UK Economy: Triple-Dip Fears Reignited

By Ed Conway, Economics Editor

The pound has fallen by more than half a cent against the dollar as a sharp fall in manufacturing output raised the likelihood that the UK could slip back into recession.

Sterling dropped from just under $1.492 to $1.484 in intraday trading after the Office for National Statistics reported a 1.5% fall in manufacturing output in January.

The figures, which analysts had expected to be flat, feed directly into the first estimate of UK gross domestic product, which will determine whether Britain is back in recession.

They add to growing fears that the UK economy has slumped decisively over the past six months, and will raise the prospect that the Bank of England acts to pump more stimulus into the economy at its next Monetary Policy Committee meeting.

The Bank Governor, Sir Mervyn King, voted for more quantitative easing at last month's meeting.

Overall industrial production, which also includes mining and quarrying, dropped 1.2% in January – far worse than the 0.1% increase economists had expected.

Some analysts said that the figures had been affected by poor weather in the month, but even bearing that in mind, they were worse than anticipated.

James Knightley of ING said: "It looks as though this sector is going to be a major drag on growth in the first quarter of 2013.

"We have already had poor construction numbers for the start of the quarter so the prospect of yet another return to technical recession is very real.

"This will intensify the pressure on the BoE to do more to help support the economy given government officials suggests they have no intention of letting up on austerity.

"As a result more QE remains probable with sterling very much biased to the downside."

The pound has fallen by around 10% against the dollar since the start of the year, and some economists expect it to fall further in the coming months. It has rarely dropped beneath $1.50 in the long run.

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Thomas Cook Plots £400m Share Issue

By Mark Kleinman, City Editor

Thomas Cook, Britain's biggest tour operator, is drawing up plans to tap shareholders for more than £400m in a bid to secure the company's long-term future.

I can reveal that Thomas Cook is working on the equity-raising alongside a wider overhaul of its capital structure that will include new long-term borrowing facilities with its lenders.

The news, which is expected to be announced in the coming weeks, will be designed to restore investor confidence in one of the most prominent names on British high streets less than a year after a deal with its banks hauled it back from the brink of collapse.

Last week, Thomas Cook's new chief executive, Harriet Green, announced plans to axe 2500 jobs in its UK operations, which have been hit hard by competition from internet travel agents. Nearly 200 high street outlets are closing as part of the changes.

People close to Thomas Cook said the financial restructuring would follow details of a renewed focus for the company that will be announced by Ms Green alongside a trading update tomorrow. The strategic review is likely to include pruning a number of the group's brands as well as sell non-core assets such as its stake in National Air Traffic Services, the organisation responsible for controlling Britain's commercial airspace.

Other businesses that analysts have speculated will be sold include Neilson, its skiing business, Elegant Resorts, its upmarket travel agent, and Gold Medal, a long-haul specialist.

Insiders said it was unlikely that Thomas Cook would announce details of any of the disposals tomorrow.

The capital-raising that will be revealed in the coming weeks is expected to take the form of a share placing rather than a more conventional rights issue, and will aim to make a significant dent in Thomas Cook's £800m debt-pile. The plans remain subject to change, insiders said today.

Under stock exchange guidelines, companies can place up to 10 per cent of their market capitalisation without requiring the approval of shareholders, although if it confirms plans to raise more than £400m - a figure equivalent to roughly half its current £754m market value - it would require investors' consent.

"The deal will take the issue of the company's financial future off the table," one person familiar with Thomas Cook's plans said.

The equity placing and broader overhaul of the company's capital structure are being worked on by Credit Suisse, the investment bank that is Thomas Cook's retained financial adviser.

Details of the overhaul of Thomas Cook's other financing facilities were unclear on Tuesday, although it is likely to include reworked debt facilities that replace a 400m euro bond that is due to mature in 2015.

Ms Green's comments tomorrow about the future of Thomas Cook will be closely-watched by the City. She joined last year from Premier Farnell, a distributor of electronic components, where she was credited with an acceleration of the growth in revenues derived from digital channels.

Thomas Cook, which reports results for the first half of its financial year in May, describes itself as the oldest and best-known name in leisure travel, with sales of £9.5bn last year, more than 30,000 employees and 23 million customers.

Last November, it revealed a £590m loss for the year, a figure exacerbated by goodwill and other writedowns valued at £369m.

