MPC Puts Further QE Plans On Hold 
Minutes from the November meeting of the Bank of England’s Monetary Policy Committee (MPC) show that it has been decided not to boost the current £275bn package of quantitative easing (QE) any further until at least February.

The minutes said that there was “little merit in fine tuning” and that it will take “ a further three months” to complete the latest £75bn installment, voted for in October.

Since inflation remains “materially above target”, it appears that the Bank is concentrating on bringing it down to nearer the 2 per cent target, which might take longer than the two years it has been suggesting.

The minutes said: “it remained a possibility that (inflation) would be slower to fall during 2012 than the pace implied by the committee’s central projections.”

Reaction to the minutes from analysts was that they were much as expected. Philip Shaw of Investec said: “No huge surprises from the minutes. In particular the unanimous votes to keep policy on hold was as expected, but also that the committee seemed to dismiss the idea of increasing the quantitative easing target and stepping up the pace of purchases.”

And Vicky Redwood of Capital Economics said: “The vote showed that the new, lower set of inflation forecasts did not persuade any members to vote to increase the QE programme straight away, with the Committee voting unanimously to leave policy unchanged. But given that the extra purchases announced in October are not yet finished, that was not a surprise.”

While the committee’s nine members voted unanimously to leave QE on hold for the time being and for interest rates to remain unchanged at 0.5 per cent, it was split on the likelihood of more QE after February. However, most analysts expect this to happen.

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Fears Rising 
According to a Bank of England survey of risk managers, fears that the UK financial system could be about to experience a shock, such as another bank failure or the eurozone breakup, are at their worst since the collapse of Lehman Brothers in 2008.

The Bank's twice-yearly Systemic Risk Survey, conducted between 20 September and 21 October, shows that 88 per cent of respondents thought the probability of a "high-impact event" in the near future had increased.

Around 18 per cent of those questioned said that the risk of such a shock was "very high", up from zero in the first half of the year. Around 37 per cent put the risk as "high", up from 15 per cent.

The risk of a sovereign default and a return to recession were cited as the gravest dangers to financial firms by 76 per cent of respondents. A danger that banks would be unable to fund themselves in the wholesale capital markets was cited by 57 per cent.

Around 38 per cent pointed to the risk of new regulations and taxes, while around 26 per cent cited the risk of a financial institution failing. Fewer respondents cited the risk of corporations failing, a collapse of house prices and inflation.

The Bank's newly-created Financial Policy Committee (FPC) regulator meets today to consider the safety of UK banks and financial firms and will scrutinise the survey’s findings. It is the first time that the survey, which began in July 2008, has been published separately.

Paul Tucker, Deputy Governor of the Bank and a member of the FPC said: "We hope that the inaugural publication of detailed survey results will be of wide interest, shedding greater light on market participants' current views of confidence and risk.”

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Deficit Must Come Before Growth 
On the first day of the annual CBI conference yesterday, Prime Minister David Cameron addressed the audience of business leaders and said that the Government has a strategy for stimulating economic growth but that its first priority was tackling the UK deficit.

The strategy for growth will include measures to boost the house building industry, expand super-fast broadband, build new power stations and increase lending to businesses.

However, Mr Cameron insisted that dealing with the deficit must be “line one clause one, part one” of the plan for economic recovery. He said” I am absolutely clear about the right answer for the UK economy.”

Mr Cameron told the audience that the previous model of debt-driven consumer boom was “broken” and that the strategy should be for investment, more exports and a broader base to an economic future.

Asked during a Q&A session what the Government was going to do to deliver short-term growth, Mr Cameron sad “I don’t think there is one silver bullet that will make British business say ‘this is it’. I think there is a clear agenda across all those agendas.”

The Prime Minister also indicated that Chancellor George Osborne would be unveiling a new credit easing scheme in next week’s Autumn Statement, that would “pump billions” into reduced lending costs to SMEs and that the Government would use its huge purchasing power to strengthen the SME sector.

Reaction from the delegates to Mr Cameron’s speech was generally positive. Sir David Arculus, Chairman of small business bank Adermore, agreed that the deficit reduction message had to remain central and said “I don’t think that the toughness of the deficit reduction has ... hit home fully yet.”

Kanat Emirolgu, Managing Director of British Gas Business said that the Government should put more pressure on Europe to reduce regulatory barriers to the sales of services on the Continent.

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Compliance Costs Small Businesses A Fortune 
The Financial Services Authority (FSA) has cost businesses in the City around £1.4bn in the last year, as more than 18 separate compliancy measures have been introduced since last October, according to a recent report.

Apparently one-off implementation costs for the new laws regarding financial services range from between £253m and £323m, and among the measures and levies imposed on the financial sector are rules on capital requirements, data collection, consumer complaints and financial crime.

Daniel Pinto, Chairman of London-based investment firm Stanhope Capital and director at the New City Initiative, which represents independent firms, said the "excessive" regulation would stifle small and medium enterprises, which were paying the price for the failure of big banks. "

Smaller firms are not equipped to handle this increasing cost of compliance. For them these costs can be the difference between being profitable or not," he said.

Mr Pinto said smaller firms spent about 5 per cent of their revenues on complying with regulation and the extra FSA laws created a "systemic risk" that the SME sector would "shrink" as it struggles to cope with the legal burden.

And Michael Wade, Executive Chairman of Besso, has criticised the FSA’s draconian approach to enforcing the Bribery Act 2010, saying that “London will lose billions of pounds of premium. It will go into the markets that are less regulated.”

He added: “It’s a no lose situation for the FSA and a no win situation for the regulated and that is not fair.”

The figures for the cost of regulation have come out in the same week that Business Secretary Vince Cable is preparing to outline plans to cut business red tape at an employers’ event on Wednesday. The Government is apparently concerned about feedback from companies complaining of “regulation overload.”


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Unexpected Rise In Retail Sales 
October’s retail sales rose by an unexpected 0.6 per cent from the month before, according to figures released yesterday by the Office for National Statistics (ONS).

Analysts had expected a fall of up to 0.2 per cent, so were taken by surprise, and some even doubted the reliability of the data, as many had predicted that sales would fail to rise even at Christmas.

According to the ONS, the rise was mainly due to a price promotions campaign but whatever the reason, the volume of sales rose in small stores by 5.3 per cent year-on-year, which is the biggest increase since November 2004.

Smaller stores did better because shoppers have not been driving to larger, out of town shopping centre and shopping locally, according to experts. This would appear to be borne out by some chains, such as French Connection and Mothercare, not doing as well previously.

The sales figures not only driven by discounts in shops but also by strong trading in department stores and at on-line retailers, which increased by 11.7 per cent.

The news was greeted with some caution by most analysts. Howard Archer, chief UK and European economist at IHS Global Insight, said that the latest sales figures provided a "significant boost to the hope that the economy can keep growing".
However, he added that shoppers were likely to be "very cautious in their spending for some considerable time to come".

And Neil Saunders, managing director of Conlumino, a retail consultancy, said: "These figures look unbelievably positive. They are completely out of kilter with the results from the high street and yet again call into question the credibility of the ONS when it comes to reporting retail sales."

While Brian Hillard of Societe Generale said: "However welcome, I can't see this lasting. The state of the high street is bloody and downward pressure on consumers is still immense."

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