The European Union Stability and Growth Pact (SGP) gains new force, effective Tuesday 13^th December 2011. Proposed by the European Commission and approved by all 27 member states and the European parliament last October, this legislation grants the EU council the power to impose financial sanctions upon a member state on the basis of a Commission recommendation. Currently, member states enter “Excessive Deficit Procedure” (EDP) if they fail to keep budgetary deficits below 3% of GDP and government debt below 60% of GDP. Of the 27 member states, 23 (including the UK) are currently subject to EDP and must comply with correctional recommendations and deadlines decided by the EU council. Member states failing to comply with the recommended corrective action may be subject to in-depth reviews (the results of which will be made public) carried out by the EU Commission in collaboration with the European Central Bank.

Report Criteria (according to www.europa.eu)

· 3 year backward moving average of the current account balance as a percent of GDP, with a threshold of +6% of GDP and -4% of GDP
· Net international investment position as a percent of GDP, with a threshold of -35% of GDP
· 5 years percentage of change of export market shares measured in values, with a threshold of -6%
· 3 years percentage change in nominal unit labour cost, with thresholds of +9% for euro-area countries and +12% for non-euro-area countries
· 3 years percentage change of the real effective exchange rates based on HICP/CPI deflators, relative to 35 other industrial countries, with thresholds of -/+5% for euro-area countries and -/+11% for non-euro-area countries
· Private sector debt in % of GDP with a threshold of 160%
· Private sector credit flow in % of GDP with a threshold of 15%
· 3 years percentage change in nominal unit labour cost, with thresholds of +9% for euro-area countries and +12% for non-euro-area countries
· Year-on-year changes in house prices relative to a Eurostat consumption deflator, with a threshold of 6%
· General government sector debt in % of GDP with a threshold of 60%
· 3-year backward moving average of unemployment rate, with a threshold of 10%

This legislation comes into effect only two days after British Prime Minister David Cameron’s veto of the latest EU treaty proposals, which include a cap of 0.5% of GDP on countries’ annual structural deficits, “automatic consequences” for countries whose public deficit exceeds 3% of GDP, and a requirement of member states to submit their national budgets to the European Commission, which will have the power to request that they be revised.

The Independent Commission on Banking has published its interim report which has been met with disappointment from some quarters & sighs of relief from others.

Under new proposals announced by the Independent Commission on Banking - set up last year by the coalition government – the Lloyds banking group was told it should sell off “substantially” more branches than the 600 already agreed upon, in order to increase competitiveness on the high street. The report also suggested that banks should be compelled to ring fence their savings operations.

The commission was established last year to look at competition issues in the wake of the Lloyds/Halifax rescue package during the financial crisis, to promote financial stability & to try & ensure there would be no repeat another taxpayer bailout.

“Getting the taxpayer off the hook – limiting, curtailing the chance and the scale on which that kind of bailout would be needed in any future crisis – that means that the banks’ cost of capital is going to go up, because investors are going to have to take the risk that we, the taxpayer, have been taking,” he said.

Lloyds’ currently has a 30% share of current accounts; 24% of mortgages – more than any other bank; and a 23% share of small business banking. Following the sale of the 600 branches to be determined by the EU it will still have 18% of savings and 25% of current accounts.

More radical measures that had been put forward such as a total separation between the high street & investment banking operations were ruled out on the grounds that they would be too costly for the sector. As a result more than £1bn was added to the stock market value of three major banks following the report.

In its report he commission said: “There is cause for regret that the government in 2008 amended competition law to facilitate the Lloyds TSB/HBOS merger but the facts in 2011 have to be taken as they are. In light of those facts, reversing the merger does not appear to be a sensible course to pursue.”

António Horta-Osório, - chief executive of Lloyds since last month, - commented: “This option appears to be based on limited evidence and may paradoxically potentially delay a new competitor coming into the UK market,”

David Fleming - national officer for Unite – expressed his disappointment at the report: “We have waited for too long for these recommendations on banking reform, yet today we have been presented with nothing more then merely tinkering at the edges.”

