Following a review by its general staff, the British army is considering reductions in the number of heavy artillery pieces and battle tanks, in favour of boosting soldier numbers.

The review looks forward 10 years, and is designed to shape army priorities as the Ministry of Defence examines its equipment procurement programme in the face of a defence funding crisis – one of the worst for decades. The results of the review will also lead to big changes in organisation that could see an end to specialised units such as tank brigades and the development of identical brigades across the army.

General Sir Richard Dannatt, the army chief signalled the changes this month in a speech, and Major General Simon Mayall, assistant chief of the general staff, elaborated on his comments in an interview with the Financial Times.

The proposals are part of the army’s efforts to adjust to the conflicts in Iraq and Afghanistan - the likes of which are expected to form a greater part of its role than in the past. This does mean however, that because of budget pressures, the army will have to take risks with its other main task of being able to launch combat operations involving 30,000 troops o more.

Gen Mayall said this approach would “probably mean an army with fewer Challenger tanks and less self-propelled heavy artillery such as the AS90 mobile 150mm gun. It might also cut the number of Warrior tracked armoured vehicles.”

Gen Dannatt said that the “budget constraints meant equipment purchases had to be orientated to today’s tasks: We must get away from blue-skies thinking and from programmes that take a generation to produce.”

According to new MOD figures, since 2001, all three services have made 1,500 urgent operational requests, costing a total of £3.5bn. Although these have been paid for by the Treasury, they have increased budget pressures on the forces because new equipment has to be maintained.

Gen Dannatt said last year that the army would be “operating sub-optimally until the deployment of the Future Rapid Effects System (FRES)” - a medium-weight armoured vehicle which is aimed at replacing a large range of fighting vehicles across the army.

“FRES is still the army’s biggest procurement objective, offering,” Gen Mayall said, “a once in a lifetime chance to create a common frame for land vehicles.” These new vehicles would sharply reduce the numbers of spare parts and soldiers needed to support vehicles on operations.

Other priorities included a helicopter and a replacement for the Land Rover that would give occupants better protection from roadside bombs, he said. The MoD placed an order in 2006 for 70 Future Lynx helicopters with AgustaWestland, a Finmeccanica subsidiary. Of these, 40 would be for use as a battlefield reconnaissance aircraft, but media reports are to be believed the order could be cancelled. The army is also seeking more unmanned aerial vehicles.

The shift could see, tank crews trained to use medium-weight vehicles, heavy-artillery operators trained to use tactical UAVs and light guns, and air defence groups trained to use small UAVs, for example.

Gen Dannatt suggested that “efforts to keep troop numbers down on operations in the past five years had prolonged engagements and had proved a false economy. He said the army could not get any smaller,” adding that “I would certainly argue that we need to be bigger”.

Gen Mayall said one reason army size was an issue was attrition rates on operations: more than 280 UK soldiers have been killed In Iraq and Afghanistan, and many more wounded.

“Current operations are showing us that the demand for boots on the ground on an enduring basis is only likely to grow,” he said. But he added that “we are not talking about large numbers” of extra troops.

Oil prices have continued their record breaking run today after increasing to over $140 a barrel. The high price has been driven by a mixture of supply concerns, dollar weakness, inflation fears and turmoil in equity markets.

ICE August Brent hit a record $141.98 a barrel before easing back to trade at $1.67 higher at $141.50. Before easing off to $141.40 a barrel, Nymex August West Texas Intermediate hit a peak of $141.71 a barrel.

Oil prices rose by more than $5 a barrel on Thursday after threats from Libya to cut its oil production and Opec’s president Chakib Khelil warned that prices could surge as high as $170 a barrel this summer.

Libya’s top oil official, Shokri Ghanem, said the country was considering reducing oil production in response to a bill before the US congress that would empower Washington to sue Opec members for cutting supplies.

“We are studying all the options,” Mr Ghanem said. “There are threats from the Congress and they are taking Opec to court, extending the jurisdiction of the US outside the US,” he said.

After Mr Khelil warned oil prices could rise as high as $170 a barrel, traders used it as a reason for buying, with further encouragement for buying interest provided by dollar weakness and weakness in equity markets.

In late April, Mr Khelil warned that oil prices could reach $200 a barrel this year, but since that time, Saudi Arabia has promised to increase supplies to 9.7m barrels a day, which is the highest level in 30 years. The kingdom said that it planned to raise crude oil production capacity to 12.5m barrels a day by 2012.

“It is unlikely that global markets will see this additional crude in a hurry,” said Kona Haque, commodity strategist at Macquarie. “This is either because Saudi won’t be able to, due to delays and soaring project [cost] inflation, or won’t be willing to, due to the need to maintain reserves for future generations.”

