IMF Warns Investors Over 'Rock-Bottom Rates'

By Ed Conway, Economics Editor, in Washington DC

Investors are becoming dangerously reliant on rock-bottom interest rates, with many becoming so indebted they will face serious problems when borrowing costs rise, the International Monetary Fund (IMF) has warned.

The IMF said that the amount of cash spent on leveraged loans - the high-debt instruments with financial problems - now exceeds the level in 2007 before the crisis.

The same is the case with covenant-lite loans, which have become more lax than normal debt - they are also being created at a significantly faster rate than in 2007.

The warnings came in the IMF's Global Financial Stability Report. It said that financial markets may struggle when, eventually, the Federal Reserve, Bank of England and other central banks raise interest rates.

The report's lead author, Jose Vinals, said that many economies were reliant on these "liquidity crutches".

Referring to the market slumps last summer when the Fed signalled it was preparing to end its quantitative easing programme, the report said: "As the turbulence of last May demonstrated, the timing and management of exit is critical.

"Undue delay could lead to a further build-up of financial stability risks, and too rapid an exit could jeopardise the economic recovery and exacerbate still-elevated debt burdens in some segments of the economy."

However, it was the warning that investors are returning to the high-debt instruments that caused many problems in recent years that is likely to resonate most.

The IMF said: "The proportion of bonds with lower underwriting standards - such as covenant-lite and second-lien loans - is on the rise, as it was before the financial crisis, and this could contribute, as it did then, to higher default rates and lower recoveries as the credit cycle turns."

It warned that although share prices had risen sharply in recent years, "markets risk disappointment - especially in an environment of rising interest rates - unless equity valuations become better supported by rising earnings, capital investment, and aggregate demand".

The report also raised concerns about levels of household debt in the UK, though it added that they had fallen sharply in recent years.

The IMF said it was also concerned about the levels of debt in the emerging markets.

It added that if interest rates rose and earnings deteriorated the share of emerging market corporate debt classed as "debt at risk" of default, could rise to more than a third of the total.

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IMF Sees UK Growth Remaining Fastest In G7

By Ed Conway, Economics Editor, In Washington DC

The International Monetary Fund (IMF) has raised its forecast for Britain's economic growth more than any other major economy for the third time in a row, in a boost to the Chancellor's fortunes.

The Fund said it expected Britain's economy to expand by 2.9% this year – faster than any other G7 economy, and a significant upgrade from the 2.4% rate it predicted only three months ago.

The upgrade, which is likely to be seized on by the Chancellor as further evidence of British success, comes one year on from the IMF chief economist's warning that George Osborne was "playing with fire" with his austerity policies.

At that stage, Britain was facing the prospect of a possible triple-dip recession.

Now, the Fund says that not only is growth strong in the UK, there is a significant chance of an "upside risk" - in other words even stronger growth than its central prediction.

George Osborne was accused of 'playing with fire' by the IMF a year ago

However, the Fund added that the growth was being fuelled by the same imbalanced elements - consumer spending and credit - that contributed to the crisis.

"Growth has rebounded more strongly than anticipated in the United Kingdom on easier credit conditions and increased confidence," the report said.

"However, the recovery has been unbalanced, with business investment and exports still disappointing."

It pointed out that as a result, interest rates would be likely to rise sooner in the UK than in the US or Europe.

The Fund recommended that the Bank of England keep monetary policy "accommodative" - keeping rates low for the time being.

It added that "the Government's efforts to raise capital spending while staying within the medium-term fiscal envelope should help bolster recovery and long- term growth."

Labour's Ed Balls has accused the Government of complacency

The benign tone of the report, which forecast only slightly milder growth of 2.5% in 2015, is likely to be regarded within the Treasury as a victory over the Fund and Olivier Blanchard, who repeatedly urged the Chancellor to change course on austerity in recent years.

However, the Fund itself is likely to point towards the fact that the pace of Mr Osborne's spending cuts has been reduced in recent years - such that by some accounts he has already adopted a "plan B" on austerity.

A Treasury spokesperson responded: "The IMF forecast the UK to be the fastest growing major advanced economy this year.

"This is further evidence that the Government's long term economic plan is working, providing economic security for hardworking people.