Analysts at Morgan Stanley predicted that a capital-raising would be on Ms Green's agenda in December.

"The company's own 'fiscal cliff' is in 2015 when the £1.2bn bank facilities (May) and the 400m euro bond (June) mature. It will need to have financing in place for these by September 2014 at the very latest in order to be audited as a going concern," they said.

"Prudence would suggest the company starts a year early, so we think management could think about raising capital in 2013, ideally not too soon after the Spring strategic review. We think an equity raise is the most logical route as the debt level needs to be reduced."

It is understood to have deliberated for months about the UK shop closures and job losses disclosed last week. Peter Fankhauser, the head of Thomas Cook's Continental Europe & UK division, said when the news was announced:

"It is never easy to make decisions that impact directly on our people, but we also owe it to our customers to shape the business effectively and ensure that, when they book their holiday with us, our administrative costs are as low as possible.

"As we improve and develop our online capabilities, maintaining a strong presence on the High Street is an important part of our omni-channel strategy. Even after these changes we will still have one of the largest retail networks in UK travel."

A spokeswoman for Thomas Cook said that a capital-raising would not be announced tomorrow but said she could not comment on "speculation" about such a development in future.

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Dreamliner Battery Fix Given Clearance

A plan by Boeing to redesign the 787 Dreamliner's fire-plagued lithium-ion batteries has been approved by US regulators.

While the Federal Aviation Administration (FAA) said the move was an outline for re-certification of the plane's batteries, it would not give an estimate on when the Dreamliners would be allowed to fly passengers again.

The 787 fleet worldwide has been grounded by civil aviation authorities since mid-January following a battery fire on a Dreamliner parked in Boston and a smoking battery that led to the emergency landing of another 787 in Japan.

The Boeing plan includes changes to the internal battery components to minimise the possibility of short-circuiting, which can lead to overheating and cause a fire.

Among the changes are better insulation of the battery's eight cells and the addition of a new containment and venting system, the FAA said in a statement.

A burnt battery pack compared to an undamaged lithium-ion unit

So far, test flights of two 787s have been approved - one with a complete prototype of the new battery, the other with only a new, more robust containment box for the battery, Boeing spokesman Marc Birtel said.

Even if the fixes are eventually signed-off, Boeing would still have to refit the 50 grounded planes already delivered to eight airlines in seven countries in addition to overhauling the 787s awaiting delivery to airlines including British Airways and Thomas Cook.

The FAA's approval of Boeing's battery plan "is a critical and welcome milestone toward getting the fleet flying again and continuing to deliver on the promise of the 787," Jim McNerney, the aircraft maker's CEO, said in a statement.

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Olympics Fiasco: G4S Profits Fall By A Third

Annual profits fell by a worse than expected 32% at G4S, the firm at the centre of last year's Olympics security fiasco.

Pre-tax profit for 2012 dropped to £175m from £257m the previous year as a result of a £70m loss on its contract to supply security personnel to the Olympic and Paralympic Games in London.

The Armed Forces had to be called in to cover staff shortfalls when G4S admitted just ahead of the Games that it had failed to hire enough guards to cover its contract.

It had been obliged to provide 10,400 people but managed to fulfil 83% of its contracted shifts.

The failures led to chief operating officer David Taylor-Smith and Ian Horseman Sewell, who was head of global events, to quit their jobs while chief executive Nick Buckles remained in his post.

Mr Buckles told MPs on the Home Affairs Select Committee in July that the staffing failure was a fiasco and a "humiliating shambles".

A report for G4S by auditors PwC found that monitoring and tracking of the security workforce was inadequate and that management failed to appreciate the scale and exact nature of the project.

The £70m loss on the contract, along with additional related costs of £18m, was taken as an exceptional charge in its 2012 accounts.

Despite the PR disaster over the Olympics, the group has shown signs of recovery in recent months, winning British government and commercial contracts, and has spoken of receiving government assurances that its Olympic failure would not hinder its chances of winning work in future.

Underlying revenue rose 8.1% in 2012 to £7.3bn, with improved organic growth of 7%. The group's emerging markets division performed strongly with revenue up 15%.

Its share price fell by 1.3% in early trading on Wednesday.

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E.On Boss: Energy Firm Profits Are 'Fair'

The boss of one of the 'big six' energy providers has told Sky News his company made a "fair profit" in 2012.

