UK consumer spending continues to fall in April – Visa

LONDON (Reuters) – British consumers tightened their belts further last month, figures from payment card company Visa showed on Monday, adding to signs that the economy is struggling to recover from a weak first quarter.

Visa said inflation-adjusted spending on its credit and debit cards in April was 2 percent lower than last year – the same decline as in March and one of the steepest declines of the past five years.

Looking at the three months to April, the fall in spending gathered pace, dropping by 1.6 percent on a seasonally adjusted basis compared with the previous three months. In March, spending fell by 1.3 percent on a similar basis.

“Low confidence levels amongst shoppers and the gloomy outlook for the UK economy are likely to have contributed to this continued caution,” Visa’s chief commercial officer, Mark Antipof, said.

Discretionary spending on furniture, electrical appliances and recreation was worst hit, Visa said.

Last week the Bank of England said a first-quarter slowdown in economic growth to just 0.1 percent was probably a blip caused by unusually icy weather. But it did highlight weaker consumer spending and a softer housing market as possible warning signs of more persistent sluggishness.

Visa said the weak consumer spending was surprising given inflation was beginning to slow and wage growth was edging up.

“Retailers will be pinning their hopes on further improvements in household finances and warmer weather leading to a more upbeat few months heading into summer,” Antipof said.

Visa says its cards account for a third of British spending. The data is adjusted for changes in Visa’s market share, a long-term decline in cash usage, and to strip out transactions that do not count as consumer spending.

Shoppers browse in an Aldi store in London, Britain, February 15, 2018. REUTERS/Peter Summers

Reporting by David Milliken, editing by Andy Bruce

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UK employers plan to raise pay by more over coming year – CIPD

LONDON (Reuters) – British employers plan to offer bigger pay rises to staff over the next year than they expected three months ago, reflecting faster pay growth in the public sector as well as more general demand for staff, an industry survey showed on Monday.

The shadows of workers are seen in the City of London financial district, London, Britain, January 25, 2018. REUTERS/Toby Melville

The Chartered Institute of Personnel and Development (CIPD) said employers on average planned to raise basic pay for staff by 2.1 percent at their next annual pay settlement, compared with 1.8 percent three months ago.

The CIPD data fit with a broad pattern of labour shortages and gradually rising pay shown in other surveys and official data, which lie behind the Bank of England’s view that it will need to gradually raise interest rates over the coming years.

This positive employment picture contrasts with the economy as a whole in the first three months of 2018, which grew at its weakest annual rate in five years, prompting the BoE to defer a previously widely expected rate rise in May.

Gerwyn Davies, senior labour market analyst for the CIPD, said employer optimism about job prospects meant that those weak provisional GDP figures should not be put under “too pessimistic interpretation”.

Demand for labour continued to grow in the second quarter of 2018, and was not matched by supply, Davies added.

“This may explain why wage pressures are starting to increase following a prolonged period of relatively subdued pay growth. It could well be that employers are using higher starting salaries to attract the talent they need,” he said.

Median pay awards over the past 12 months were 2 percent, according to the CIPD’s data.

Last month pay data company XpertHR said average pay settlements in the first three months of 2018 rose to 2.5 percent, their joint highest since 2008.

Pay growth according to the CIPD’s measure – which covers existing staff, and does not capture the effect of promotions or staff moving to better paid jobs – is lower than official data that shows average weekly earnings rose by 2.8 percent year-on-year in the three months to February.

The unemployment rate fell to its lowest since 1975 over the same period, dropping to 4.2 percent.

Almost one in three employers surveyed by the CIPD said they were raising wages to tackle their recruitment struggles, and the proportion of public-sector employers expecting to raise pay by 2 percent or more rose to almost two in five.

In March, trade unions and public-sector employers agreed a 6.5 percent pay rise over three years for more than a million nurses and hospital staff.

The CIPD data was based on a survey of several hundred employers between March 9 and March 30.

Reporting by Ana de Liz, editing by David Milliken and Andy Bruce

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Nearly a third of homebuyers fail to get best mortgages, says watchdog

LONDON (Reuters) – Britain’s markets watchdog is proposing to make it easier for homebuyers to find the best mortgage after finding that nearly a third of borrowers fail to find the cheapest deal.

A home is advertised for sale in London, Britain August 4, 2016. REUTERS/Neil Hall –

The Financial Conduct Authority (FCA) on Friday published the interim findings of a review into Britain’s trillion-pound mortgage market, launched in December 2016 to determine whether customers could obtain better deals and if links between industry players limit choice.