"But the job is not done. Budget 2014 set out the next stage of the plan that is creating a more resilient economy through support to businesses, savers, and exporters.

"The biggest risk now to the recovery would be abandoning the plan that's delivering a brighter economic future."

Ed Balls, Labour's shadow chancellor, said: "These forecasts are welcome news after three damaging years when the economy flatlined and growth forecasts were repeatedly downgraded.

"Yet millions of working people, who are on average £1,600 a year worse off since 2010, are still not feeling any recovery at all.

"The IMF is right to warn about an unbalanced recovery and it is concerning that growth is expected to slow down next year.

"The Government should also heed the IMF's warnings about surging house prices by taking action to boost housing supply, as we have called for. 

"Instead of complacently trying to claim that everything is going well, we need a Government which understands that there is a deep-seated cost-of-living crisis and will act to tackle it."

The Fund said it expected the world economy to grow by 3.6% this year and 3.9% in 2015.

Among the countries facing a downgrade was Russia, whose growth prospects were cut by 0.6%, reflecting the economic impact of its involvement in Ukraine.

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Car Insurance 'Drops To A Four-Year Low'

Car insurance premiums are at a four-year low, a new study has claimed.

It comes after a record 19% drop in the cost last year, according to Confused.com's car insurance price index.

The study, in association with Towers Watson, said the average comprehensive car premium in the first quarter was £596 - some £140 lower than the same period in 2013.

The figure, including a 7.5% drop on the previous quarter, takes average premiums to below £600 for the first time since late 2009.

The study said the premium reductions occurred for both male and female drivers in all age groups, including young motorists.

It said the average premium for a 17-year-old fell by 39% last year, giving them a saving of £1,400 annually.

Meanwhile, an average 50-year-old has seen a 20% drop in premiums, down to £511.

However, the study warned that ongoing price reductions over recent years are unlikely to be sustained.

Premium calculations are based on age, driver history, car specifications, location and risk factors based on occupation.

Although inner London has the highest price average of £985, Merseyside and Manchester are also high-ranking locations with an average premium of £832.

Shares in car insurers fell on the London stock market, with Direct Line down 2.4% and Admiral down 0.65%.

Shore Capital analyst Eamonn Flanagan said the report of low premiums is considered "grim reading" for the car insurance sector.

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'Stay Off The Internet' To Avoid Major Web Bug

Hackers may have been intercepting web passwords and browsing history for the past two years because of a bug in widely used web encryption technology.

Analysts say the Heartbleed bug is one of the most serious discovered in recent years because the compromised technology - OpenSSL - is so popular.

The popular web encryption technology is used by websites to protect sensitive data such as passwords.

Jonathan Sander, from cyber security firm Stealthbits Technologies, said: "It's like finding a faulty car part used in nearly every make and model."

Yahoo is one of the websites hit by the bug

The Tor Project, which develops online anonymity software, warned people to stay off the internet entirely for the next few days to remain safe.

A message on its website read: "If you need strong anonymity or privacy on the internet, you might want to stay away from the Internet entirely for the next few days while things settle."

Yahoo passwords were among those compromised, and the company says it has since fixed the vulnerability on its services.

A spokesman said: "As soon as we became aware of the issue, we began working to fix it."

Other websites known to have been compromised by the flaw included image-hosting site Imgur, dating service OKCupid and the FBI's website.

The bug was introduced in the 1.01 version of OpenSSL in 2012.

This means that attackers may have been exploiting the bug for two years; revealing emails, instant messages and browsing data.

Because hacking attacks using the bug leave no trace, it is difficult to calculate how many people have been affected.

Google, Microsoft, Twitter, Facebook and Dropbox are understood to be unaffected.

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Sports Direct Slips As Ashley Sells Stake

Shares in Mike Ashley's Sports Direct took a big tumble on the FTSE 100 on Tuesday after he sold a block of shares worth more than £200m.

It emerged late on Monday that the tycoon had offloaded 25 million shares just days after shareholders blocked his target-related £73m all-share bonus.

He has never taken a salary at Sports Direct.

Mr Ashley's share sale, through investment bank Goldman Sachs, took place as a separate investment in House of Fraser by Sports Direct was called into question by the department store chain ahead of the expected completion of its sale to Chinese firm Sanpower Group.