Tony Cocker, chief executive of E.On UK, was speaking after the company posted a 17% fall in annual profits to £235m.

Energy firms have been at pains to argue that they are not over-charging customers since inflation-busting bill increases were first announced ahead of winter.

Each has blamed higher wholesale prices and greater investment commitments for the rises.

E.On was the last of the major providers to hike its prices, having pledged not to raise them in 2012.

The company, which supplies five million homes, has estimated its profit margin on electricity and gas to domestic customers at 2.3% for 2012, or just under £27 on an average weighted dual fuel bill.

Mr Cocker said: "We worked hard to make sure that the choices we made were right for our customers and the efforts we made to freeze our prices and make our customer service better had a real and positive impact.

"As a result of the changes we have made, many of which were difficult and challenging, we were named by consumers and uSwitch as their 'customer satisfaction overall winner' for the first time.

"We still have a long way to go in terms of how we'd like our customers to view us, I'm heartened by the progress we've made by doing things differently."

The Government's Energy Bill aims to automatically ensure customers are on the cheapest possible tariff as the industry faces pressure to simplify its charges and bill structures.

Mr Cocker said E.On had already made big strides in simplifying bills and he refused to say whether it was inevitable that bills would rise in future though he did admit that the industry was making a "large investment in this country".

Last month, the chief executive of the energy regulator Ofgem warned consumers and businesses to prepare for higher prices as power plants close, foreign gas supplies shrink and increasing demand tightens the British energy market.

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Tesco Buys Restaurant Chain Amid Revamp

Tesco has paid £48.6m for the Giraffe restaurant chain as it looks to make its stores more attractive to shoppers.

Criticised in the past for a 'plastic' in-store look, the UK's biggest supermarket chain has been spending millions on a revamp that will now include eateries under the Giraffe brand at its larger premises.

The child-friendly restaurant business, which has 48 outlets, is seen as a crucial strategy to boost flagging UK sales at Tesco.

It suffered a difficult 2012 when it reported its first drop in profits for two decades.

While sales improved over Christmas, growing by 1.8% in the six weeks to January 5, the horsemeat scandal is expected to have taken its toll on trading in recent months.

On Tuesday night, after three products had previously tested positive for horse DNA, the chain withdrew a frozen roast meatloaf from sale having declared 11 days ago that its remaining ranges were clear.

A Which? study released on Wednesday found that more than half of consumers had changed their shopping habits as a result of the wider scandal.

The consumer group's separate annual poll of shoppers had suggested that Tesco was the country's most complained-about supermarket chain.

Tesco's statement confirming the purchase of Giraffe said: "The acquisition forms part of Tesco's strategy to develop the space in some of its larger stores and create even more compelling retail destinations where customers can meet, eat and drink, as well as shop.

"The first Giraffe restaurant to open next to a Tesco store will be near London.

Kevin Grace, Group Commercial Director at Tesco, added: "We invest in businesses that add value for our customers online or offline; as we've done with Harris + Hoole, Euphorium, blinkbox, and now Giraffe."

He concluded: "We think our customers will love it."

The original founders, husband and wife team Russel and Juliette Joffe, along with Andrew Jacobs, will remain in place despite the deal netting them a hefty windfall.

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Lloyds Job Cuts: Union Backs Bankers

Lloyds Banking Group is cutting a further 550 jobs, sparking a renewed attack on the bank's employment strategy by Unite.

The union said the losses, on top of 1,340 job cuts announced in January, were taking place against a backdrop of rising numbers of agency employees.

Unite national officer Dominic Hook said: "Lloyds cannot continue to cut now then ask questions later.

"It's madness that the bank has so many agency workers when it's cutting so many permanent jobs.

"Lloyds is looking for a period of stability and growth but it won't be achieved by continuous and damaging job cuts. The bank must put an end to mass redundancies and instead foster job security, pay workers fairly and concentrate on customer service."

The bank said: "All affected employees have been briefed by their line manager today. The Group's recognised unions Accord, Unite and LTU were consulted prior to this announcement and will continue to be consulted."

The job losses confirmed by the bank earlier this year also hit the insurance, retail, wealth and international and commercial divisions.

Lloyds, which is 39% owned by the taxpayer, reported a loss for last year of £570m, down from £3.5bn in 2011.

