Finance and Economic

ST. CHARLES

Figures Wednesday showing a slowdown in the construction sector and falling house price prices reinforced market expectations that the Bank of England will keep its benchmark interest rate at the record low of 0.5 percent for a few more months.

The downbeat economic news came as the bank’s rate-setting Monetary Policy Committee began its monthly two-day policy meeting, and analysts said the figures would do little to swell the ranks of those on the nine-member panel voting for higher borrowing costs.

As well as the central bank itself reporting a 60 percent drop in mortgage lending in March, the Nationwide Building Society said house prices resumed their downward trend in April and a Markit/CIPS survey showed construction growth slowed sharply in the same month.

Analysts say the signs of stagnant economic growth, combined with slowing inflation, have killed off any prospect of a rate hike when the bank announces its decision on Thursday.

“In fact, we believe the odds now favour the Bank of England holding off from raising interest rates until November,” said IHS Global Insight economist Howard Archer, who had previously pegged a rise in August.

The central bank has held interest rates at 0.5 percent since March 2009. Rates were slashed to that level in the wake of the global financial crisis. The bank also undertook a 200 billion pound ($330 billion) asset purchase program _ so-called quantitative easing _ after running out of room on the interest rate front.

Economists had started to factor rises in their forecasts for the coming months as inflation soared way above target, believing the bank would need to act to rein in spending despite ongoing sluggish domestic growth.

The bank’s aim is to hold the annual rise in the consumer price index to 2 percent, plus or minus one percentage point, a target which has been exceeded for 15 straight months.

However, consumer price inflation unexpectedly fell back to 4 percent in March from 4.4 percent in February.

Gross domestic product, meanwhile, rose 0.5 percent in the first quarter of this year. But that followed a 0.5 percent contract in the final quarter of last year, leaving GDP broadly unchanged over the six months.

“Low activity levels in the housing market, tighter government purse strings, rising input prices in fuel and materials, as well as poor cash flow in some cases, are clearly a worry,” said David Noble, chief executive at the Chartered Institute of Purchasing and Supply.

That leaves economists expecting the majority of the Monetary Policy Committee to vote to hold rates steady, despite a three-way split in the group in recent months.

This is the last month for the committee’s arch-hawk Andrew Sentance to win favor for a significant rate hike. Sentance has in recent months voted to raise rates to 1 percent to counter inflation. Two other committee members, Spencer Dale and Martin Weale, have for the past two months backed a hike to 0.75 percent.

Yet another member, Adam Posen, has instead voted to pump another 50 billion ($83 billion) into the bank’s quantitative easing program to boost economic growth.

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An escalation in Japan’s nuclear crisis has failed to dissuade analysts from forecasting an economic rebound starting next quarter, an outlook that hinges on a recovery in business and household confidence.

Gross domestic product may shrink 3 percent in April-to- June, the most since the aftermath of the 2008 Lehman Brothers Holdings Inc. collapse, according to the median of 18 estimates in a Bloomberg News survey in the past week. The GDP loss will be more than recouped by year-end, with 1.9 percent and 5.5 percent annual growth rates in the final two quarters, the survey shows.

Prime Minister Naoto Kan’s proposed 4 trillion yen ($48 billion) initial reconstruction package may kick-start the recovery from last month’s record earthquake. Companies from Shiseido Co. to convenience-store chain FamilyMart Co. are counting on a shift in sentiment to prompt households to open their wallets and limit the hit to corporate earnings.

“The risk here is that a prolonged consumer-spending slump trumps the boost from government spending even as reconstruction gets under way,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, who like most analysts sees a single quarterly GDP contraction. “If consumer spending doesn’t come back, that’s going to damp the job market and we could see more contractions in consumer spending in the third quarter on.”

Japan’s Economic and Fiscal Policy Minister Kaoru Yosano said this week that while the quake’s damage may be “bigger than we initially expected,” a rebound will likely be in place by the year-end.

Severity Matches Chernobyl

The Nikkei 225 Stock Average slid 1.7 percent on April 12 after government officials raised the severity level of the accident at Tokyo Electric Power Co.’s nuclear power plant to match the level of the 1986 Chernobyl disaster. The Nikkei closed 0.9 percent higher yesterday.