“We found that there are limitations to the effectiveness of the tools available to help consumers choose a mortgage,” the interim report said. “This makes it difficult for a significant minority (we estimate around 30 percent) of customers to find the cheapest suitable deal.”

These consumers could have saved about 550 pounds ($ 750) a year if they had bought the cheapest product. Some borrowers who could save money by switching provider either do not or cannot, it added.

The high cost of buying a home in Britain, exacerbated by a housing shortage, has put ownership out of reach for many people, and the government is under pressure to address the problem.

“For many, the market is working well with high levels of consumer engagement,” Christopher Woolard, FCA executive director of strategy and competition, said in a statement.

“However, we believe that things could work better with more innovative tools to help consumers.”

There are about 30,000 “mortgage prisoners” who took out interest-only loans before the financial crisis, but are now unable to switch to cheaper deals because of tougher rules.

The FCA said it wants to resolve this “legacy” issue and will explore solutions with industry and consumers.

UK Finance, Britain’s main banking industry body, said the FCA showed that the market was working for the vast majority of borrowers.

“We note the FCA’s points regarding perceived areas of weaknesses within the market, particularly around customers who currently may be unable to switch products,” it said.

INHIBITING INNOVATION

The report found little evidence that current commercial arrangements between firms in the market, such as brokers that have agreements with estate agents or a housing developer, are harming customers.

The FCA recommends making it easier for customers to identify the right mortgages and best brokers at an early stage and said it would work with the sector to develop metrics to help consumers make comparisons.

“The proposed work to help consumers understand the relative strengths of brokers is innovative and could have wider application in other intermediated sectors,” said Andrew Strange, a financial services director at consultants PwC.

Helping existing customers finding the best deals as interest rates rise should be a top priority for firms, Strange said.

The interim findings do not propose any changes to the sector’s handbook but explain the watchdog’s thinking.

A final report will be published around the end of the year, with any recommendations for rule changes put out to public consultation.

“Mindful of the regulatory change that mortgage firms have experienced in recent years, we will not seek to make further changes to those interventions that appear to be working well,” the FCA said.

($ 1 = 0.7378 pounds)

Reporting by Huw Jones; Editing by David Goodman

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Explainer – Will the Bank of England raise rates in May after Carney dampened expectations?

LONDON (Reuters) – Bank of England Governor Mark Carney dampened widespread expectations for an interest rate hike in May, pointing out there were also “other meetings” this year.

FILE PHOTO: The Bank of England is seen in London, Britain, April 9, 2018. REUTERS/Hannah McKay/File Photo

WHAT CARNEY SAID:

“I don’t want to get too focused on the precise timing, it is more about the general path,” Carney told the BBC.

He said Britain should prepare for “a few interest rate rises over the next few years.”

“I am sure there will be some differences of view but it is a view we will take in early May (at the next meeting of the Bank’s Monetary Policy Committee), conscious that there are other meetings over the course of this year.”

WHY IS THERE DOUBT ABOUT A MAY HIKE?

Carney described recent economic data as “mixed”.

Figures this week showed the unemployment rate fell to its lowest level since the 1970s during the three months to February, but overall wage growth failed to pick up as expected and retail sales fell sharply due to snow last month.

Also, a measure of wage growth Carney cited a few months ago as evidence of firming inflation pressure has weakened lately.

In February he told lawmakers it was an “important point” that three-month annualized wage growth had been running above 3 percent for several months. But the latest data show this cooled to just 0.8 percent in February.

(For a graphic on ‘Has wage growth shifted Carney’s view?’ click reut.rs/2HeXArz)

WHAT THE MARKET SAYS:

British government bond prices jumped on Friday.

Expectations of a UK interest rate increase in May have shrunk to below 50 percent from 70 percent earlier in the week, according to estimates derived from the swap markets. BOEWATCH

Sterling took another leg down on Friday to $ 1.4030 after falling nearly 1 percent in the New York session. GBP=D3 [GBP/]

Finance minister Philip Hammond said on Friday it looked like financial markets had been “out of line” with Carney’s thinking, based on the reaction of sterling.

HOW IS THE MPC SPLIT?

In March, the Bank of England’s Monetary Policy Committee voted 7-2 to keep rates at 0.5 percent.

Ian McCafferty and Michael Saunders – who were the first officials to call for rates to rise in 2017 – said it was time for rates to increase again for only the second time since the 2008 financial crisis.

Saunders on Friday said the BoE no longer needed to keep its foot firmly on the accelerator at a time of rising domestic inflation pressure.

He reiterated the BoE’s joint position that “any further tightening is likely to be at a gradual pace and to a limited extent” but added that “a key point is that ‘gradual’ need not mean ‘glacial’.”