The loss was attributable to a £3.5bn provision during 2012 for mis-selling payment protection insurance, £1.5bn of which was taken during the fourth quarter.

Lloyds paid out £365m in bonuses for the year, with an employee average of £3,900.

Earlier this month, the Government signalled that it would begin within months the sell-off of its stake in the bank when the lender's share price hits 61p - a far lower level than previously thought.

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HSBC Eyes 'Non-Bank' In First Direct Revamp

By Mark Kleinman, City Editor

HSBC will seek to exploit new rules governing the length of time it takes to switch current accounts by relaunching First Direct, its telephone and internet-based bank.

I understand that HSBC, which launched First Direct in 1989, plans to target younger consumers with a revamp of First Direct that will position it as 'the non-banky bank', according to insiders who have been briefed on a new marketing campaign which is scheduled to launch in May.

HSBC disclosed last week in its annual results for 2012 that its UK operations had lost more than £650m, although this was largely due to a near-£2bn provision for the mis-selling of payment protection insurance and interest rate swap products.

The lender, the largest in Britain by market value, does not separately disclose First Direct's financial results, but the internet bank's customer base has stagnated in recent years, according to insiders.

First Direct has approximately 1.2m customers, and HSBC is understood to be targeting an increase of roughly 10 per cent by the end of the year.

The new image for the business, which will include First Direct's first television advertising for many years, will, HSBC executives hope, enable it to take advantage of new rules for account-switching that come into effect later this year.

The Government has pushed for the new rules, which will force banks to help customers switch providers within a week, in order to bolster competition, one of its priorities for reforming Britain's banking sector.

New entrants to the sector, such as Metro Bank, are also expected to increase their spend on marketing with the advent of the new regime, while high street giants such as the taxpayer-backed NatWest and Halifax, will use the new regime to seek to entrench their positions, analysts expect.

First Direct is frequently praised for its customer service, but a lack of marketing spend behind the brand has left its performance "underpowered", according to one HSBC executive.

The bank recently lowered the threshold for customers to use a First Direct account free of charge from a £1500 deposit base or monthly credit to £1000.

Based in Leeds, First Direct will mark its 25th anniversary next year. An HSBC spokesman said:

"We are currently working on a new marketing campaign to reawaken the appeal of the UK's best bank for customer service. In line with this we have just reduced the monthly amount customers need to credit into their accounts from £1500 to £1000 for a fee free account with us. 

"The new brand campaign which launches in a couple of months will mean we will back on TV again. The campaign is based around the 'nonbanky' nature of First Direct. It's an exciting time for First Direct and we want be a natural choice for customers looking to switch their banking this year."

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Minimum Alcohol Pricing: Anger Over U-Turn

David Cameron has insisted he will still clamp down on the sale of cheap alcohol after criticism over an apparent U-turn to impose a minimum price on drink.

Sources have told Sky News that the Government is planning to ditch plans for the 45p minimum, prompting anger from supporters of the move.

The Prime Minister had personally backed the proposal for England and Wales, which experts argue would save lives and cut crime.

But it has been blocked by senior Tories, with opponents said to include Home Secretary Theresa May who has been at the centre of recent leadership rumours.

Education Secretary Michael Gove and Commons leader Andrew Lansley also signalled their doubts amid fears about the effect on responsible drinkers already battling the rising cost of living.

Labour leader Ed Miliband suggested at PMQs that the Prime Minister had been overruled by Mrs May.

To roars from his own benches, he asked: "In the light of his U-turn on alcohol pricing, can the Prime Minister tell us is there anything he could organise in a brewery?"

David Cameron insisted he was still "determined" to address the issue

Tory MP Sarah Wollaston also directly challenged Mr Cameron later in the session, warning that abandoning the policy would "critically undermine" attempts to tackle problem drinking.

Earlier the Totnes MP had told Sky News: "We know that when alcohol is too cheap, people die. That is the bottom line. This is about saving lives."

Mr Cameron pledged to take action but notably failed to commit to bringing in a minimum price.

"There is a problem with deeply discounted alcohol in supermarkets and other stores and I am absolutely determined that we will deal with this," he said.

The Government has held a 12-week consultation on the policy, which ended in February, and is now looking at the results before issuing its formal response.

An announcement is expected in the next few weeks.

Senior Tory backbencher David Davis said he would welcome the abandonment of what he called a "blunderbuss of a policy" doomed to failure.

