The biggest supermarket price war in 15 years was the main reason for the fall in inflation; food prices fell by 0.9 per cent over the month due to “significant and widespread discounting by supermarkets,” according to the Office for National Statistics (ONS).
However, some analysts believe that the fall in inflation will not be as dramatic as the Bank Governor has predicted; Sir Mervyn has said that inflation will be back around its target rate of 2 per cent by the end of next year.
In his letter to the Chancellor today, he said: “The Committee’s best collective judgement is that inflation will fall back sharply in the next six months or so, and continue falling thereafter to around target by the end of next year.”
A number of analysts are citing a rise in “core inflation”, which will keep rates higher for a while. Scotia Capital’s Alan Clarke said: ““A number of influences are likely to limit the extent of the slowdown in inflation.”
And Simon Hayes of Barclays Capital commented: “ One niggling concern I think is about the rise in core inflation that we say, because the fall in inflation that we are predicting for next year s partly about VAT, is partly about gas and electricity prices, but it is also driven by the weakness in the economy pulling down on inflation and there’s not a lot of evidence in the recent data that is actually happening.”
However, the fall is good news for cash-strapped household and the Government. A Treasury spokesman said: “The Government is taking action to help by increasing the personal tax allowance and freezing council tax, having also cut fuel duty."
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Figures just released by the Bank of England show that the UK’s biggest four banks increased their lending to companies in the third quarter of this year but lending to small and medium-sized businesses (SMEs) fell to £18.8bn from £20.5bn in the 2nd quarter.
Under the Project Merlin agreement, the banks need to lend £32.3bn in the last three months of the year to meet their overall target of £190bn and to meet the target of £56.1bn to SMEs, they must loan almost £20bn between now and the end of December.
John Walker, national Chairman of the Federation of Small Businesses, said the banks had "yet again missed the small business target,” adding that the lending targets failed to address the "lack of competition" in the banking sector.
"We need to see a clear change: more competition and new lines of credit opening for small firms if they are to help boost the recovery," he said.
And Brian Berry, Director of External Affairs at the Federation of Master Builders commented: "Despite the new figures on lending through Project Merlin showing that the UK’s major banks lent £18.8bn to SMEs in the third quarter of this year, our members are telling us they are still finding it difficult to access finance.
The BoE figures tally with those issued by the BBA, the trade association for the banking sector. A BBA spokesman said: "The Merlin banks are on track to meet their business lending commitments... However, the overall economic environment remains challenging and business demand remains weak."
The figures come as a Bank of England director called for a loosening of bank lending rules. Andrew Haldane, the Bank of England's executive director of financial stability, said that rules that hold back lending to small businesses should be relaxed when the economy is faltering.
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Chris Lucas, Barclays Financial Director has called for an overhaul of “opaque and complex” accounting rules, in a letter published in the Financial Times today.
In his letter, Chris Lucas criticises the “fair value accounting of own debt” which boosted the third-quarter results of several major banks, including Barclays, because the gain is based on the deteriorating market value of debt, a price at which a bank could theoretically buy back the debt.
Mr Lucas claims that these unresolved flaws in the IAS 39, “It makes results difficult to explain to investors and is unhelpful for an industry that wants to rebuild confidence through transparency in financial reporting.”
He goes on in his letter to urge stakeholders to amend IAS 39, saying this will "improve investor confidence and increase transparency in financial reporting by banks.”
IASB, the Standard Setter, is working on new rules, but they are proving controversial and the task is further complicated by attempts to coordinate with US equivalent the FASB.
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The Institute for Public Policy Research (IPPR) has published a report saying that apprenticeship schemes are not helping enough young people find employment and that government funding is often used to help employers train the over 25s.
Apprenticeships were initially set up to help young people in the 16 to 24 age bracket find employment and training but, according to the report, only 37,000 of the 126,000 extra apprenticeships created last year went to people in that age range.
The IPPR said that the apprenticeship “brand” should be reserved for young people but that the figures showed a different story; the rise in apprenticeships for the over 25s increased by 257 per cent, while for 19 to 24 year old the rise was 22 per cent and only 10 per cent for 16 to 18-year-olds.
IPPR Director, Nick Pearce said: “Apprenticeships can help young people break out of the unemployment trap by offering additional general education, the chance to learn the soft skills that employers often demand, and specific job-related training.”
The current system is that funding goes to training providers, who help to find and then administer appropriate apprenticeships. Mr Pearce believes that channeling more funding directly to employers would help to overcome employers’ reluctance to take on school leavers.
While the Department of Education defended the Government’s record on apprenticeships, a spokesman for them said: "The figures show that the number of 16-18-year-olds not in education, employment or training (NEET) continues to fall - but the number of teenagers who are NEET is still too high.
"We want every 16 and 17-year-old to achieve, which is why we are increasing apprenticeships and transforming vocational qualifications.
"We're raising the participation age to 18 by 2015 - whether that be full-time education in a school or college, an apprenticeship or full-time work or volunteering with part-time training alongside it."
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A report by the National Audit Office (NAO) has found that HM Revenue and Customs’ (HMRC) drive to encourage people to file their tax returns online has been a “real achievement” – but has raised concerns on whether the system is providing value for money.
HMRC’s drive to encourage tax returns to be completed online is in line with the government’s plans to expand its digital services and has been taken up by 11.5million a year, helping to cut processing, storage, stationary and postal costs.
The NAO report, however, has found that HMRC’s savings are 14% lower than the department predicted and its raised concerns over whether the benefits are being maximised, saying: “HMRC does not have sufficient understanding of the relative costs it incurs in online filing compared to filing of paper returns or of the costs and benefits to customers.
“For these reasons it is not possible to conclude whether benefits are being maximised and value for money has been achieved. Significant improvement is needed in these areas to drive future development on an informed basis."
Revised figures by the HMRC means the department expects £190 million in cumulative savings to be made by next year, with annual savings of £66 million thereafter; with the programme expected to break even during 2012-2013.
A spokeswoman for HMRC said: "Our online services have enabled, this year alone, a record 6.9 million people to send their self-assessment tax returns to us over the internet.
“In addition, 93% of company returns and over three-quarters of all VAT returns have come in over the internet. In excess of 11 million taxpayers now take advantage of our online services, enjoying many benefits and saving the taxpayer £60 million a year."
If you’d like help with your future tax returns or your businesses tax planning, contact the accountants Yeovil at Milsted Langdon.
For more information, please visit www.milsted-langdon.co.uk
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