Rumours have it that Bank of England governor Mervyn King may have had some serious explaining to do Chancellor Alasdair Darling as to why the consumer prices index went shooting up to 3.5% added to the worst ever January figures on record with a first time deficit for the traditionally high income month. The deficit was a staggering £4.3 billion, largely due to higher government spending and considerably reduced tax receipts. Estimates were for a £2.6 billion surplus for the month. Income tax receipts were down a massive 20% on January 2009, while corporation tax receipts were 6% lower. The only plus was the 3% upturn on VAT receipts rose by 3% due to the rate hike. However total tax receipts for January still dropped by 9%.

It would appear that Royal Bank of Scotland Chief Executive Stephen Hester has decided to decline his 2009 bonus. According to reports, the bonus was to be around £1.6 million pounds, paid out under terms already announced by the bank. The terms were that the bonus payout would not be in cash, and deferred for three years.

Pressure has increased on both Hester and Eric Daniels, CEO of the Lloyds Banking Group, after top bosses at Barclays turned down their multi-million pound bonus payouts last week, despite the bank announcing bumper profits.

The ever optimistic Gordon Brown announced that the Government was continuing in their determination to invest in measures that will promote growth and preserve jobs in the industries of the future, adding weight to his backing of Chancellor Alistair Darling over his decision to delay spending cuts until next year.

Mr Brown, speaking at the Policy Network conference told the audience: "I say to the British people, this is not the time to put the economy at risk. This is the time to make sure that growth and jobs are secured. 2010 must be the year of growth. It must not be the year when the economy dips back into recession. Instead of admitting the mistakes of private banks and institutions in causing the recession, the well-financed right-wing are not only trying to blame governments for the crisis but trying to use legitimate concerns about deficits to scare people into accepting a bleak and austere picture of the future for the majority, and then to use what’s happening as a pretext for public services to be marginalised at precisely the moment they should become smarter and more personalised. "He summed up

Also on Brown and Darling’s side is UK Business Secretary, Peter Mandelson, who has told his senior colleagues that he intends to backs plans for a state-run investment bank that would use public funds and private capital to back small business and large-scale UK infrastructure projects. The new bank would be modelled on the KfW Bank in Germany, which provides funding for banks to loan to small businesses as well as capital for major projects. Apparently Mandelson has met senior KfW executives to discuss if such a bank could be feasible in the UK. Plans for such a bank are now being surveyed by a Treasury team. Hopefully some form of announcement of the formation of such a bank will be announced in the forthcoming Budget.

Overall Lord Mandelson has been increasingly seen and heard on the public stage these days. The UK Business Secretary was reported to have severely criticised monetarist economists for their involvement in getting Britain into its present economic "pickle". Mandelson has voiced his support for economists who have warned how "reckless" early spending cuts could hamper Britain’s fragile recovery. Mandelson’s comments come as Labour seeks to take advantage of the support for delaying spending cuts until 2011.

Also on the downward slope was mortgage lending with the council of mortgage lenders revealing that gross mortgage lending in January 2010 fell to its lowest level in ten years. Reasons given were that property buyers have been deterred by the end of the stamp duty holiday. Gross mortgages totalled £9.1 billion pounds in January, down almost a third from December 2009. These figures are despite a recent increase in mortgage availability, adding concern that poor market conditions would continue or even worsen as the government withdraws monetary support for banks between 2011 and 2014.

The trend for online purchases in the UK fell to its lowest level last month, according to recent figures. Electrical goods, clothes and holidays were the online sectors that recorded the biggest drop in sales, with monthly growth for January of just five percent compared with 19 percent for the same period in 2009.

On the business front, there appears to be increased optimism regarding lending. Research has shown that the number of private companies that anticipate finance to become more readily available has increased, with around 44 percent under the impression that finance would be more accessible this year, compared with eight percent with the same view in last year’s survey. However, despite rising confidence in the availability of finance, fewer businesses said their lender was more supportive than this time last year.