Saunders also said the range of views about interest rates among MPC members may be no wider than usual.

EXPECTATIONS

A firm majority of economists in a Reuters poll taken before Carney’s comments and published earlier this week said they expect the BoE will raise interest rates to a new post-financial crisis high of 0.75 percent in May.

WHAT THE ANALYSTS SAID

ANDREW SENTANCE, PWC SENIOR ECONOMIC ADVISER, EX-MPC MEMBER

“Quite likely that all 4 external MPC members will vote for a May rate rise. Can they get 1 or 2 internal votes to support them? If Carney is opposed, Broadbent and Haldane are main candidates to push through a rate rise – so watch their statements in the next week or so.”

ALLAN MONKS, JPMORGAN ECONOMIST:

“(Carney’s commentary) opens the possibility of the BoE passing on May and instead hiking later in the year as the data improve.

“The data have not been uniformly weak, especially at the start of the quarter, and it is hard to believe the BoE will delay a rate rise because of bad weather. Should the April surveys bounce decisively this would help reassure the BoE that growth is set to improve this quarter.”

BANK OF AMERICA MERRILL LYNCH ANALYSTS:

“Then last night Governor Mark Carney suggested delay. In a BBC interview he said the BoE was conscious of ‘other meetings over the course of the year’ when they could hike. As hints go, we think it’s as strong as we get. The data justify delay in our view. We have been skeptical of the need for a May hike.”

JORDAN ROCHESTER, FX STRATEGIST AT NOMURA:

“(Carney’s) interview last night has rocked the boat and introduced a much higher level of uncertainty (over) whether the BOE will decide to raise rates in May or not. We still expect a hike in May, structural reasons to be short front end remain.”

UNICREDIT ECONOMISTS

“His comments suggest the vote on whether to hike in May is now on a knife-edge, and next week’s 1Q18 GDP report (we expect growth of just 0.2 percent (quarter-on-quarter), in part due to a hit from adverse weather) could be decisive. A hike in May is still likely but, as we had previously warned, it is a much closer call than financial markets were expecting.”

MARC OSTWALD, MARKET STRATEGIST AT ADM INVESTOR SERVICES:

“Carney struck back against any doubters that he is still king of the ‘unreliable boyfriends’, with his comments casting a whole (load) of doubt that a further 25 bps rate hike is a slam dunk.”

Additional reporting by Jamie McGeever, Editing by Guy Faulconbridge and Toby Chopra

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UK asset managers told to show they offer value for money

LONDON (Reuters) – Asset managers must assess each year how much value for money they offer investors, Britain’s markets watchdog said on Thursday, stopping short of tougher measures called for by critics of the 8 trillion pound ($ 11 trillion) sector.

FILE PHOTO: The Canary Wharf financial district is seen from Greenwich Park in London, Britain, January 22, 2017. REUTERS/Hannah McKay

The Financial Conduct Authority (FCA) said asset managers would have 18 months to prepare for a requirement from September 2019 to make an annual assessment of value, as part of their duty to act in the best interests of investors.

In a requirement that will take effect six months later than originally indicated, asset managers will have to publish their value assessments and show if any corrective action was taken if charges were identified as not being justified.

After pressure from industry, the value for money idea floated in last year’s review has been broadened to overall value to avoid what the FCA says is too much focus on costs.

“Changes to focus on wider value, rather than just charges, will better enable firms to demonstrate this value to their customers, although the new public statements could risk overloading consumers with information,” said Andrew Strange, a director at consultants PwC.

There is no common template for managers to assess value, they are only asked to spell out the factors taken into consideration such as the range and quality of services provided and the performance of the fund after deduction of all payments.

Fund managers will also have to appoint at least two independent directors to their boards by September 2019.

Shares in leading asset managers outpaced gains in the broader stock market, with Schroders (SDR.L) up 1.7 percent and Standard Life Aberdeen (SLA.L) up 2 percent at 1031 GMT.

The sector’s main UK trade body the Investment Association welcomed recognition by the FCA that investors judge asset managers by performance and service, as well as cost.

But Gina Miller, founding partner of investment firm SCM Direct, said it was shocking how long it had taken the FCA to “achieve nothing more than restating the obvious”, without tackling “misleading fees”.

SWEEPING REVIEW

The reforms build on the watchdog’s sweeping review of Britain’s asset management sector published last June that found evidence of weak price competition.

The FCA also launched a further consultation on remedies related to funds providing better information about their products, covering how fund objectives can be expressed more clearly, and benchmarks used for tracking performance.