Sir John Vickers - chairman of the commission – reacted angrily to some of the suggestions & comments that were floating around: “I absolutely reject any notion we’ve bottled it. We’re absolutely independent from the banks and government,”

The interim report presents the commissions current views & options & seeks input via consultation which it will consider before making its final recommendations to the Government in September.

In an interview given to the Daily Telegraph, Mervyn King has hit out at banks again warning that Britain is in danger of experiencing another financial crisis unless there is commitment to fundamental reform of the banking sector.

King said that “imbalances” in the banking system hadn’t been resolved & were “beginning to grow again”.

During the interview he once again criticised the culture of short-term profits and bonuses in the banking system, suggesting that traditional manufacturing industries had a more “moral” way of operating.

“They care deeply about their workforce, about their customers and, above all, are proud of their products,” he said.

“[With the banks] there isn’t that sense of longer-term relationships relationships [hence the demise of the local bank manager]. There’s a different attitude towards customers. Small and medium firms really notice this: they miss the people they know.

“If it’s possible [for financial services firms] to make money out of gullible or unsuspecting customers, particularly institutional customers, that is perfectly acceptable [to the banks].”

The governor argued that good businesses “keep a clear vision of who their customers are and are run by people who don’t think they should simply maximise profits next week”.

King’s comments have been seen as a warning to the chancellor - George Osborne. The government is currently looking at whether to make high street banks sell off their investment banking arms – a plan which Osborne is thought to oppose.

Angela Knight, chief executive of the British Bankers’ Association, disagreed with King’s comments.

“The banking industry recognises that some of its number got it badly wrong during the crisis. Since then the industry has reformed radically,” she said.

“We work closely with our customers and in doing so have created one of the largest financial centres in the world and a great contributor to the British economy. We achieved this together by doing our business well – not by doing it badly.

“This is a responsible industry which believes in working with its customers of all shapes and types.”

At the Scottish Liberal Democrat spring conference in Perth Nick Clegg - the deputy prime minister - seemed to resonate with King’s comments “I understand why people are angry when they hear about the super-sized salaries and bumper bonuses awarded to top bankers,” Clegg said.

“I am too. I agree with Mervyn King today that the job of making our banks safe and responsible is not yet complete.”

The projected rate increase discussed last week moved closer today with the governor of the Bank of England - Mervyn King - hinting that an early rise could be in the offing.

The latest inflation figures confirm that inflation rose to 4% in January – twice the Bank of England’s target rate & the highest annual rate for two years & it is under increasing pressure to raise borrowing costs thereby maintaining its credibility to fight inflation, despite the faltering recovery of the economy.

Mervyn King has confirmed in his mandatory letter to the chancellor – George Osborne – that at the meeting of the monetary policy committee last week to determine interest rates, its members were deeply divided as to whether or not there should be an increase saying, “there are real differences of view within the committee”. He accounted for the excessive rise in inflation by citing the increase in VAT rates to 20% in January, combined with the significant increase in the price of commodities – particularly fuel which rose by 4.4% between December & January – as well as the weak pound. King also wrote, “The MPC judges that attempting to bring inflation back to the target quickly risks generating undesirable volatility in output and would increase the chances of undershooting the target in the medium term,”

King’s comments have prompted economists to revise their predictions of when interest rates would start to increase, with those who had previously forecast August & November as starting points suggesting this as more likely to be in May in line with recent market predictions. Ross Walker, UK economist at Royal Bank of Scotland said, “I don’t think anybody believes the economy has returned to rude health, but [policymakers] recognize that inflation is higher than they forecast and that people are increasingly questioning their anti-inflation credibility.

“It’s a very complicated outlook but it’s possible they will raise [rates] in March. If it’s a precautionary move they could follow it up with one or two quarter-point hikes later in the year.”

Not long ago King cautioned that families were in danger of being challenged by the biggest financial pressures since the 1920s, with inflation-adjusted wages having fallen over the past six years.

In his response to King’s letter the chancellor acknowledged King’s comments saying: ‘I recognize that commodity price rises have been a key driver of recent UK inflation. High and volatile commodity prices are also a global concern. That is why we are taking steps, including in the G20, to make commodity markets work better, ensure we have robust analysis of the drivers of prices, and tackle the longer term drivers of increased demand for energy and supply constraints in food markets.’

