Bank: UK Recovery Has Finally Taken Hold

The Bank of England has upgraded its growth forecasts for the UK economy with its governor Mark Carney declaring: "The recovery has finally taken hold."

The bank's quarterly Inflation Report showed it had raised its GDP expectations for 2013 from 1.4% to 1.6% and for 2014 from 2.5% to 2.8%.

Mr Carney told reporters that while growth had not returned to normal, the glass was now "half full" and the jobless total had fallen by more than the monetary policy committee (MPC) had expected.

But attention was focussed on the possibility of interest rates rising much earlier than the bank had anticipated - given the strength of the recovery - and raising the prospect of variable mortgage bills soaring in just 12 months' time.

Under the bank's forward guidance policy, Mr Carney had said in August that the base rate of interest would not be raised by the MPC until the unemployment rate reached at least 7%.

The bank said it would remain vigilant for evidence of house price bubbles

In August, the bank anticipated that target not being reached until late 2016 but today he confirmed there was a 40% chance it could be reached in just a year's time - raising the prospect of higher bills for families in the final quarter of 2014.

But Mr Carney insisted that while the bank would not even consider raising the base rate until that 7% target had been reached, any rise in borrowing costs would depend on the wider conditions in the economy - casting doubt on a rate rise even into 2015.

The shift brought the bank's expectations for a rise in the base rate more into line with those of the markets, which have largely priced in a rate rise by mid-to-late 2015.

The report also said that inflation had been lower than expected and was on course to fall back to around its 2% target "over the next year or so."

Figures on Tuesday showed it fell to 2.2% in October, a 13-month low, though increases to energy bills were yet to be recognised in the statistics.

On the general picture, the report stated: "In the United Kingdom, recovery has finally taken hold.

"The economy is growing robustly as lifting uncertainty and thawing credit conditions start to unlock pent-up demand.

"But significant headwinds - both at home and abroad - remain, and there is a long way to go before the aftermath of the financial crisis has cleared and economic conditions normalise."

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Sants Quits Barclays As Stress Takes Its Toll

Sir Hector Sants has resigned from Barclays a month after it emerged he had been placed on sick leave for stress and exhaustion.

The former chief executive of the now-defunct Financial Services Authority joined the bank as its head of compliance a year ago.

He was given the job of ensuring the bank operated within the law across the world but was given time off at the beginning of October.

Barclays - like its major competitors - are still paying a high price for past mistakes.

The bank was fined £291m for rigging the Libor interbank lending rate and has set aside just under £4bn for the mis-selling of payment protection insurance (PPI).

Among its other continuing compliance issues is a regulatory inquiry into foreign exchange trading.

The bank's transformation plan - which has cost it hundreds of millions of pounds - is aimed at cleaning up its image to concentrate on becoming the 'go to' bank.

Barclays said: "Hector Sants has been on sick leave since the beginning of October, suffering from stress and exhaustion.

"He has concluded that he will not be able to return to work in the near term. Consequently he has decided to resign from Barclays and not return from sick leave."

Chief executive Antony Jenkins added: "Hector has been a great colleague on the Group Executive Committee.

"Although only with us for 10 months, he has made significant progress towards creating a world class compliance function at Barclays and in improving our relationships with Regulators and Governments.

"I know my colleagues will join me in expressing our appreciation to Hector, as well as wishing him a speedy recovery."

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'Pink Star' Diamond Set To Sparkle At Auction

A plum-sized diamond known as the "Pink Star" is expected to fetch a record $60m (£37.6m) at auction on Wednesday.

The gem goes under the hammer at Sotheby's in Geneva a day after rival Christie's sold an almond-shaped diamond dubbed "The Orange" for £35.5m (£22.2m) - also a record in its category.

The flawless 59.60-carat pink diamond is the largest in its class ever graded by the Gemological Institute of America (GIA), with the second biggest less than half its size.

Sotheby's David Bennett said: "It's really extraordinarily rare. Very, very few of these stones have ever appeared at auction."

The sparkling oval-cut rock, which has received the highest possible GIA colour and clarity rating, will be part of the auction house's Magnificent Jewels sale at a luxury hotel on Wednesday evening.