Macquarie said that oils prices were likely to test the $200 a barrel level over the next five years, and were unlikely to sink below $100.

Due to oil’s strength, Gold has increased in value to $920.10 a troy ounce from New York’s late quote of $912.60 on Thursday. Gold has seen renewed buying interest as the dollar retreats from the Euro following the Federal Reserve’s statement on monetary policy on Wednesday, which indicated that an imminent rise in US interest rates was unlikely.

The web of Whitehall bodies created to close the UK’s skills gap with competitors is of “mind blowing” complexity, changes to frequently, and is becoming too difficulty to understand, senior executives charged with delivering the policy told MPs on Wednesday.

Chris Humphries, chief executive of the Commission for Employment and Skills suggested the latest shake-up had made the system impenetrable. “I don’t think there’s an employer in the land who understands what the new systems are,” he said

The maze of government skills bodies has changed with alarming frequency, with critics claiming organisations do not have enough time to establish credibility and competence.

The most recent change was announced in March, and includes the 2010 dismantling of the Learning and Skills Council, the £11bn ($22bn) quango responsible for vocational learning in England. Its functions are to be assumed by local authorities and three new national groups.

Tom Bewick, chief executive of Creative and Cultural Skills – one of 25 “sector skills councils” – commented on the constant appearance and disappearance of organisations and the consequent merry-go-round of job changes. He said, “The talk around town is: what job have you got, where are you going to be?”

Teresa Sayers, chief executive of the Financial Services Skills Council said international employers were “not just confused but extremely frustrated. Understanding the UK context is absolutely mind-blowing for them.”

Speaking before the Commons committee on innovation, universities, science and skills Mr Humpries told MPs that “we’re going backwards, not forwards” in the international skills league table compared with other rich countries.

Mr Bewick suggested other countries were better at concentrating on getting the right results out of their skills systems, because their attention was not diverted on tinkering with the apparatus of government. “When you look abroad, you see far more cross-party consensus that it isn’t the institutions that need to change, it’s the outcomes,” he said.

When quizzed about how many skills bodies there were in Britain, Mr Humphries said: “Honestly, I haven’t got the foggiest idea,” but estimated there were “many hundreds”.

The Department for Innovation, Universities and Skills said the latest shake-up created a “streamlined” system of more specialised agencies.

Expected for a while now, Barclays launched its cash call to raise £4.5bn and bring in new investors.  The issue is in two tranches, priced at 296p and 282p, with existing shareholders able to participate at the lower price in an effort to assuage concerns from investors over pre-emptive rights.

The move is designed to lift Barclay’s core equity Tier One capital ratio from about 5 percent, one of the lowest among European banks, to 6.3 percent, well above its 5.25 percent target.

The new investors are the Qatar Investment Authority, Challenger – a family company for Qatari prime minister Sheikh Hamad Bin Jassim Bin Jabr Al-Thani - and Japan’s Sumitomo Mitsui Banking Corporation.

Existing shareholders will also be buying extra shares, including China Development Bank and Temasek, the Singapore investment group – both bought shares in the bank last summer. These investors can buy on the basis of three shares for every 14 held, and at 282p the shares come at a discount of 9.3 percent to Tuesday’s closing price of 310¾p.

Representing 2.6 per cent of Barclays’ share capital, SMBC will take the whole firm placing of 169m shares at the higher 296p price, raising £500m for the bank.

The remaining £4bn will come from a placing and open offer of 1.407bn shares at 282p, which will be available to existing shareholders to purchase. Of this, QIA and Challenger have agreed to invest £1.764bn and £533m, respectively, as conditional placees.

China Development Bank has agreed to put up £136m, representing its full entitlement in the open offer to existing shareholders. Also as a conditional placee, Temasek is investing up to £200m, and could increase its stake as a result of the issue.

In a trading update last week, Barclays said its intention was to maintain its dividend at the 2007 level, and pay it in cash, until dividends are covered twice by earnings. The ll.5p interim paid last year is expected to be maintained.

Barclay’s shares opened 5.3 percent higher at 327p, with rival banks Lloyds TSB, HBOS and Royal Bank of Scotland also rising on the back of the news.

In a statement John Varley, Barclays’ chief executive, said: “Through our capital raising today we strengthen our capital base and give ourselves additional resources to pursue our strategy of growth through earnings diversification. We position ourselves to capture opportunities for new business at attractive margins in our retail and commercial banking businesses and in investment banking and investment management. Our ability to capture the opportunities is reinforced by the new and strengthened relationships we have announced today.”