Work and Pensions Secretary, Iain Duncan-Smith has been condemned for his criticism of Merthyr Tydfil’s current state of employment.

His description of the Welsh town’s people as “static” has been lambasted by local MP for Merthyr and Rhymney, Dai Havard.

Mr Havard was deeply unimpressed that the Work and Pensions Secretary felt it necessary to suggest the towns-folk should get on a bus to find work, and rose to its defence, revealing that the people of Merthyr Tydfil worked in “all sorts” of places.

Whilst interviewed by BBC’s Newsnight, Mr Duncan-Smith revealed that the people of Merthyr Tydfil were unaware that they could take a one hour bus ride into Cardiff and find work there.

His comments are being likened to those of former Conservative, Norman Tebbitt’s famous “on his bike” speech; a similarity not missed by Mr Havard.

“The mask has slipped - Iain Duncan Smith represents Chingford as Norman Tebbitt did. They have a view of the world that doesn’t match reality,” Mr Havard pointed out.

“The issues don’t just include access to that work, it’s also about the quality of that work and its distribution.

“It’s not a case that the majority of the people of Merthyr Tydfil and Rhymney and the rest of the valleys are in some way feckless and not working.

“The people of Merthyr work in all sorts of different places. They commute to Bristol and all over the place. The whole of the population is denigrated and traduced by these sorts of statements. The difficultly of providing work is much more difficult than a slogan.”

Duncan-Smith is gaining support for his comments by some, even if they are fellow Conservatives.

Nick Ramsay, Conservative MP for Monmouth believes that Mr Duncan-Smith was right in the premise of his statement.

“What he was trying to say was that in a difficult economic situation, sometimes you might have to travel a bit further to find work than otherwise, I think that was right,” Mr Ramsay stated.

He continued: “Sadly, for many people the (travel) infrastructure isn’t there at the moment. That’s not a problem caused by the people of Merthyr, that’s a problem caused by previous administrations that have not allowed people the means to do what Iain Duncan Smith has suggested.”

Former Labour Treasury minister, Denzil Davies, is in favour of many of the Work and Pensions Secretary’s changes and decisions in the past, but felt he had over-stepped the mark on this occasion.

“I thought Iain Duncan Smith had once described himself as the quiet man of politics. I think he should stay quiet on this one.

“You can get on a bus and go from Llanelli to Swansea but the unemployment rate in Swansea is certainly as high - if not higher - than that in Llanelli. This is no way of trying to create jobs in Wales or across Britain.”

Encouraging the creation of more private sector jobs would be one of the hardest jobs for the coalition government, according to Conservative MP for Montgomeryshire, Glyn Davies.

“We have to make a concentrated effort if the government wants to replace public sector jobs with those in the private sector,” he declared.

“We’ve got to make a concentrated effort to help those areas which are most affected (across the UK).”

George Osborne has promised to see the spending cuts plan through, as it will “get us out of this stronger”.

He went on to confirm that the cabinet has reached an agreement in anticipation of the spending review on Wednesday, but failed to confirm or deny whether child benefits would be abolished for 16 to 19 year olds.

Mr Osborne clearly has support, however, as 35 of the UK’s leading business owners signed a letter to the Telegraph declaring their support for the spending cuts.

Bosses at BT, Asda, Microsoft UK, Next and several other national companies felt that delaying or watering down the debt reduction plans would be a “mistake”.

The letter states: ”The private sector should be more than capable of generating additional jobs to replace those lost in the public sector.”

The government intends to reduce the deficit by £85bn from £155bn over the next four years.

An 8% cut to the Ministry of Defence’s budget is also believed to have been tentatively agreed.

“We have to see this through,” Mr Osborne revealed.

“The priority has been to target waste and welfare, to invest in our healthcare, to have real increases in our school budgets and to invest in the things that are going to make our economy strong…

“We have got to make some tough decisions but the priority is healthcare, children’s education, early years provision - particularly for some of our poorest.”

He continued: ”Those things are actually going to get us out of this stronger and able to pay our way in the world.”