It now looks like BAA will be looking to sell off Glasgow Airport after new figures revealed it is lagging behind Edinburgh in customer traffic. The Glasgow branch has found it difficult to win new airlines who want to use the airport, and have lost a lot of passenger traffic, apparently around half a million a year after the collapse of Scottish airline Flyglobespan. Meanwhile a spokesman for Scotland’s capital has reported that Edinburgh has managed to fill the gap with new routes and extra flights added by air carriers in January, including Ryanair and Jet2. Their entry on the scene has already replaced the 400,000 Flyglobespan passengers a year that were passing through the airport. .

Sterling enjoyed mix fortunes on Fridays trading. It closed up 0.012 against the dollar at $1.54692 while falling to 1.1374 against the Euro.

Overall, the FTSE 100 added a further 51 points to 5,358.175, before the close of business on Friday.

In US forex trading, the dollar hit a nine-month high against the euro of $1.3477, whilst also rising against a basket of currencies. The rise came after the US Federal Reserve’s surprise increase in interest rates for emergency bank loans, to 0.75%, from 0.5%. Analysts saw the move as a sign that the Fed could soon raise its other key lending rate.

US stocks fell in early trading as investors feared any further rate rises could slow the economic recovery.

The Dow Jones Industrial Average was up another 9.45 points to 10,402.35 while the NASDAQ Composite also crept up another 2.16 points to 2,243.87 on Friday’s trading.

US consumer prices rose by less than expected in January, easing concerns about growing inflationary pressures. According to the Labor Department, prices increased by 0.2% last month, with analysts forecasting a rise of 0.3%.

The rise was largely driven by energy prices, which rose for the ninth consecutive month. Over the last 12 months, US energy costs have risen by close to 20 percent. Excluding food and energy, prices fell by 0.1% in January – the first monthly drop since December 1982.

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Tags: Alasdair Darling, BAA, Bank, Bank of England, Banking, Barclays, British Economy, British Pound, Credit Crunch, Currency, Dow Jones, Economics, Economy, Employment, Financial News, Flyglobespan, FTSE, Glasgow Airport, Gordon Brown, KfW Bank, Labor Department, Lloyds Banking Group, Mervyn King, Money, Money Markets, NASDAQ, Peter Mandelson, Recession, Royal Bank of Scotland, Stock Markets, Stocks and shares, UK Banks, UK Economy, UK government, UK Recession, US forex

Last week’s announcement of Lloyds Banking Group’s intentions mount a rights issue planned to raise up to £20 billion in a rights issue has caused no uncertain amount to Chancellor Alasdair Darling and his team as well as those private sector investors who have seen fit to buy some of the bank’s shares. .

In an understandable nut possibly ill timed attempt to reduce the reliance on the UK government, Lloyds’ management began to test the water on the concept that the terms of its participation in the government’s asset protection scheme (APS) might be open to re-negotiation after their second-quarter results were much more positive than analysts anticipated.

However it does appear that the bank will not be met with too many friendly faces when they set about convincing Darling to take a second look at the basic terms of the scheme after several months of highly complex negotiations have been put to bed. ..

Chancellor Darling’s long held standpoint on the APS as the international model for cleaning up toxic assets is believed to be untouchable. In addition, government officials are reported to be of the opinion that raising Lloyd’s ability to raise sufficient capital is questionable, and any attempts to sidestep the scheme would be not only be unwise, infeasible or sufficient to satisfy regulators.

The financial implications of Lloyds opting out of the APS could be fundamental, with the bank having to rise between £30 billion and £40 billion in capital to satisfy the regulator’s stress test. In addition, the UK government could be entitled to demand compensation for carrying £575 billion of the banks liabilities since March of this year.

The Financial Services Authority reported yesterday that the number of new financial companies seeking UK regulatory authorisation have risen by ten per cent during the second quarter, making for the first increase since early 2008.

Independent financial advisers, including those who offer life assurance and other retail ¬products were reported to comprise the single largest group.

