Company News » April: Budget estimates; bank profits; overseas acquisitions

Growth Budget
Growth in the UK economy is expected to slow from 3% in 2007 to 1.75%-2.25% in
2008 then pick up to 2.25%-2.75% in 2009 and 2.5%-3% in 2010, according to the
estimates given in Alistair Darling’s Budget. Compared with the October
pre-Budget Report, these figures are a quarter-point lower for 2008 and 2009.
The Treasury’s forecast for 2010 is unchanged. CPI inflation is forecast to be
2.5% in 2008, half a point higher than the Bank of England’s target, before
reverting to 2% in 2009 and 2010.

Risky premium
There has been a sharp increase in the eurozone equity risk premium to 7.04% in
mid-February, well above the historic 4.0%-4.5% average, according to Citigroup
analysts. This implies that either stock markets are undervalued or that
consensus estimates are too high. Consensus estimates suggest global earnings
growth of 12%-13% in the coming year and 11% in Europe, but they say that “the
downgrade cycle has only just begun”: they expect widespread downgrading of
these figures.

Going for growth
Around 80% of pension funds appointing equity investment managers in 2007 gave
them “unconstrained” mandates, rather than demanding performance against an
index, according to Hewitt Associates. Over the past three years, these managers
have outperformed global and UK market indices by 5.2% pa. “Our clients want
fund managers to have the ability to back their investment judgement and they
are selecting managers who have the flexibility to do so,” says Lennox Hartman,
head of manager research.

In the bank
Analysis by KPMG of the five leading British banks reveals that they had, in
aggregate, a 0.7% increase in profit before tax in 2007 to £38.6bn, thanks to
the performance of RBS and HSBC, which reported increases of 7.8% and 9.6%
respectively. Of the five banks, RBS had the lowest increase in its impairment
charges on loans and advances (13%) and HSBC the highest (63%) as the effects of
“market dislocation” hit.

At your service
The mood among the UK service sectors has turned more gloomy in the past three
months, according to a regular CBI/Grant Thornton survey. Consumer service sales
volumes fell sharply, while business services’ growth rate slowed to its lowest
level since 2003. Record negative scores have been recorded in relation to
future expansion plans, mostly because of the expected level of demand.
Competition and the availability of professional staff were additional expansion
constraints for business services companies.

Business buyers
UK companies made overseas acquisitions worth £25.8bn in 2007 Q4, up from
£10.2bn in Q2, though the increase was distorted by the £18.5bn acquisition of
Alcan Inc by Rio Tinto plc, says the ONS. UK acquisitions of UK companies fell,
from £7.8bn to £2.7bn, as did overseas purchases of UK companies (£15.3bn down
to £8.2bn).