“Our plan is the plan that will restore credibility to the public finances.

“It is what the IMF, the OECD, international observers say is necessary. It is what British business says is necessary.

“So we have to see this through, and the course which I set in the Budget is the one that we have to stick to.

“People in this country know we were on the brink of bankruptcy, and if we are going to have growth and jobs in the future we have got to move this country into a place where people can invest with confidence.”

Where does one go for financial advice nowadays? More and more, it seems that decent impartial financial advice isn’t easy to come by – after all, as impartial as people claim to be, quite often you can’t confirm this yourself.

Because of this, the best way to get properly impartial advice is to make as many enquiries as possible yourself. Your bank might tell you that they have a great deal on a loan or a credit card, but you might find that by making enquiries elsewhere, you could get a far better rate or deal on what you want, which is where services like price comparison sites can really play to your advantage.

Just by tapping in a few details and hitting that button, you can view details on a huge number of deals on the product you’re looking for, ranked to be as close as possible to the parameters you set in the first place, and many of which you can apply for directly.

Of course, this is all well and good, but who do you turn to if you don’t know what you want? Well, the advice given to you by your bank can normally steer you in the right direction, just don’t assume that they will be able to offer you the best deal – often they will be able to, due to a special “existing customer rate” or similar (This is often true for loans, as your bank has a greater knowledge over your financial dealings), but quite often it can be worth shopping around – especially in the case of cash ISAs at the moment, where some banks are offering just .05% interest rates and standard savers often offering little over 3% – Which, when you consider that, according to moneysupermarket.com: “A higher rate taxpayer needs an account paying at least 6.17% in order to earn a positive return [on their savings], while someone in the basic taxband needs to be earning at least 4.62%” Means that at the moment, finding the best place for your money is even more important than ever.

There is a lot to be said for carefully considering your financial position, learning about the different options available and then choosing the one most appropriate to you. True enough, this may not be the quickest way, but do you really want to rush into what could be a very important financial decision? moneysupermarket.com can make this decision easier, offering not only detailed price comparison, but a wealth of other information that can help you decide on what product and what type of account is right for you.

The US economy saw its first growth in over a year, rising to an annual rate of 3.5% between July and September.

Experts believe that a major spending plan by the US government which featured a scrappage scheme to encourage the car sales market has been the main cause of the upturn.

Some economists believe that there could be more setbacks lurking ahead, despite the official statistics showing that the recession is over.

A spokesman at the White House announced that recent economic progression was “a welcome milestone” but it would take more time for a full recovery to be recognised.

The US economy had risen 0.9% in relation to the previous three months, whereas the UK economy remained in recession, unexpectedly dropping 0.4%.

Hugh Pym, the chief economics correspondent for the BBC, revealed that the growth rate of 3.5% was greater than the 3.3% predicted by most experts.

He continued:”The sheer scale of the stimulus in the US has made a big difference, it was much bigger in percentage terms than that in the UK.”

“That the US, the powerhouse of the world economy is growing once again, is good news for the global economy has a whole.”

The last time the US economy grew was in the second quarter of 2008, by an annual rate of 2,4%.

The National Bureau of Economic Research will reveal the full extent of the US economic climb from recession when it analyses all the factors.

Some factors were significantly responsible for helping US economy during the third quarter, according to the Commerce Department.

The spending on durable manufactured products rocketed up at an annual rate of 22.3% which was the highest quarterly figure since 2001 and was spearheaded by the ‘Cash for Clunkers’ scheme helping new car sales.

Consumer spending increased on housing products by 23.4%, the greatest quarterly surge in 23 years, and came as a result of an improving housing market.

The big increase is considered by many to be due to the government’s $8,000 tax credit provided to first-time house buyers.

Government spending increased by 7.9% as stimulus spending spread and exports saw their biggest rise since 1996, rising by 21.4%.

Brian Bethune, an economist for HIS Global Insight stated that “it’s good to have the economy growing again.”

“But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.”

“The challenge here is to get organic growth - growth that isn’t helped by fiscal steroids.”

However, unemployment is at a rate of 9.8% and a sharp fall came in September in the car sales industry as a result of the popular car scrappage scheme coming to an end in August.