“The effect of the nuclear crisis has turned out to be more severe and prolonged than we had anticipated,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “We thought the nuclear problem would calm down in the April- June period, but it doesn’t seem likely that will be the case.”

Radiation worries threaten the country’s tourism industry, Maruyama said. They could also hit domestic consumer spending as people hold off from outlays including for eating out due to food safety concerns, said Nishioka of RBS. Private consumption makes up about 60 percent of GDP.

Merchants’ Confidence

Confidence among Japanese merchants fell at the fastest pace on record last month, the Economy Watchers index released last week by the government showed. The survey of barbers, taxi drivers and others who deal with consumers, slid to 27.7 in March from 48.4 in February, the biggest drop since the survey began in 2000 payday advance.

Retail sales in the world’s third-largest economy may drop as much as 10 percent this year, FamilyMart Co., a Japanese convenience-store chain, said last week.

Shiseido Co., the country’s largest cosmetics maker, said yesterday the quake may have reduced its sales by 3 billion yen. A Shiseido factory that makes products including shampoo was damaged by the temblor.

In Japan’s automobile industry, while the top three carmakers are gradually increasing output after the quake, Toyota Motor Corp. told U.S. dealers that assembly disruptions may thin supplies of vehicles into the third quarter. The world’s largest automaker will build vehicles at “significantly reduced levels,” Bob Carter, group vice president of U.S. sales, said in a memorandum to dealers.

Power Consumption

Japan’s government last week said it may impose legal limits to electric power consumption ahead of shortages that are likely to worsen as the summer approaches.

Meantime, Japanese businesses sought 7.5 trillion yen in loans from the nation’s three largest banks including Mitsubishi UFJ Financial Group Inc. (8306) to cope with the quake, spokesmen of the banks said.

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NEW YORK

) _ Inflation in the 17 euro countries spiked to the highest level in nearly two and a half years in March, official figures showed Thursday _ cementing market expectations that the European Central Bank will raise interest rates next week.

Eurostat, the EU’s statistics office, said consumer prices in the eurozone were 2.6 percent higher in March than the year before. That’s the highest rate since October 2008 and is way above the central bank’s target of keeping inflation at “close to, but below 2 percent.”

The increase was not anticipated _ the consensus in the markets was for inflation to remain at 2.4 percent.

Since Thursday provided Eurostat’s “flash” estimate for inflation, it included no details as to why inflation rose. Those will emerge in April.

Inflation dropped to zero percent in May 2009, but prices have since pushed higher largely on the back of rising energy and food costs as the global economy starts to grow again following the deepest recession since World War II.

Over the past month, comments from the European Central Bank have been increasingly hawkish on inflation. The bank’s rate-setters, including President Jean-Claude Trichet, have been giving heavy hints that the main interest rate will rise from the current record low of 1 percent at the next meeting on April 7.

The bank cut interest rates sharply from 4.25 percent in October 2008 as it tried to stave off the impact from the financial crisis and has kept borrowing costs unchanged at 1 percent since May 2009.

In many ways, it can argue that its strategy worked and it’s now time to start “normalizing” monetary policy, despite the ongoing debt difficulties and austerity measures in several countries, notably Greece, Ireland, Portugal and Spain. The eurozone economy as a whole has been growing strongly for over a year now, driven by a healthy rebound in Germany, Europe’s biggest economy.

“The ECB will want to move from emergency setup to more normal levels,” said Silvio Peruzzo, an economist at the Royal Bank of Scotland.

Peruzzo predicted the bank will begin the new cycle of interest rate rises next week, but he doesn’t believe that Thursday’s figures will cause undue alarm because much of the increase recorded in March was due to changes in the way food and clothing prices are measured in Italy and Spain.

Expectations that borrowing costs in the eurozone are on their way up have helped support the euro currency over the past few weeks. By early afternoon London time, the euro was trading 0.7 percent higher on the day at $1.4214.

Interest rate increases, or even expected ones, benefit the euro if other central banks don’t do the same.