Mr Varley said that as well as strengthening capital ratios, the fresh capital would enable the bank to take advantage of opportunities thrown up because “the ability of some participants [in the banking market] to compete has changed” as a result of the credit squeeze.

He said that Barclays had signed an agreement with SMBC and aimed to develop wealth management an private banking business together. There had already been “benefits from a similar agreement with China Development Bank, signed when it took its stake last year”, he added.

Mr Varley said the issue, which will increase the group’s share capital by 24 percent, was structured as a placing and open offer rather than a rights issue because it gave speed and certainty, allowed existing shareholders to participate, and ensured that shares not taken up by them would end in the hands of “anchor investors of very high quality”.

Shareholders who wish to subscribe must do so by July 17 and the new shares are due to start trading on July 22.

Head of Barclays’ investment banking and investment management business Bob Diamond, said that the market turmoil had presented “terrific opportunities” to increase market share and margins.

”In the US six or seven big players are pulling back, creating an opportunity for us. For instance, Barclays was now one of the top three foreign exchange traders in the world, overtaking Citibank,” he said

Mr Varley added that Barclays had opened 600 branches outside the UK so far this year, and aimed to open a further 300 this year. The bank opened a new business in Pakistan, acquired Expo Bank in Russia and bought the Goldfish credit card in the UK.

The bank had also achieved a “substantial increase” in its share of the UK mortgage market, but without accepting higher risks.

Energy chiefs will be asked to defend expected future rises in fuel bills when they appear before MPs today. Domestic suppliers are under pressure to justify pricing expectations after it was discovered household energy bills could rise by up to 40 percent this winter.

Industry experts have suggested that households could pay up to £400 more a year for gas and electricity. Suppliers are said to be reacting to the sharp jump in wholesale gas costs, triggered by rising oil prices.

Wholesale gas prices are closely linked to the price of oil, which itself has recently hit just under $140 a barrel.

Industry research has suggested wholesale gas prices have risen by more than 70 percent in 2008. Last month Centrica – who own the UK’s biggest energy provider, British Gas – signalled that gas prices for customers are likely to increase again later this year.

Centrica’s chief executive Same Laidlaw will appear before the Commons Business and Enterprise Select Committee today, along with other senior industry figures.

MPs want to find out what suppliers expect to happen to fuel bills over the winter. They will also press energy chiefs on the extra help being given to low-income and disadvantaged households to help with the impact of rising bills.

Watchdog, Ofgem, who are conducting their own probe in to the market, outlined plans last month to share data about people on low incomes with the energy companies to help people pay their fuel bills. The proposals, which would need to be approved by parliament, are designed to ensure that financial assistance toward fuel payments can be better targeted at the elderly and vulnerable.

The government has estimated that 2.5 million UK households are suffering from fuel poverty – defined as when more than 10 percent of household income is spent on fuel bills – but watchdog Energywatch says that the figure is over four million.

A 40 percent rise in fuel bills would be far higher than expected and would put even more pressure on homeowners already struggling with higher food and fuel costs. However, some analysts believe the increases will be nearer to 25 percent.

It is believed any price announcements will come in August, when energy bills are not at the forefront of people’s minds. It is thought, however, that there is reluctance in the industry to be the first company to reveal a big rise, so they could be unveiled in stages.

Involved in the meeting today are the chief executives of Scottish & Southern Energy, NPower, EDF Energy and E.ON UK. A representative of Scottish Power will also be present.

Thanks to rising inflation, many private sector companies are being forced to settle pay deals at levels that threaten the government’s inflation targets, because of clauses in long-term pay deals.

Only last week Shell tanker drivers agreed to a 14 percent two-year settlement with managers, which has prompted fears this would set a precedent for other workers and calls for restraint from ministers.

Research group IDS Pay Databank’s analysis shows many other companies which previously negotiated two or three-year pay deals – at a time when inflation was expected to stay low for years – are having to give their workers a wage “kicker”.

This is because a large portion of such deals are linked to the Retail Price Index, which has risen sharply in recent months to 4.3 percent.

Such agreements are set to undermine the Alistair Darling’s pleading. Speaking to the BBC on Sunday, the chancellor said that “Pay awards in both the public and private sectors have got to be consistent with our inflation target of 2 per cent.”

Mr Darling and John Hutton, the business secretary, argued last week that the tanker driver’s settlement was a one off. However, other recent deals include Drax Power, who agreed a 7 percent pay rise for 60 workers, forming the second of a two-year deal. Babcock Engineering recently agreed a 7.6 percent increase with 50 workers.

Barclays Bank has implemented a 5 percent pay increase for 55,000 workers, as the first stage of a three-year RPI-linked deal.