This white diamond fetched $30.6m in Hong Kong last month

Set on a ring, it measures 2.69 by 2.06 centimetres and weighs 11.92 grammes.

It would earn Sotheby's around $5m per gramme if it fetches its asking price of $60m which Mr Bennett said was "very reasonable."

"The international demand for exceptional diamonds keeps on growing," he said.

Three years ago, Sotheby's set a record when it sold the "Graff Pink" diamond for $46.2m (£28.9m).

Half the size of the "Pink Star", it came from a private collection and had not been on the market for 60 years.

The Pink Star is the biggest diamond in its category

Analysts note that investors have often turned to diamonds and other jewels in uncertain economic times as they are seen primarily as investments.

The "Pink Star" was 132.5 carats in the rough when it was mined by De Beers in Africa in 1999, according to Sotheby's, which has not said where it came from.

It was then cut and polished over a period of two years by Steinmetz Diamonds, and was first unveiled to the public in 2003 under the title of the "Steinmetz Pink".

The near-translucent rock was renamed after it was first sold four years later for an undisclosed sum to an unidentified buyer.

Sotheby's declined to name the seller in Wednesday's auction, nor would it say whether the gemstone had been bought and sold again since 2007.

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Energy Bills: Households Face 17 Years Of Hikes

Households are facing another 17 years of inflation-busting increases in energy and water bills, a spending watchdog has warned.

The National Audit Office (NAO) said consumers are being forced to pay more to stump up the cost of renewing Britain's ageing infrastructure.

It said the Government had little idea of the impact the continued price hikes would have on households or whether they would they would even be affordable.

Its findings will intensify the political debate raging over energy bills, with the Government under pressure to act after Labour promised a 20-month price freeze if they came to office.

Four of the big six energy firms have announced increases in customers bills averaging 9.1%. However, on Tuesday EDF announced it would increase bills by only 3.9% - a significantly lower rise.

And on Wednesday Co op, which had last month announced a 4.5% increase, said that increase would now be just 2.5%.

Both Co op and EDF said the low increase was because they were not passing on the rising cost of the Government's green schemes.

The announcements will put pressure on David Cameron to come good on his pledge to roll back green energy levies - the charges on a customer's bill used to pay for environmentally friendly energy production schemes.

The Treasury estimates that at least two-thirds of the £310bn of planned infrastructure investment over the next decade and beyond will come from private companies paid for, ultimately, by consumers through their utility bills.

The NAO said that such high levels of planned investment meant that the increases in charges for energy and water were now expected to continue to outstrip inflation until 2030.

It expressed particular concern about the plight of the low income households where energy and water bills accounted for 15% of spending in 2011 - almost double the overall average of 8% - while their incomes had fallen by 11% in real terms since 2002.

The head of the NAO, Amyas Morse, said that ministers needed to know at what point the continuing price rises would become too much for consumers to bear.

"Government and regulators do not know the overall impact of planned infrastructure on future consumer utility bills, or whether households, especially those on low incomes, will be able to afford to pay them," he said.

"It seems critical to know 'how much is too much', based on reliable information."

Margaret Hodge, the chairman of the Commons Public Accounts Committee, said ministers needed to work with the industry to ensure bills did not become "unmanageable" for consumers.

"I have serious concerns that government is taking decisions on infrastructure, banking on hard-pressed consumers to foot the bill, without knowing whether households will be able to afford to pay."

A Government spokesman said: "Decades of under-investment have left the UK struggling with insufficient energy infrastructure, but we are committed to fixing the failures of previous governments, and to making the difficult decisions that will allow us to have the infrastructure we need."

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Sainsbury's First Half Profits Hit £433m

Sainsbury's has announced a 9.1% increase in first half pre-tax profit to £433m as it battles Asda to be Britain's second-biggest supermarket chain behind Tesco.

Total sales including VAT and fuel rose 4.4% over the 28 weeks to September 28 - by 4% when the effects of fuel sales were stripped out.

On a like-for-like basis, were up 1.4%.

The company said its strategy focused on own brand products alongside online and convenience store growth was resonating with customers.

Online grocery sales rose by 15% in the half, while convenience store sales increased over 20%.