Mike Ashley founded Sports Direct in 1982

It emerged last weekend that Mr Ashley, who also owns Newcastle United, had snapped up an 11% stake in House of Fraser from business partner Sir Tom Hunter - a purchase that could be potentially reversed amid allegations it may not meet City rules.

House of Fraser complained: "We have sent legal letters to both parties, reminding them of the proper procedures to transfer shares, which have not been followed.

"This situation has no impact on our plans to sell to Sanpower and we will be making an announcement in due course."

House of Fraser claimed that pre-emption rights meant Sir Tom was obliged to formally offer his shares to existing shareholders before selling to an outside party.

Neither Mr Ashley nor Sir Tom have commented on the complaint.

Mr Ashley's motivation for the purchase is not known but there was speculation he was interested in using the department store chain as an alternative vehicle for his sportswear brands in the future.

His sell-off of Sports Direct stock on Monday takes his holding to 57.7% - worth almost £2.8bn.

Sports Direct shares, which have more than doubled in value in a year, were down 10.1% at 14:15 BST on Tuesday - wiping more than £500m off its market cap.

It is suggested that Mr Ashley's sale of Sports Direct shares was not linked to the House of Fraser acquisition but instead designed to increase the free float in Sports Direct shares based on demand from institutional investors.

It was his second major share offload of the year following a similar move in February.

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Metro Bank Founder Goes Digital With Atom

By Mark Kleinman, City Editor

The founder of Metro Bank is switching his attention from high street to digital banking with secret plans for the launch of a new national retail and business lender.

Sky News can exclusively reveal that Anthony Thomson, who stepped down as Metro Bank chairman in 2012, is close to unveiling Atom, a digital-led bank that aims to start trading next year.

Mr Thomson has recruited Mark Mullen, the chief executive of First Direct, to run the new venture, sources said.

An announcement about the launch of Atom could be made as soon as Wednesday morning, they added.

Details of the new bank have been closely-guarded by Mr Thomson, but a person familiar with his plans said that licence applications were about to be submitted to the Financial Conduct Authority and the Prudential Regulation Authority.

Assuming the applications are approved, Atom could be among the most significant new banks launched amid a concerted political push to broaden competition in the sector.

The new business will not have any physical branches and will be primarily accessible through the internet and digital apps.

Mr Thomson, who insiders said would become Atom's chairman, and Mr Mullen, who will be its chief executive, are understood to be planning to offer a full range of products aimed at personal and small business customers.

These will include current and savings accounts, as well as loan products.

It is not clear whether the pair have secured external financial backing for Atom, which will be headquartered in northeast England, close to the Newcastle base of Virgin Money, another of the so-called challenger banks.

The plans for Atom come amid an explosion in the demand for digital banking services and a commensurate decline in footfall at thousands of retail bank branches.

Last week, the British Bankers' Association (BBA) published research showing that UK-based customers conducted almost 40m mobile and internet banking transactions each week last year.

The BBA insisted that branches would "remain at the heart of banking in the 21st century", but it emerged just days later that the taxpayer-backed Royal Bank of Scotland was closing 44 branches, sparking a fresh political row.

RBS responded by pointing to a 30% fall in branch transactions since 2010, a statistic echoed by some of its competitors.

The growth of digital banking has also sparked concerns about the robustness of the high street lenders' IT systems, particularly in the wake of high-profile failures at Lloyds Banking Group, Nationwide and RBS, among others.

The archaic nature of some of that infrastructure has provided encouragement to new entrants to the market that they can win significant numbers of customers by avoiding such mishaps.

They also hope to take advantage of the new current account switching regime, which forces banks to transfer customers and their direct debits within seven days.

Under revised rules aimed at bolstering competition, the FCA has pledged to decide on banking licence applications within six months.

The process historically took several years, frustrating Treasury officials in the aftermath of the 2008 banking crisis, which sparked the merger of Lloyds TSB and HBOS, and the disappearance of several other UK banks.

Some applicants, such as Home & Savings Bank, a telephone and internet-based lender, were effectively forced to abandon their plans because of difficulties securing regulatory approval.

Metro Bank's launch in 2010 as the first new high street bank for more than a century came after a similarly tortuous process.

