|Tuesday, 17 September 2019|
European Business News (EBN), 97-03-10
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From: The European Business News Server at <http://www.ebn.co.uk/>
Page last updated March 10 1900 CET
 British factory output prices rise at their slowest annual rate in 10 yearsBritish Chancellor of the Exchequer Kenneth Clarke received further support for his refusal to raise interest rates ahead of the general election as data showed factory-gate inflation falling to its lowest rate in more than 10 years.
Economists say Clarke's Conservative party, which is trailing heavily behind Labour in opinion polls, is almost certain to keep base lending rates on hold at 6% ahead of the general election, which is due by May 22.
Although an incoming Labour government is still expected to raise rates soon after the election, sterling's meteoric rise and recent figures showing subdued inflation pressures and lower growth in consumer spending have made investors less gloomy about the outlook for rates than they were at the end of 1996.
The Office for National Statistics said U.K. producer output prices were unchanged month-on-month in February on an unadjusted basis after rising 0.2% in January. Output prices were up 1.3% from a year earlier, below 1.5% growth in January and the slowest rate of increase since October 1986. Market expectations were for rises of 0.1% on the month and 1.4% on the year.
Core output prices, which exclude volatile food, drink, tobacco and petroleum, rose a seasonally adjusted 0.1% on the month in February to stand 0.6% higher from a year earlier, leaving the year-on-year growth rate unchanged from January.
'Today's set of producer-price figures suggest that pipeline cost pressures in the U.K. economy remain remarkably subdued,' said Andrew Cates, U.K. economist at UBS in London. 'Combined with recent evidence that consumer demand may be slowing, there is little to suggest that monetary conditions in the U.K. economy need to be tightened at the moment.'
Input prices, the prices industry pays for its fuel and raw materials, fell an adjusted 0.5% month-on-month in February to stand 6.6% lower from a year ago, compared with respective decreases of 0.6% and 6.4% in January. Crude- oil prices fell 5.0% in February, offsetting rises in the prices of other commodities caused by a 2.4% fall in sterling against the dollar, which made imports priced in the U.S. currency more expensive.
However, measured against a basket of currencies, sterling rose 1.6% to stand 16% higher from a year earlier, making imports cheaper and reducing the competitiveness of British goods on world markets.
'The majority opinion is still bias toward a post-election rate rise - a Labour chancellor will have to establish his anti-inflation credibility with the markets - but people are now starting to question whether we'll see anything like as much as the 7% predicted a few weeks ago,' said John Shepperd, chief economist at Yamaichi International in London.
The Treasury hailed 'another outstanding set of figures' which it said 'should mean a cloudless outlook for prices in the high street this spring.'
Economists said underlying inflation, excluding mortgage-interest payments, is set to fall to 2.5% by midyear, a target to which both the present government and the Labour party - if elected - have committed themselves. It is currently running at 3.1%. Downward pressure on goods-price inflation is expected to offset stronger price pressures in the service sector.
'These are very good figures which further strengthen the case for not raising interest rates,' said David Owen, U.K. economist at Kleinwort Benson in London.
Bank of England Governor Eddie George, in Basel for the monthly meeting of central bankers of the Group of 10 nations, told Dow Jones Newswires that he expects inflation to 'keep falling this year' and to hit the government's 2.5% target by midyear.
However, he said he expects price pressures to pick up again in 1998.
Last week Clarke issued the broadest of hints that interest rates will remain unchanged ahead of the general election when he said in a speech that consumer spending remains far from the boom conditions of the late 1980s.
A string of data in recent weeks, highlighted by last week's survey from the Confederation of British Industry, suggests that growth in consumer spending has slowed from the robust rates seen late last year. A similar picture is expected to emerge from the British Retail Consortium, whose monthly survey is due Tuesday.
Andrew Atkinson, AP-Dow Jones, London
 BT/MCI merger will get EU clearance if they meet certain conditionsEuropean Union competition chief Karel Van Miert said he will likely approve BT's planned purchase of MCI Communications, if they meet proposed 'remedies to competition problems.'
''If they put into practice the changes they've suggested, I would be able to approve the merger,'' Van Miert said.
A spokesman for the competition chief confirmed the comments which were made at a conference on telecommunications law at the Catholic University in Leuven, outside Brussels.
Van Miert said that the few remaining stumbling blocks to the merger should ''soon be lifted.''
The Commission opened a detailed four-month inquiry into the merger plans earlier this year, because of fears that a BT/MCI powerhouse would hit major competitors on the U.K.-U.S. route.
The E.U. antitrust body also questioned whether the companies would be in a position to divert U.S-Continental European traffic through the U.K. 'in a way not currently open to its European competitors.'
Van Miert said that while certain aspects of the merger agreement still posed competition problems - notably in transatlantic cable traffic - the companies have 'proved willing to remedy the competition problems raised.'
The Commission has until June 19 to formally rule on the merger, although Van Miert's comments suggest it will not wait that long.
MCI and BT have long contended that their merger won't inhibit competition. They contend that the U.K. telephone market is one of the most competitive in the world. Since the market was liberalised, more than 150 companies have been licensed to offer local, long-distance and international service, the companies say.
BT executives declined to comment Monday.