"It will hit poor people, it will hit people in the north, it will hit the pensioner having their one bottle of wine a week, it'll hit the hard-up couple doing the same," he said.

"It will transfer £1bn from the public to the people who sell alcohol and it's not going to work."

But fellow Tory Tracey Crouch insisted the base price would not hit responsible drinkers, who would still be able to buy a bottle of wine for £5.

She said: "We know that the Prime Minister is personally quite committed to this policy so I think we need to continue to press our case."

Campaigners also warned that a change of heart would be a mistake and urged the Government not to give into pressure from the drinks industry.

Eric Appleby, from Alcohol Concern, said: "All the evidence shows it will save lives and reduce crime - and we mustn't allow the interests of big business to derail this important policy."

Ed Miliband suggested Theresa May had "overruled" the Prime Minister

Professor Sir Ian Gilmore from Alcohol Health Alliance UK added: "We are seeing admissions to hospital rising, we are seeing deaths rising every year. If the Government caves in to pressure from the global drinks industry it will be a disaster.

"At the moment, the UK is being praised around the world for taking tough action and to see a U-turn would be very sad indeed for everyone."

But Miles Beale, the chief executive of the Wine and Spirit Trade Association, said consumers would welcome the move.

"Minimum unit pricing would penalise responsible drinkers and treat everyone who is looking for value in their shopping as a binge-drinker," he said. "Evidence has also shown it will do little to tackle problem drinking."

Introducing a 45p base price per unit would mean a can of strong lager could not be sold for under £1.56 and a bottle of wine for under £4.22.

Last year, ministers claimed the change would cut the number of crimes by 5,000, slash hospital admissions by 24,000 and lead to 700 fewer alcohol-linked deaths annually.

Scotland is already set to introduce a 50p minimum price but is facing legal challenges due to claims the price floor could breach EU free trade rules.

Northern Ireland is still examining the issue.

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RBS To Share in Worldpay Windfall

By Mark Kleinman, City Editor

One of the businesses carved out of Royal Bank of Scotland (RBS) as punishment for its rescue by taxpayers is preparing a refinancing that will pay its shareholders a handsome dividend that could run to hundreds of millions of pounds.

I have learnt that Advent International and Bain Capital, the private equity groups which own Worldpay, a card processing company, have hired investment banks to assemble the deal.

Advent and Bain, two of the world's biggest buyout firms, have appointed Goldman Sachs, Morgan Stanley and RBS' investment banking arm to help them take advantage of red-hot debt markets that have prompted many firms to attempt recapitalisations of their portfolio companies in recent months.

People close to Worldpay said a refinancing was likely to take place during the first half of 2013, although they cautioned that the appointment of the three advisers had only just happened and that no decisions had been taken about how substantial it would be.

As part of any refinancing, the shareholders are expected to agree on the payment of a sizeable dividend, according to one person familiar with their discussions with bankers.

That would provide some rare good news for RBS, which remains the owner of approximately 18% of Worldpay's shares and so would receive a commensurate proportion of any dividend.

Worldpay was sold by RBS in August 2010 for £1.7bn as part of the state aid agreement struck by the Edinburgh-based bank with the European Commission a year earlier.

RBS has had to sell a string of other valuable assets, including Sempra, a lucrative commodities trading operation, Direct Line Group, the well-known UK insurer, and 315 branches and their associated customers.

RBS announced yesterday that it was selling a further chunk of shares in Direct Line in a transaction that sees its stake fall below 50%, while it is frantically attempting to drum up interest in the branch network following the collapse of a deal to sell it to Santander.

Worldpay describes itself as a global leader in payment processing, operating in 40 countries and handling more than half of all card transactions in the UK through its Streamline brand.

From next month, the company will be run by Philip Jansen, a former executive with the catering group Sodexo and MyTravel, the tour operator.

Since its takeover by Advent and Bain, Worldpay is understood to have sharply increased both turnover and profits, with Mr Jansen's predecessor as chief executive saying the company had been "unshackled" by the sale.

Last October, Worldpay appointed JP Morgan, the Wall Street bank, to sell its US division, which is estimated to be worth £700m. Discussions with prospective buyers are understood to be ongoing.

A flotation of Worldpay is expected to take place in about 2016. Worldpay and Advent both declined to comment, while Bain could not be reached.

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