The U.S. Federal Reserve, for example, is not expected to raise its super-low interest rates until the latter part of this year, while the Bank of England’s rate-setting committee is fretting about the impact of higher borrowing costs on the fragile British economy.

Michael Hewson, market analyst at CMC Markets, said the key now will be how hawkish Trichet is in the aftermath of next week’s “increasingly likely” rate hike and in particular whether he will reiterate his call for “strong vigilance.” Throughout his presidency, that’s been code for a likely rate rise in the following month.

“As far as the single currency is concerned, it continues to benefit from yield differentials as markets factor in multiple rate hikes throughout 2011, while other central banks such as the Bank of England and the Federal Reserve fret about the effect any planned rise in rates could have on consumer spending and growth,” Hewson said.

“It would appear that the ECB has no such worries about that, and seems determined to try and put the inflation genie back in the bottle,” he added.

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The Bay is bringing British fashion retailer Topshop and Topman to Canada, the department store confirmed early Wednesday.

The announcement ends months of speculation about the U.K. fashion leader, internationally renowned for collaborating with young designers and also some of history

ST. LOUIS

Probes by state attorneys general and other government agencies into banks’ foreclosure practices carry the risk of fines and other major costs, according to regulatory filings from three of the country’s biggest banks.

Revelations that major U.S. banks rammed through hundreds of foreclosures daily without giving many borrowers a fair shot at keeping their homes triggered investigations from all 50 states’ attorneys general and from state and federal regulators. They also sparked pressure from lawmakers and class-action lawsuits.

Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. called out possible financial repercussions in annual filings with the Securities and Exchange Commission Friday. None of them provided any details on how much was at risk.

“Those investigations and any irregularities that might be found in our foreclosure processes, along with any remedial steps taken in response to governmental investigations or to our own internal assessment, could have a material adverse effect on our financial condition and results of operations,” Bank of America said.

The Charlotte, N.C.-based bank said it is dedicating significant resources to comply with investigations, and warned that the probes could result in “material fines, penalties” and expose the company to new lawsuits and more legal costs.

“Our costs increased in the fourth quarter of 2010 and we expect that additional costs incurred in connection with our foreclosure process assessment will continue into 2011 due to the additional resources necessary to perform the foreclosure process assessment, to revise affidavit filings and to implement other operational changes,” Bank of America said in the filing.

New York-based Citigroup said investigations and scrutiny of its own foreclosure processes have “resulted in, and may continue to result in, the diversion of management’s attention and increased expense, and could result in fines, penalties, other equitable remedies, such as principal reduction programs, and significant legal, negative reputational and other costs.”

Wells Fargo also said it is being investigated by several government agencies for its foreclosure practices.

“It is likely that one or more of the government agencies will initiate some type of enforcement action against Wells Fargo, which may include civil money penalties,” the company said in its filing. “Wells Fargo continues to provide information requested by the various agencies.”

The bank also said several lawsuits have been filed against it, claiming that Wells Fargo submitted fraudulent affidavits or other documents to foreclose on homes.

“Specifically, plaintiffs allege that Wells Fargo signers did not have personal knowledge of the facts alleged in the documents and did not verify the information in the documents ultimately filed with courts to foreclose,” the San Francisco-based bank said in the filing.

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Ivory Coast’s incumbent leader Laurent Gbagbo, who is clinging to power, has sued the West African regional bloc over recognizing his rival candidate as the winner of the country’s recent election.

A lawyer for Gbagbo filed the lawsuit Monday in the Economic Community Of West African States’ Court of Justice in Abuja, Nigeria. The suit asks judges there to void the decision by the regional bloc, known as ECOWAS, to recognize Alassane Ouattara as the winner of a Nov cheap business cards. 28 presidential run-off election.

Ivory Coast has been gripped by political crisis since the election. An electoral commission said Ouattara won and the U.N. supervised the election and certified the result. A constitutional council later overturned the results and declared Gbagbo the winner.

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Prices in the new home market increased for the 12th straight month in a row, according to figures released by Statistics Canada on Thursday.

But housing market indicators released in the past few weeks have been so contradictory that builders, realtors