The U.S. Federal Communications Commission is also probing the merger.
 Laporte more than doubles profits for 1996Laporte said its pre-tax profit more than doubled last year primarily because of a programme to streamline the company's operations and cut costs.
The UK specialty chemicals group also said it expects growth to continue though it warned that the pound's strength and competitive market conditions would make 1997 a challenging year.
Pre-tax profit after exceptional items in 1996 soared to £78.7 million ($125.9 million). Before exceptional items, profit rose 12% to £127 million, beating analysts' forecasts of between £114.3 million and £124 million.
Laporte Chairman Jim Leng said the results 'demonstrate that the vigorous plan to rationalise and refocus the group and to reduce costs. He said that Laporte would continue to benefit from the broad range of initiatives which have been launched.
Nicola Kerslake, analyst at Hoare Govett, said investors were encouraged by the headline profit figures, but noted that `the rest of the figures were pretty much as expected.
Analysts said the markets are hoping that the company will announce the sale of its U.S. adhesive business. The company sold its European adhesives operations last year.
Lapaorte said `expressions of interest have been received for the U.S. and Italian adhesives and sealants businesses and will be considered in the light of trading prospects in the respective markets served.
Looking ahead, Leng said current levels of sterling are expected to dilute the progress Laporte would ordinarily be expected to make following its restructuring and investment programmes.
Leng said the company doesn't expect general economic conditions in the coming year to show much improvement over 1996, but by the same token he added that raw material costs are expected to be stable over the next 12 months.
Leng said he expects the benefits from Laporte's cost reduction program to feed through in 1997, with profits also helped by the capital investment program of the last two years. During 1996, Laporte either closed or shed 34% of its operating units, representing 19% of annual sales.
 Formula One may float in MayFormula One, the global Grand Prix motor racing business, is considering a stock market flotation that would make its British founder, Bernie Ecclestone, a billionaire.
And financial sources confirmed the accuracy of British newspaper reports that the listing, planned for London and New York, could go ahead before the summer and raise as much as $4 billion.
But a spokesman for Salomon Brothers, the U.S. investment bank which is preparing the deal, said nothing had been finalised.
'Salomon Brothers are talking with Mr Ecclestone about a number of options for Formula One, including an initial public offering (of shares). No decision has been taken about structure, timing or valuation and it is premature to speculate on any of these aspects,' the spokesman said.
The proposed listing maintains a recent pattern of flotations by high- profile sports businesses in Britain, prompted by the huge financial impact of satellite and the nascent digital television industies.
'In terms of global popularity, brand recognition and television potential, I can't think of a more attractive sporting contract business to take to the public market,' Christian Purslow, head of Salomon's media and communications business, told the Sunday Telegraph.
It said advisers had been working on the flotation for months, trying to sort out the complex web of contacts between Ecclestone, the racing teams and the track owners.
Ecclestone, a former second-hand car dealer, has built Formula One Promotions and Administration over the past 25 years into a global business. Ecclestone, 65, still owns most of the company and the flotation would turn him overnight into one of Britain's wealthiest men, the papers said.
 EU may re-launch GAN probeThe European Commission is expected to start a new probe on Wednesday into additional French aid to help loss-making insurance group Groupe des Assurances de Paris.
In February, the French government announced a rescue package of up to 20 billion francs ($3.5 billion) after the state-controlled company accumulated 35 billion francs of losses since 1992.
And as recently as September 1996, the Commission approved a state capital injection of 2.8 billion francs as part of a plan which included the sale of GAN's majority stake in bank Credit Industriel et Commercial and the privatisation of the insurance group as of 1997.
 Airbus holds A3XX partner talksFollowing newspaper reports that Airbus is close to signing Lockheed Martin and a South Korean company as partners to develop its 550-seat A3XX jumbo, the European aircraft consortium has confirmed that it is in discussions with U.S. and Korean firms. However the firm pointed out no partner has been chosen yet.
The A3XX is a vital product for Airbus as it aims to break Boeing's monopoly of the large capacity airline market.
The Observer said Airbus hoped to close a deal with Lockheed and either Korean Air Lines or Samsung within a month for the A3XX project, estimated to cost $8 billion.
An Airbus spokesman said it was in discussions with U.S. and Korean firms but said no partner has yet been chosen.
'There is full anticipation that firms from both those countries will be involved in the A3XX programme as partners,' the spokesman said. 'I am at this stage am not able to confirm it has gone any further than discussions, ' he said. He said Lockhead and Northrop Grumman Corp had been mentioned in the press as possible U.S. partners, and Samsung was one of the South Korean firms involved in discusssions.
He said although Korean Air last week agreed to buy more Airbus passenger jets, it was unlikely to be involved with the A3XX project.
Last week Airbus predicted the world's major airlines would need to buy 13, 500 aircraft worth $1.1 trillion over the next 20 years to meet a tripling in demand for air travel and to replace older planes.
It said there would be demand for 1,440 aircraft bigger than the current 400-seat Boeing 747-400. In contrast its arch rival Boeing said the market for aircraft larger than 500 seats was only 480 aircraft over the next 20 years.
From the European Business News (EBN) Server at http://www.ebn.co.uk/
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