It has since taken billions of pounds in deposits, opening more than 20 branches, and attracting high-profile investors such as the Wall Street hedge fund tycoon Steven Cohen.

The new regulatory timetable should put Atom on track to launch sometime in 2015, although a firm date has not been decided.

Mr Mullen's involvement is a coup for the new venture, since First Direct frequently scores highly in customer service polls.

Neither Mr Thomson nor Mr Mullen could be reached for comment on Tuesday.

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Wonga Advertisement Banned By Watchdog ASA

A television advertisement for payday loan firm Wonga has been banned by the advertising watchdog.

The Advertising Standards Authority (ASA) ruled that it led to confusion about interest rates charged by the firm.

The ASA received 31 complaints about the commercial but Wonga denied it was misleading, and insisted it followed industry regulations.

It upheld the complaints and said the advertisement must not reappear in its current form.

The advert was based on a discussion about short-term loan costs between two puppets.

The script downplayed the full-year annual percentage rate (APR), giving an example that if £50 was borrowed for 18 days it would cost £33.49 in interest payment.

The ASA said: "Whilst we acknowledged that viewers taking out and repaying the loan within the stated time period would not repay 5,853% of the loan, we were nevertheless concerned that viewers would be left without a clear understanding of how the information in the on-screen text could be applied to a Wonga loan, given the ad's assertion that the representative APR was not indicative of the cost of the loan.

"We considered that, though it attempted to clarify the costs associated with a Wonga loan, the ad created confusion as to the rates that would apply.

"On that basis, we concluded that the ad was misleading."

The payday loan sector has come under increasing scrutiny.

On April 1, the Financial Conduct Authority (FCA) assumed oversight responsibility for the consumer credit market.

The City regulator's role was started after it was revealed 60% of complaints to the Office of Fair Trading were about how debts were collected.

Previous analysis by the Competition Commission found firms issued around 10.2 million loans a year, worth £2.8bn.

Research also showed that more than a third of all payday loans are repaid late or not at all annually.

FCA said new rules such as limiting the number of times a payday loan can be rolled-over to two, the banning of misleading adverts and compulsory affordability checks for all loan applicants would be implemented.

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Hard Disk Pioneer Wins €1m Technology Prize

A physicist whose discovery led to the era of small high-capacity disk drives and cloud computing has won a major technology award and a €1m (£824,000) prize.

Professor Stuart Parkin, who is originally from Watford, was awarded the Millennium Technology Prize in Helsinki, Finland, for his 1988 breakthrough.

His work in the field of spintronics - in which he developed a type of data-reading head capable of detecting weaker and smaller signals than previously possible - helped increase the capacity of disk storage.

Prof Parkin, now based at IBM in the US, said: "What this means for the typical person is that they can access vast libraries - indeed all the books ever written - they can stream movies, search for any information, go on social media and share photos with their friends, and much more."

Prof Stuart Parkin has not decided how to spend his prize

He added: "Without this device and this technology, the modern world as we know it probably wouldn't exist - the idea of disk drives and storing data in the cloud."

Previous winners of the award, given by the Technology Academy, include Sir Tim Berners-Lee, the man credited with the invention of the World Wide Web.

The honour is given to those judged to have invented something that has changed people's lives for the better, usually on a global scale.

Prof Parkin said he was not considered what to do with the prize money.

He gained a PhD in physics from Cambridge University in 1981 before first working with IBM in 1997, when the technology giant began to use his disk drive in their own products, making it the industry standard.

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20,000 Next Staff To Share Boss's £4m Bonus

By Mark Kleinman, City Editor

20,000 employees at Next, the clothing retailer, will share a £4m bonus being gifted to them by Lord Wolfson, its chief executive.

Sky News has learnt that the Conservative Peer has decided to hand out his award to the high street chain's staff for the second consecutive year.

Lord Wolfson's decision means an average windfall of roughly £200 being given to Next employees at a time when boardroom pay is coming under fresh scrutiny with the advent of new rules to give investors a binding vote on the issue.

The £4m award was due to be awarded to Lord Wolfson under a share-matching plan which involved executives converting part of their annual bonuses into Next stock.

The company would then match those shares, with the precise sum linked to Next's earnings per share performance.