These deals are much higher than the 3.3 percent Consumer Price Index measure of inflation. The government has tried to keep public sector deals at about 2 percent.

David Frost, president of the British Chambers of Commerce, described the trend as a self-fulfilling scenario which would fuel inflation further.

IDS has indicated the highest pay awards in three months to April – the last month for which accurate figures exist – were made to companies in energy and water, chemicals and engineering. One in five deals over 4 percent were lined to RPI.

Lois Wiggins, a researcher at IDS said: “The main reason they are now settling so high is because many are part of long-term deals, which means that in the second or third stage of these deals RPI is being used to work out the settlement.”

The most recent report by the research group, which showed wage inflation of 3.8 percent, suggested employers had been “wrong-footed” by predictions inflation would remain subdued.

This will add further pressure on the government as it seeks to keep a hold on wage inflation. Several unions have openly defied this policy in recent days, with Unison threatening to re-open a key NHS agreement for 500,000 employees.

One of Japan’s largest banks, Sumitomo Mitsui Financial Group, is in talks with Barclays to invest about Y100bn (£470m) for a small equity stake in the UK bank.

Barclays has been looking to raise as much as £4bn in fresh capital in an effort to shore up its balance sheet without having to launch a lights issue that could leas to aggressive write-downs.

The UK bank has found itself under pressure from regulators and investors to boost its capital reserves. Barclays has been working on a plan that offers stakes to investors, including several sovereign wealth funds.

Barclays’ core Tier One equity ratio is among the lowest in Europe at a bout 5 percent.

The talks between Barclays and SMFG are a rather sensitive topic. It is unclear whether the UK bank will be able to raise the remaining funds it is seeking from other potential investors, according to a person close to the situation.

“Barclays and SMFG are also discussing a business alliance to capitalise on the UK bank’s network in Asia and its strength in wealth and asset management,” a source said. SMFG have declined to comment.

Japanese banks have been looking to expand outside their domestic market and become global players. In January Mizuho Corporate Bank invested £608m in Merrill Lynch.

“The Japanese banks have weathered the sub-prime crisis much better than western banks. Sumitomo Mitsui Financial Group has Y4,400bn in tier one capital, so using about $1bn of that makes some sense (since) it’s difficult to deploy capital effectively in (the domestic market),” said Brett Hemsley, a banking analyst at HSBC in Tokyo.

Barclays has written off £1.7bn so far this year on complex debt securities but analysts say the bank has been less conservative that some of its rivals in marking down assets related to the US sub-prime mortgage meltdown.

Barclay’s shares, which have recently fallen to a 10-year low on fears about its balance sheet and worries that it may dilute existing shareholders by issuing new equity, opened 1 percent higher on Friday at 319p.

Alistair Darling and Mervyn King yesterday delivered a bleak assessment of economic prospects for 15 years in what the Bank of England governor said was “the most challenging period” since 1997.

Mr King, during his annual Mansion House speech to City grandees, warned households should prepare for the “average take-home pay [to] stagnate this year”, and said that “the squeeze on real income growth is likely to mean that both house prices and consumer spending weaken together”.

In addition to this, the chancellor conceded his Budget forecasts would not be met, accepting that inflation would be higher than predicted and that no country could escape the effects of higher inflation on real incomes and economic growth.

Both Mr Darling and Mr King stressed the need for wage restraint. The chancellor insisted “inflationary pay settlements would undermine rather than raise people’s living standards” and the Bank governor waned that an economic slowdown “will be necessary to dampen price and wage pressures”.

The Shell tanker driver wage dispute is just one example that some companies and employees will do what is best for them rather than for the wider economy. The government insisted that the drivers 14 percent over two years, pay deal was “particular” to the industry, but Mr King issued a warning that he would not allow higher pay deals to result in ingrained inflation.

In a sign that the Bank of England was now thinking about interest rate rises, the governor said: “There should be no doubt that the Monetary Policy Committee is prepared to take whatever action is needed to return inflation to the 2 per cent target and to keep expectations of inflation in the medium term anchored to the target.”

A much tougher statement of intent than he gave in his letter to the chancellor on Tuesday, the minutes of the MPC meeting, published on Wednesday, revealed that the committee had discussed an immediate rise.

The governor made it clear he was not going to go soft on inflation, quite the opposite from his letter earlier this week. He fought back at critics who have called for the inflation target to be changed to ignore current pressures from abroad. “Target growth, not inflation is the cry,” he said. “I could not disagree more.”

“Without a clear guide to the objective of monetary policy, and a credible commitment to meeting it, any rise in inflation might become a self-fulfilling and generalised increase in prices and wages,” Mr King added.