Sainsbury's said it has now enjoyed 35 consecutive quarters of underlying sales growth, continuing to outshine Tesco, which last month posted a 1.5% fall in first half UK trading profit.

Its share of the grocery market rose to its highest level in a decade at 16.8%.

The chain, which operates more than 1,100 supermarkets and convenience stores, has been the only one of the big four supermarkets to grow its market share amid pressure from discounters Aldi and Lidl.

Chief executive Justin King warned that customer budgets remain tight and that the economic recovery may take time to translate into stronger household confidence.

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Jobless Rate At Three-Year Low Of 7.6%

The unemployment rate fell to 7.6% in the three months to September - its lowest level for more than three years - but pay rises are matching record lows.

The Office for National Statistics (ONS) measured a 0.1% drop in the unemployment rate over the period, with the jobless total falling by 48,000 to 2.47 million.

It meant the number of people in work reached a new all-time high of almost 30 million but nearly half are working part-time because they cannot find full-time jobs.

The employment total rose by 177,000 while the number of people claiming jobseeker's allowance fell for the 12th month in a row in October, down by 41,700 to 1.31 million - a five year low.

Pay rises are lagging well below inflation

But the ONS also confirmed the price being paid by the workforce for greater employment.

Average earnings increased by 0.7% in the year to September, down by 0.1% from the previous month.

Excluding bonuses, pay rose by 0.8% - the joint lowest since records began in 2001 - signalling greater hardship for families as price rises continue to outstrip earnings growth.

Esther McVey says the Government is not complacent on job creation

The ONS said 1.46 million people were working part-time because they could not find a full-time job, an increase of 24,000 over the quarter, and the highest figure since records began in 1992.

Almost a third of working men are in part-time employment because they cannot find a full-time job, compared to 13% of women.

Around 890,000 people have been out of work for over a year, down by 19,000, with just under half of those unemployed for more than two years, a fall of 15,000.

There were 950,000 unemployed 16 to 24-year-olds in the latest period, around a third of whom were in full-time education, a fall of 9,000, giving a youth jobless rate of 21%.

Commenting on the figures minister for employment Esther McVey said: "This Government is delivering on its promise to rebalance the economy, promote job creation, and support people to get off benefits and into work.

"Today's figures show that the number of people in work has risen by more than a million under this Government, with the growth driven by full-time private sector jobs.

"At the same time, the number of people claiming the main out-of-work benefits has fallen by almost half a million. There's more work to do, and we are not complacent, but these are all very positive signs."

TUC general secretary Frances O'Grady called for better jobs and healthier pay

She said: "Britain's workforce is getting larger but poorer.

"It is encouraging that more jobs are being created but job quality is falling and close to a 20-year low.

"A record number of people are stuck in part-time jobs because they can't find full-time work, while real wages continue to shrink."

Shadow work and pensions secretary Rachel Reeves said: "Today's fall in unemployment is welcome, but families facing a cost-of-living crisis need a recovery that benefits them, and these figures show we are still far from achieving that.

"Prices have now risen much faster than wages for 40 of the 41 months since David Cameron became Prime Minister. On average, working people are now over £1,600 a year worse off under this out-of-touch Government.

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Japanese Bankers Grilled Over Loans To Mobs

Japanese MPs have been questioning the head of one of the country's biggest banks over loans to mobs.

The inquiry comes as another major lender in the banking world admitted it may have been involved in dealings with gangsters.

Mizuho Financial Group president Yasuhiro Sato apologised for his firm's role in the widening scandal as politicians questioned him about Mizuho's surveillance and his future at the bank, after he earlier refused to step down.

"We deeply regret that the Japanese financial sector's credibility was hurt because of our relations with anti-social forces," Mr Sato said, using a common euphemism for organised crime.

The scandal has gripped Japan's banking sector after revelations in September that Mizuho had processed hundreds of loans worth about $2m (£1.3m)  for the country's notorious yakuza crime syndicates.

The gangs are involved in activities ranging from prostitution and drugs to extortion and fraud.

Authorities have long battled to keep the gangsters from infiltrating Japan's corporate sector amid fears of mob involvement in stock trading and the property sector, among other legitimate activities.