In a letter sent to staff on Wednesday and seen by Sky News, Lord Wolfson said the trebling of the company's share price and 65% rise in earnings per share over the past three years meant his bonus "has become more valuable than I could possibly have hoped".

"I am also in the very fortunate position to have significantly benefited as a shareholder," he wrote.

"In these circumstances, instead of accepting the award, I have asked the board if they will share it amongst all those who have worked for the company during the three year...period 28 April 2011 to 28 April 2014."

The £4m will be shared among staff in proportion to their base salaries, while staff hourly rates will also increase by 37p, Lord Wolfson said.

"I hope you will accept this bonus as a personal gesture of thanks and appreciation for all your hard work and dedication to Next through testing economic times.

"Together, you have helped ensure that Next emerges from the credit crunch in better shape than it went in."

Lord Wolfson's remuneration for 2013 will be disclosed in the company's annual report, which is due to be published on Friday.

Last year, he received £4.6m even after giving up the £2.4m share-matching award.

Next's performance has contrasted with that of rivals such as Marks & Spencer, which analysts have forecast will report another like-for-like decline in clothing sales in a quarterly trading update on Thursday.

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Toyota In Global Recall Of 6 Million Vehicles

Toyota has issued a global recall of millions of vehicles because of safety issues.

The Japanese company said the announcement covers three issues affecting RAV4, Hilux, Yaris and Urban Cruiser models.

A total of 35,124 UK-registered vehicles are affected by the recall, of 6.4 million worldwide.

The total bill is forecast to cost the company more than £300m.

The carmaker said: "Worldwide, there have been no reports of any accidents or injuries relating to these issues.

"Toyota is conducting the recalls according to Driver and Vehicle Standards Agency (DVSA) code of practice."

The firm said it would provide a "prompt inspection and repair programme" without charge to owners.

Customers can check if their vehicle is affected by using a registration number look-up function on its website.

It said a spiral cable assembly issue had been identified on airbag modules of some RAV4 and Hilux vehicles.

There is a risk that when the steering wheel is turned damage may occur to the circuitry.

"If connectivity is lost, the airbag warning light will illuminate on the instrument panel and the driver's airbag may be deactivated," Toyota said.

The RAV4 and Hilux vehicles were manufactured between June 2004 and December 2010.

Toyota's Prius Hybrids were recalled last February

The world's largest carmaker also found a fault in the seat adjustment rail for Yaris and Urban Cruisers could fail after repeated usage.

It said: "Should the spring break, the seat may not lock into its adjusted position, and could move in the event of a crash."

The affected Yaris and Urban Cruiser models were built between January 2005 and August 2010, covering 10,339 UK-registered cars.

Toyota said there was a potential fault in the tilt or telescopic steering column of some second generation Yaris and Urban Cruisers.

It said: "Toyota is aware that the weld which connects the steering column bracket to the instrument panel on some Yaris and Urban Cruiser models might break when the steering wheel is repeatedly turned with full force.

"The driver may hear an abnormal noise from the bracket area and if the vehicle continues to be driven, it is possible that the bracket will fail, causing the steering column to tilt out of position. However, the driver will not lose steering control."

The potential steering issue affected 1,293 UK cars built between September 2005 and February 2009.

The company said: "Vehicle owners will be contacted by Toyota within the coming weeks by post or telephone and asked to make an appointment to bring their car to their nearest Toyota Centre, in accordance with DVSA guidelines."

Tokyo-listed shares for the company were down more than 3% on the Nikkei after the news was announced on Wednesday, before easing to 2.1% down.

Some of the affected vehicles were made in France, with the majority built in Japan.

The recall of 6.4 million vehicles includes 297,000 in Australia - where it recently announced a decision to stop making vehicles.

Toyota was once renowned for impeccable build quality but that reputation has been hit in recent years.

In 2012, it recalled more than 3 million vehicles over safety issues and last February 1.9 million Prius Hybrids were recalled.

The Toyota announcement is the latest in a series of high-profile recalls to hit the sector.

General Motors (GM) recently recalled more than 2.4 million North American vehicles over ignition switch issues - with its CEO grilled by politicians in Washington DC - while the world's second biggest carmaker, Volkswagen, recalled 2.6m vehicles late last year.

GM has been fined $7,000 (£4,200) a day until they provide all sufficient information required by lawmakers.

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