whilst a similar fund based in France is exempt from the levy on its investments within the country.

The tax rule was declared by the European Court of Justice (ECJ) to be discriminatory; and this decision has now paved the way for a possible tax rebate to UK investment funds.

Following the decision of the ECJ, one economist said: “Investment funds that may have paid this withholding tax any time over the past five years should investigate now as to whether they are able to claim rebates. Europe-wide these claims could amount to as much as €20bn, so it is in funds' interests to act now.

“The ultimate beneficiaries of this ruling against discrimination will be UK companies and employees saving for their retirement who will see improved returns on investments in Europe.

“UK pension and investment funds will no longer have to pay more tax on their dividends from investments in French companies than their French equivalents and in a difficult economic climate, funds will welcome any measure which allows them to maximise returns.”

It is believed that along with paving the way for a potential windfall to UK investors, the decision by the ECJ could open up similar judgements against other European countries, such as the Netherlands and Germany, where similar taxes are in place.

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Bank of England to Resist More Quantitative Easing 
The Bank of England are expected later today (May 10th 2012) to call time on the latest round of quantitative easing, following signs that inflation is proving to be “stickier” than expected.

With the second round of the quantitative easing programme complete, the Bank of England now need to consider whether they are to extend it further, or leave the total £325 billion programme unchanged.

Many economists believe the Bank of England will opt for the latter option, following the rise in inflation to three point five percent during March; which has raised hope that the Consumer Price Index (CPI) will reach its target of two percent during 2012.

The British Chambers of Commerce have urged the Monetary Policy Committee (MPC) to keep the quantitative easing programme at its current levels; although they have again called on the government to consider creating a “business bank” to help improve lending to small and medium sized businesses throughout the UK.

Along with business leaders calling for the Bank of England to maintain quantitative easing at its current levels, Adam Posen, a MPC member who has previously been calling for further quantitative easing to be introduced, has also changed tact and called for the bank to keep the programme as it is.

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