"The amounts involved may be small compared to the past, but it still means that funds are going to the mafia," organised crime expert Atsushi Mizoguchi told public broadcaster NHK.

The bankers bow to MPs after appearing before a committee

A panel of lawyers hired by Mizuho to probe the transactions found that "many officials and board members were aware of, or were in a position to be aware of, the issue".

That contradicted Mizuho's initial claims that top management did not know about the links.

In the wake of the Mizuho report, Japan's financial watchdog said it would investigate the country's top three banks - Mizuho, Mitsubishi UFJ and Sumitomo Mitsui Banking Corp - in an effort to stop the practice.

Mizuho has said more than 50 former and current executives will be punished, including Mizuho Bank chairman Takashi Tsukamoto, who is to step down from his current post but stay on as head of the parent company.

Mr Sato said he would forgo his salary for six months, but refused to quit.

That decision came under scrutiny as politicians questioned whether the punishments were strong enough, while Mr Sato insisted some loans were made in good faith.

"There are some trades with people that might be discovered to be anti-social only after the transactions have been done," he said.

Meanwhile, the head of Sumitomo Mitsui also acknowledged the "possibility" that the bank did business with gangsters, after another bank official said that an affiliated firm had been making mob loans.

Other financial firms, including Shinsei Bank and a major Japanese credit card company, have admitted to similar business dealings in recent weeks.

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Bidders Eye Smaller Heathrow-Owned Airports

By Mark Kleinman, City Editor

A flock of infrastructure investors is circling some of Britain's biggest regional airports amid expectations that their owner will opt to sell them in order to focus on its ownership of Heathrow.

Heathrow Airport Holdings, which was known as BAA until it was renamed a year ago, is understood to be mulling a plan to offload Aberdeen, Glasgow and Southampton airports following a string of unsolicited approaches from prospective buyers.

Sky News has learnt from banking sources that Global Infrastructure Partners, the firm which owns London's Gatwick and City airports, has expressed an interest in acquiring Aberdeen airport, although it has not yet made a formal bid.

A decision to sell the airports would come amid a crucial Government-commissioned review being led by Sir Howard Davies, the former director of the London School of Economics, which will outline several options for expanding airport capacity in the south-east before the end of the year.

A number of Heathrow's shareholders and board members are said to be keen to dispose of the three regional airports that are the last remaining remnants of the former BAA's monopoly over the UK's airport infrastructure.

However, the company's board has not yet made a formal decision to undertake an auction of the assets and could ultimately decide against doing so, a person close to Heathrow said on Wednesday.

Ferrovial, the Spanish infrastructure group which took BAA private in 2006 in a debt-fuelled deal, has steadily reduced its investment in Heathrow in recent years by selling small chunks of shares to sovereign wealth funds in China, Qatar and Singapore.

Last month, the Universities Superannuation Scheme, one of the UK's biggest pension fund managers, bought an 8.65% stake in Heathrow's holding company, a move which saw Ferrovial's shareholding lowered to 25%.

Banking sources say that Ferrovial is now likely to be interested in acquiring one or more of Aberdeen, Glasgow or Southampton airports through a separate vehicle.

Shortly after Ferrovial's takeover of BAA, competition authorities ordered the company to break itself up by selling Stansted, Gatwick and either Glasgow or Edinburgh, the latter of which was sold two years ago.

Manchester Airports Group, which now owns Stansted, is also a likely bidder for some of the Heathrow-owned airports, analysts believe.

Heathrow Airport accounts for more than 95% of its parent company's annual profits, making the sale of the other regional assets "inevitable" within the next three years, said one.

A Heathrow spokesman declined to comment.

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Energy Firms SSE And E.ON Confirm Profits

Energy firm SSE has confirmed a return to half year profits and a bigger payout to shareholders, just two days before its household bills are due to rise by an average 8.2%.

The company announced its figures as rival E.ON updated the market on its progress - with a 17% increase in profits in its UK supply business.

SSE made a group pre-tax profit of £336.4m in the six months to 30 September following a loss of £41m in the same period last year.