Next in line were financial advisory services, private equity shops and corporate finance boutiques. Cottage financial service industries that have been established by ex-city financiers who fled the mainstream banks during the recent turmoil in the financial sector.

The number of firms cancelling their authorisation with the FSA also slowed by 18 per cent in the three months to June, according to another recent study.

On the FTSE yesterday, shares in the BT Group were very much in demand after positive analyst reports.

The reports stated that BT’s broadband business looked set to benefit from Tiscali’s exit from the UK and Vodafone’s failure to capture a share of the market. Shares in BT rose 2 per cent to 134 pence.

Banks led the fallers amid the growing debate about whether Lloyds Banking Group should pursue their controversial rights issue scheme.

Lloyds fell 4 per cent to 98 pence, while shares in Royal Bank of Scotland dropped 3.6 per cent to 45 pence and Barclays also lost 1.8 per cent to close on 358½ pence,

Enterprise Inns slid 1.9 per cent to 172 pence after two of the company’s senior directors took advantage of their share’s rebound.

Ted Tuppen, group chief executive, raised more than £500,000 after selling 300,000 shares at 167 pence each, while CEO Simon Townsend cashed in 67,500 shares for 173 pence. Enterprise share values have jumped by more than three times since December, when both directors increased their shareholdings.

Shares in IT services group Logica were up 1.3 per cent to 113 pence after claims that the company was a potential bid target for BAE Systems.

BAE, 1.5 per cent higher at 325½ pence have been known to be actively on the lookout for acquisitions in an attempt to expand their security operations currently focused on the defence sector, making Logica’s public service operations a credible target..

There was unexplainably strong volume in instrument maker Spectris, whose shares closed 2 per cent higher at 576 pence.

The FTSE 100 drifted from its high of the year, losing 9.36 points, or 0.2 per cent, to 4,722.2.

Meanwhile the FTSE 250 closed just half a point down on 8,421.46

The pound stepped backwards against the other major currencies.

• Pound/US dollar 1.6483
• Pound/Euro 1.1654
• Pound/Japanese Yen 159.6125
• Pound/Swiss Franc 1.7853

The news that the US banks stand to collect a record $38.5 billion in overdraft fees this year has left a bitter taste in the mouths of many. Even more so when considering that the bulk of the revenue will come out of the pockets of already financially stretched consumers, struggling to keep their heads above water during the current financial downturn.

Overdraft fees have almost doubled during the last decade, and seem inappropriate when considering the political pressure applied to banks to ease the burden on after being bailed out by taxpayers.

The Federal Reserve is working on rules on overdraft fees, and rules on customer charges could be a priority of the Obama administration’s proposed Consumer Protection Agency if approved by Congress.

US stocks drifted from last week’s highs on Monday, with investors looking to bank profits even as several experts gave a relatively bullish analysis for equities.

However sellers far outnumbered buyers on Monday’s trading

On trading Monday, the Dow Jones index eroded a little down 32.12 points, to close on 9,337.95. The NASDAQ also dropped below the 2,000 mark again, down 8.01 points to close at 1992.24.

Latest reports prior to President Obama’s visit are that Mexico has moved into its deepest recession of modern times.

Figures to be announced on gross domestic product in the second quarter is expected to report a 10.4 per cent fall, following a first-quarter drop of 8.2 per cent, according to the finance ministry.

The International Monetary Fund predicts that, for the full year, the economy will fall by 7.3 per cent, the worst performance in Latin America.

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Tags: Alasdair Darling, BAE Systems, Bank, Banking, British Economy, British Pound, BT Group, Credit Crunch, Currency, Dow Jones, Economics, Economy, Federal Reserve, Financial News, Financial Services Authority, FTSE, International Monetary Fund, Lloyds, Lloyds Banking Group, Logica, Money, Money Markets, NASDAQ, Obama administration, Recession, Royal Bank of Scotland, Simon Townsend, Stocks and shares, Ted Tuppen, Tiscali, UK Banks, UK government, UK Recession, US Banks, Vodafone, Whitehall