Business Blog Posts

14 September 2010 Last updated at 06:53 ET

UK Consumer Prices Index (CPI) inflation remained unchanged in August at 3.1%, according to the Office for National Statistics (ONS).

It means the rate remains well above the Bank of England's 2% target, and it brings to an end a three-month period during which the rate had been falling.

The unexpectedly high rate was boosted by strong rises in air fares, clothing and food. Fuel prices fell.

Retail Prices Index (RPI) inflation slowed to 4.7%, down from 4.8% in July.

CPI is used for the Bank of England's target. However, RPI - which includes more housing costs - is important for wage negotiations, and is used to calculate certain benefit increases and mortgage payments.

Economists had forecast lower rates of inflation for August, with CPI expected at 2.9% and RPI at 4.6%.

The news could strengthen the position of Andrew Sentance, the member of the Bank's Monetary Policy Committee who broke ranks over the summer to vote in favour of an interest rate increase.

The pound jumped 0.6% against the dollar on the news, to $1.544, as markets priced in the probability that UK interest rates may rise sooner than previously expected.

Food prices

Air fares, which tend to rise during the summer holiday months, jumped 16% in August - their sharpest rise for the month on record.

Clothing and footwear prices rose at their fastest monthly rate for an August since 2001, although prices remain below their level of a year ago.

The news follows a warning from department store Debenhams, who said on Tuesday that the entire UK clothes retail industry faced higher prices, thanks to the rising cost of cotton and the weak pound.

The warning was echoed comments by retailer Primark on Monday that rising costs may eat into its profit margins over the coming year.

Summer sales discounts happened earlier in the year than usual, meaning that discounting had a relatively smaller impact on the August data than usual.

Food costs continued to rise, with bread, cereals and vegetables leading the way.

Wheat prices hit a 22-month high in August after rising more than 50% since the end of June.

Target missed

More worryingly for economists, the core inflation rate rose to 2.8%, from 2.6% in July.

Core inflation strips out volatile food and energy prices, and is used to gauge the underlying longer-term inflation trend.

The CPI inflation rate has now remained above the Bank of England's target for nine months.

Mervyn King, the Bank's governor, is likely to be disappointed that the rate has remained outside the government's 1%-3% tolerance range for another month.

Last month, he had to write a letter to the chancellor of the exchequer explaining why the rate was still more than one percentage point above its 2% target.

He blamed temporary factors, including the return of VAT in January to 17.5%, past rises in oil prices and higher import prices as a result of the depreciation in the pound since the middle of 2007.

However, he said "there remains a significant probability that I will need to write further open letters to you in the coming months".

VAT is set to rise again, to 20%, in January next year, giving a further boost to headline inflation figures.

Eroding savings

The continuing high rate of inflation will be bad news for savers.

With interest rates at record lows, the real value of savings is being steadily weakened.

"Inflation is a stealthy enemy that quietly erodes the spending power of a saver's hard-earned nest egg," said Darren Cook of the financial information service Moneyfacts.

He points out that a basic rate taxpayer needs to find an account paying 3.88%, while a higher rate tax payer needs to find an account offering 5.17%, in order to maintain the real value of their savings.

"The average instant access savings rate is still at rock bottom at a rate of only 0.77%," said Mr Cook.

"Only 91 out of a possible 1,020 accounts allow a basic rate tax payer to just break even at 3.88%."

The average savings pot of a basic rate tax payer is in effect being eroded by 2.48% per year.

14 September 2010 Last updated at 07:58 ET

A bigger proportion of surveyors are expecting house prices to fall in the coming months than at any time since March last year.

Some 38% more of those asked, in the survey by the Royal Institution of Chartered Surveyors (Rics), expected prices to fall rather than rise in the next three months.

They said that property values fell for the second consecutive month in August.

Scotland was the only part of the UK to buck the downward trend in prices.

The Rics survey has a relatively small sample size of 259 professionals, but has mirrored many of the other polls on house prices.

They said that the drop in prices was the result of a combination of more sellers returning to the market but less interest from buyers.

"The latest set of results suggest prices in many parts of the country may be slipping but this does appear to be encouraging hopes amongst surveyors that sales levels could begin to pick up as a result," said Rics spokesman Jeremy Leaf.

"Looking forward, our price indicators are telling a mixed story which is consistent with the uncertainty hanging over the economy, the low level of interest rates and the lack of new house building."

Government figures

Fresh data from the Department of Communities and Local Government showed that UK house prices fell by 0.3% in July compared with the previous month.

The figures, which traditionally lag behind other house price surveys, also revealed a slowdown in annual house price inflation. This stood at 8.4% in July.

The average home cost �220,240 in England, �170,782 in Scotland, �147,770 in Northern Ireland, and �157,166 in Wales, the survey showed.