This would make life harder for so-called “closet trackers”, or funds which say misleadingly they actively chose investments and therefore charge higher fees. Tracker funds which follow a benchmark, such as the FTSE 100 index, charge lower fees.

PwC’s Strange said the proposals would force managers to be even more vigilant in how they use benchmarks in marketing materials and show fund performance when no benchmarks are used.

The FCA said the chair of an asset management firm’s board will be directly accountable to regulators for assessing value for money and ensuring independent directors are appointed.

Asset managers will have a year to comply with changes to how they profit from investors buying and selling their funds, known as box profits, and with steps that make it easier for investors to shift into cheaper share classes, the FCA said.

Daniel Godfrey, the former CEO of the Investment Association who called for more transparency in the sector, said the changes should improve value for investors, and that the importance of forcing asset managers to be clearer on their use of benchmarks should not be underestimated.

Kevin Doran, chief investment officer at broker AJ Bell, said: “For far too long, many fund providers seem to have forgotten just whose money it is they manage, hiding behind vague objectives and excessive charges.”

Additional reporting by Sinead Cruise; Editing by Jane Merriman and David Holmes

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HSBC has worst gender pay gap among Britain's largest companies

LONDON (Reuters) – HSBC (HSBA.L), Europe’s largest bank, has reported the largest difference in male and female staff salaries among large organisations in Britain, as the government looks to pressure big companies to reduce gender pay disparities.

Swamped by the task of delivering Brexit, Prime Minister Theresa May is under pressure to make visible progress on a domestic agenda set out when she took power in July 2016, particularly after a snap election in 2017 that exposed a weakness on social reforms.

Hoping to highlight gender discrimination and force companies into action, May has implemented long-planned reforms ordering companies with 250 or more employees to publish details of the salary difference between male and female employees by Wednesday evening and report back annually on the pay gap.

HSBC on average paid men 59 percent more than women, the biggest difference among companies with more than 5,000 employees in Britain, according a Reuters analysis of the published data using the mean as the measure.

The next largest gender pay gaps were at Virgin Atlantic, where men received 58 percent more on average more than women, followed by a unit of Barclays (BARC.L), where female staff earned 48 percent less than male colleagues.

HSBC said it was confident in its approach to pay and made appropriate adjustments if it identified differences between men and women in similar roles which could not be explained by performance or experience.

Virgin Atlantic said the gap reflected the relatively low number of female pilots in the aviation industry, while Barclays said it had more work to do so women could progress in their careers at the company.

Firms are not required to break down the data in detail, leading to criticism that the average figures could obscure or exaggerate demographic explanations for disparities. Nevertheless, they offer a step forward in assessing the issue.

EQUALITY POLICIES

Almost 50 years since the passage of Britain’s equal pay act, the continued gulf in earnings between men and women has steadily risen up the political agenda. The opposition Labour Party first created powers on gender pay reporting in 2010, but then lost an election. May enacted those powers last year.

FILE PHOTO: People walk past a branch of HSBC bank in central London, Britain June 09, 2015. REUTERS/Neil Hall/File Photo

Although part of a broader trend of pro-equality policies in Britain, the issue has gained momentum under May, the country’s second ever female leader, and increasing competition from her main opponent, socialist campaigner Jeremy Corbyn.

May vowed in 2016 to tackle “burning injustices” in society, with a specific reference to gender pay alongside issues like race and class discrimination.

Nearly two years later, she said that by introducing the reporting requirement, her government had taken a lead on the issue.

“By making this information public, organisations will no longer have anywhere to hide,” she wrote in the Daily Telegraph newspaper. “Shareholders and customers will expect to see improvements, and will be able to hold organisations to account if they fail to achieve them.”

Other countries to introduce mandatory gender pay gap reporting include Australia, which passed similar legislation in 2012, and Germany.

Reuters analysed pay figures for 491 of the leading companies, government departments, charities, local authorities and hospital trusts, which employ more than 5,000 people.

Of those organisations that had published data by 3 p.m. (1400 GMT) on Wednesday, 97 percent pay men more than women and just 3 percent pay women the most.

The average gender pay gap among these largest companies is 15.5 percent, according to the Reuters analysis.

Political opponents, including Labour, welcomed publication of the data as a step forward but urged a more hands-on approach, saying the government still lacked clear plans on how to address the problems they had revealed.

“(Theresa May) wants to close the #paygap but says nowhere how she plans to do it. Politicians can’t just keep beating up business while leaving structural inequality untouched,” tweeted Sophie Walker, leader of the Women’s Equality Party.

Editing by Guy Faulconbridge and David Holmes

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