But the firm said its retail arm, which supplies energy to homes, lost money in its first half while its other two divisions - covering areas including wholesale energy production and energy distribution - were both in profit.

E.ON also reported rising profits on Wednesday

It reported an operating loss of £89.4m for the retail division - blaming higher wholesale gas charges and the growing cost of government 'green' levies.

The company said in October it was raising household gas and electricity bills by three times the rate of inflation to help counter an expected loss in the retail business.

Its results were released as the public spending watchdog warned that households were facing another 17 years of inflation-busting increases in energy and water bills.

In its statement, SSE confirmed a 3.2% rise in its interim dividend payment to investors.

It pledged above inflation increases in its full year dividend, saying this was vital to ensure the group is able to raise enough money to fund spending on its network.

Will Morris, group managing director of SSE's retail business, said: "Some politicians and media commentators have claimed recently that we value our shareholders more than our customers.

"Or to put it another way, we're focussed on paying them a dividend on their shares, regardless of what that means for our customers.

"Nothing could be further from the truth."

He added: "Without the investment made by shareholders, we couldn't afford to build the infrastructure or buy the equipment needed to deliver what customers need."

SSE - which trades as Southern Electric, Swalec and Scottish Hydro - revealed its customer numbers had dropped by 60,000 to 9.41 million since the end of March.

It was the first of the 'big six' energy companies to raise its tariffs ahead of winter, with only E.ON yet to announce a price hike, although one is "likely" and expected later this month.

E.ON's 17% increase in profits over its last nine months to £227m was achieved despite the past three months running at a loss, the company said.

EDF Energy announced on Tuesday it was increasing prices by 3.9% in January - far lower than many of its rivals. The group said it would not pass on costs of the Government's green levies in anticipation of changes to how these schemes are paid for.

SSE has pledged to cut its 8.2% average increase back should ministers confirm the money will be stripped out of bills and paid for by general taxation.

Co-op Energy went one step further on Wednesday by confirming that its 4.5% average bill increase announced on October 18 would now be slashed in half because of the expected change to the levies.

Its general manager Ramsay Dunning said: "As we stated in our recent price increase announcement, there were a number of factors that were out of our control including costs associated with buying energy and getting it into people's homes, that we reluctantly had to pass on to our customers by raising prices.

"However, given the expectation that an announcement is imminent that the burden of green and social taxes will be removed by the Government, we have decided to take a leap of faith and remove this element, which represents 2%, from our previously announced average 4.5% price increase.

"This reduces our proposed average increase to 2.5%."

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Royal London To Sell Offshore Wealth Unit 360

By Mark Kleinman, City Editor

One of Britain's biggest mutuals is selling its offshore wealth unit to a private equity group amid greater public and political scrutiny of tax-planning activities.

Sky News has learnt that Royal London, the UK's biggest customer-owned life insurance and pensions provider, is to sell 360, an Isle of Man-based division, to Vitruvian Partners, a buyout firm.

The deal, which is understood to value 360 at tens of millions of pounds, is expected to be announced in the next few days.

Although owned by its customers, Royal London does have some publicly-traded subordinated debt, meaning that a statement about the deal is likely to be made to the London Stock Exchange.

The sale of 360 to Vitruvian will involve the transfer of roughly 200 employees and well over £2bn in assets under management. The business has offices in Dubai, Hong Kong and Lebanon as well as on the Isle of Man.

According to its website, the wealth management operation "brings our international clients much greater scope for tax efficiency ... Apart from some withholding tax on certain income producing assets, our underlying funds can grow virtually tax free."

The transaction comes several months after Royal London secured the takeover of the struggling Co-operative Group's asset management and life and pensions assets, the proceeds from which will be used by the Co-op to plug a £1.5bn black hole in its banking division's balance sheet.

That deal life increased Royal London's scale from 3.5m to 5.5m customers and from £50bn of assets under management to more than £70bn.

Royal London recently signed an agreement with the England & Wales Cricket board to sponsor one-day international matches for four years, a period that will include the 2015 World Cup in Australia and New Zealand.

Vitruvian, which owns businesses such as Tinopolis, a television production company, and Just Eat, the online takeaway ordering service, declined to comment, while Royal London was unavailable for comment.

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