There was also a North-South divide in England, with prices in the East, in London, in the South East and in the South West all higher than the UK average.

Most polls about property values have found that prices hit a plateau in the summer.

Mortgage market

Fresh statistics from the Financial Services Authority (FSA) have confirmed the relatively stagnant state of the UK mortgage market for those unable to offer a large deposit.

During the April-to-June quarter, just over 2% of new advances were given to those with a deposit of 10% or less, the City watchdog said.

However, low interest rates meant that the number of homeowners in arrears on their mortgage payments fell.

There was an 8% fall in the number of new arrears cases in the second quarter of the year, compared with the previous three months. This figure has been falling for the past 18 months.

The number of properties being repossessed also dropped, down by 5% in the second quarter of the year and at the lowest level for two years, the FSA said.

14 September 2010 Last updated at 06:12 ET

The number of complaints made about financial firms to the Financial Ombudsman Service (FOS) rose in the first half of the year.

However, the FOS sided with the consumer in a smaller proportion of resolved cases than previously.

It received 84,212 new complaints, with more than half about five major banks.

One of the biggest banks, Lloyds TSB, headed the list with 12,750 new complaints made about it by customers.

Cases

The FOS saw the total number of complaints made to it rise by 2,076 in the first half of the year compared with the previous six months.

However, with many complaints about unauthorised overdraft charges being ruled out, fewer resolved cases ended with compensation for customers.

In the first six months of 2010, the FOS upheld 44% of complaints in favour of the consumer, compared with 53% in the second half of 2009.

The FOS deals with complaints from people who are unhappy with the way financial firms have dealt with their problems in the first instance.

Some 89% of new cases referred to the financial ombudsman related to 160 specific financial businesses.

Insurance disputes

In the past 18 months, the FOS has been naming and shaming the institutions facing the most complaints.

This list was dominated by the biggest banks.

Five of them - Lloyds, Bank of Scotland, Barclays, HSBC, and Santander - had more than 3,000 complaints each.

As with previous publications of the figures, the FOS accepted that the number of new complaints would be affected by the size of the business.

However, the FOS said it had consulted with a number of experts about how to reflect this in the publication - but they were unable to agree how size should be taken into account.

The data covers the banks' traditional High Street outlets but also their subsidiaries dealing in insurance and investments.

As a result, thousands of complaints were made about the banks' general insurance businesses, as well as about their banking and lending arms.

For example, more than half of the new complaints to Lloyds were about general insurance rather than banking and credit.

A spokeswoman for the Lloyds Banking Group said: "With over 30 million customers, the group has the largest customer base in the UK.

"The vast majority of our customers are happy with the service we provide and this is reflected in the low number of complaints we receive relative to the high number of accounts our customers hold."

Many of the worries about insurance related to the continuing disputes over the sales of payment protection insurance (PPI).

PPI insures people's loan re-payments if they fall ill or lose their jobs.

But, in the past two or three years, there has been a dramatic increase in the number of complaints about how these policies were sold, alongside highly critical investigations by the Office of Fair Trading (OFT) and the Competition Commission.

Clarity 'needed'

Chief Ombudsman Natalie Ceeney said lessons should be learned from the latest figures.

"The latest set of complaints data shows that some businesses are really committed to ensuring that complaints are handled well, and are used to inform and improve the service they offer their customers," she said.

"However, the complaints data also shows there is still more that some businesses need to do to ensure that complaints are properly investigated and fairly resolved."

The British Bankers' Association, which represents the High Street banks, said: "The UK banking industry manages more than 140 million bank accounts and the biggest banks conduct many billions of transactions each year for customers, so it is important to keep these figures in context.

"The more customers a bank has, the more complaints it is statistically likely to get. And it does not necessarily follow that when customers complain the bank has been at fault. Most customers are satisfied with their bank and their account.

"When things do go wrong and complaints are received, banks seek to resolve these effectively and efficiently to rectify the situation for customers.

"The banks will be discussing with the Ombudsman how these findings can be applied to their own complaints handling processes, and how if necessary they can be improved. Every complaint represents a breakdown in a banking relationship, and the banks are striving to improve the service they provide to their customers."

The level of complaints when the ombudsman found in favour of the consumer ranged from 14% for Clerical Medical Investment Group, which is part of Lloyds Banking Group, to 100% for Eisis, which sells insurance.

Other firms with high uphold rates included Ocean Finance and Mortgages and Wills & Co Stockbrokers, both at 99%, and Black Horse, also part of Lloyds, and Loans.co.uk, part of MBNA, both at 90%.

Consumer rights body Consumer Focus called for more transparency for bank customers.

"There needs to be more clarity about what is going on in the individual cases, and where products or institutions are persistently falling down in order to start addressing the problems," a spokesman said.