His main message was that if everyone tightened their belts, accepted “a loss of real purchasing power” and understood the Bank could not side-step tough choices in the coming year, things would look up thereafter.

Underlying sales at supermarket group J Sainsbury rose by 3.4 percent in the first quarter of the financial year, putting the retailer behind Tesco’s 3.5 percent increase and Wm Morrison’s 7 percent rise over similar periods.

Sainsbury’s chief executive, Justin King, said today that food price inflation in his branches “was a little over 3 percent in the quarter, up just 2 percent in the previous quarter, but well below official government statistics.” He said he agreed with Bank of England governor Mervyn King that inflationary pressures would continue for the next six to 12 months, adding that “prices for Sainsbury’s non-food items were still showing some deflation.”

Darren Shapland, finance director, said that most of the 3.4 percent like-for-like sales increase came from food price inflation, with “volumes just above flat”. The company’s fuel sales benefited from higher prices and from extra volumes as motorists shopped around for cheaper petrol.

Mr King said he was pleased with the company’s performance in the quarter, which met the group’s expectations. Although the group adjusted the number to take account of the changed timing of the Easter weekend, the quarter compared with a strong period last year, when like-for-like sales were up 5.1 percent.

Mr King said Sainsbury was “fighting hard for customers” whose household budgets are being squeezed by increasing its emphasis on promotional offers, extending its “Basics” range of cheaper foods and launching a “Feed your Family for a Fiver” campaign.

Recent consumer research suggests customers were cutting back on eating out in restaurants which could benefit sales of Sainsbury’s, up-market, Taste the Difference range.

Mr King was happy to report that non-food sales were continuing to “grow strongly” as ranges were expanded. Online sales improved by more than 40 percent, and improvements to the supply chain in recent years meant product availability in shops had risen further.

The company’s total sales in the 12 weeks to June 14th rose by 8.1 percent, given a boost by the increase in fuel prices.

Excluding new store openings like-for-like sales rose 7.3 percent, including fuel sales.

Echoing last weeks trading update from Tesco, which said its growth had slowed from more than 4 percent in the early weeks of its fourth quarter, the 3.4 percent increase in sales marks a slowdown from the 4.1 percent growth Sainsbury reported in the fourth quarter of last year.

Sainsbury shares have dropped since its 600p a share bid from a Qatari-backed investment group was dropped last November - Qatar holds a 24.9 percent stake in the company. Shares were 5p lower in early trading at 331p.

The inflation rate, when issued later by the Bank of England, is expected to have risen above 3 percent in May, which could force the Bank’s governor to write an explanation to the chancellor as to why the rate is above the target of 2 percent.

Rising oil and food prices have pushed up the cost of living, while the UK’s economic growth has slowed.

The Consumer Price Index (CPI) rose unexpectedly in April from 2.5 percent to 3 percent, the biggest rise for six years. Some analysts predict CPI in May to have reached 3.2 percent. Rising Inflation has not only affected the UK, much of the worlds economies have suffered.

“Having leapt unexpectedly in April, there is a serious chance that consumer price inflation will move higher in May,” said Vicky Redwood, an analyst at Capital Economics.

If, when the figures are announced, they are one more percentage point above the governments 2 percent target, the Bank of England governor must write a letter to explain how it is to take control of consumer prices.

Mervyn King and his colleagues are likely to say that international commodity price hikes are to blame for the rise.

Up to this point, Mr King has only had to write one of these kinds of letter before, in April 2007.

Howard Archer, UK economist at Global Insight, said: “This would almost certainly be the first of several letters, as consumer price inflation looks well set to reach 4% this summer before starting to fall back late in the year.”

It would appear that the Monetary Policy Committee (MPC) – the group of experts that set the Bank of England’s interest rates - is in a tight spot.

Analysts have warned that the rise in interest rates to curb inflation would dampen an economy that is already struggling from slowing growth and a weakening housing market.

At the most recent rate-setting meeting on June 5th, the Bank did not change its interest rate of 5%. The MPC, in an attempt to help the slowing economy, had already cut interest rates three times since December.

However, despite pleas from those struggling in the housing market, MR King and his colleagues will need to be convinced that the inflationary threat has passed.

The European Central Bank, which governs the 15 nations using the Euro, warned that inflation remained its biggest concern and that it would raise rates if it felt price stability was under threat.

Consumers and companies are already struggling with the effects of higher energy and food bills. With oil prices nearly double over last year, and the cost of petrol and diesel constantly on the rise, people have reigned in their spending in other areas.

As well as this, food prices have surged to record levels because of increased demand and inclement weather in key producer nations.