Dean Baker, co-director of the Centre of Economic Policy Research believes that “you can say that the recession is over, but it sure won’t feel like that.”

“There is a lot of downward momentum that isn’t going to go.”

Plans to split British bank Northen Rock in two which would allow for its partial sale has been granted by the European Union.

The divide would result in two separate banks forming and are already being described as the “good” and “bad” banks.

The “good” bank would offer new lending, retain some of the existing mortgages and hold its savers’ money.

The “bad” bank would be used to repay the existing government loans and hold the remaining loans.

 Decisions made by the EU to accept the move are seen by Northern Rock as “an important and positive step.”

Changes to the existing setup will be made towards the end of the year.

The EU revealed that the good portion of the bank would be expected to grow and then be sold to third party, with the bad bank allowing its assets to dissolve then becoming liquidated.

The good bank may be sold prior to the general election next year with potential buyers being speculated already, with Virgin and National Australia Bank, owner of Clydesdale and Yorkshire Bank, among the interested parties.

EU Competition Commissioner, Neelie Kroes, believes that the move would make the bank a good long-term option, revealing that “this decision demonstrates once again that the EU’s state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage.”

Whilst Jonathan Todd, European Commission spokesman, said caps would need to be applied for the duration that the good bank remains owned by the public.

Some of the caps include a balance sheet reduced to a quarter of its size prior to the crisis, not being the market leader for loan interest rates, a cap set to limit its lending to one-third of Northern Rock’s 2008 levels and also a cap on retail deposits to be slightly lower than the pre-crisis level.

An investigation was engaged by the EU into Northern Rock in April 2008, two months after its nationalisation.

The results from the investigation showed that the UK government was kept at a “necessary minimum”.

By 30 June, the bank had paid back approximately half the taxpayers’ £26.9bn loan and will gain a further £8bn from the government during the end of year restructuring.

The EU stated that the restructuring would reduce its market share to below half of its pre-crisis level and “correct the excessive expansion of Northern Rock pre-crisis.”

Northern Rock released a statement, saying “this approval is an essential requirement of the planned legal and capital restructure, which is central to the business plan for Northern Rock.”

“The restructure will strengthen the capital and liquidity position of Northern Rock significantly, and offers value for money to taxpayers” and it would be “business as usual” for its customers.

According to official figures, the UK experienced an unexpected contraction of 0.4% for the third quarter, showing that the UK is still stuck in the recession.

This quarterly contraction is the sixth consecutive contraction, the worst run of figures that UK gross domestic product (GDP) has experienced since records began 54 years ago.

The GDP of a country represents the value of goods and services produced by a country. The figures released may be altered at a later date, as this is just a first estimate.

The Office for National Statistics (ONS), had been expected to show quarterly growth of 0.2%. However, no growth in retail sales for September and a 2.5% fall in industrial output for August had dented people’s positive expectations.

Experts have revealed that one of the main causes of the contraction was an unexpected drop in the services sector, with distribution, catering and hotels generating some of the worst figures.

Nearby countries France and Germany exited the recession earlier this year, and it is generally considered that the UK’s reliance upon the services sector, and more specifically, the finances sector being the main reason.

The UK economy has now experienced a 5.9% contraction since its high point prior to the recession.

The Bank of England is set to re-think its quantitative easing plan after seeing such a poor result in GDP figures. Quantitative easing involves the Bank of England printing money to buy bonds from companies and banks in an effort to encourage positive activity in the economy.

HSBC’s Bronwyn Curtis spoke with the BBC, revealing that “back in August we had a worse-than-expected second-quarter GDP number and that is the reason that the Bank of England extended the quantitative easing programme,”

ING’s James Knightly felt that the data was “awful with no positive news” and “clearly suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, although [it] is not a foregone conclusion.”

It is considered by many experts to be disturbing that measures taken by the government and the Bank of England have failed to make a positive impact. However, David Kern, the chief economist with the British Chamers of Commerce believes that “continued intervention - including help for businesses to access finance, and incentives to promote investment - is still needed.”

“Above all else, business confidence must be nurtured, to ensure that recovery is not further delayed.”