New military helicopters may not be ready for 5 years

Canada’s long-promised fleet of new Sikorsky naval helicopters, already four years late and $300 million over budget, likely won’t be delivered and ready for combat for up to another five years, informed industry sources tell CBC News.

Last month, Connecticut-based Sikorsky missed its latest contract deadline to finish delivering 28 sleek, state-of-the-art Cyclone maritime helicopters to replace Canada’s aged fleet of increasingly unreliable Sea Kings, now nearing 50 years old.

In fact, delivery of the new choppers hasn’t even started.

Chris Alexander, parliamentary secretary for defence, said Tuesday on CBC’s Power and Politics that the helicopters would start to arrive “soon.”

“We very much hope that it’s months. But there’s a discussion underway here with a contractor, and there are air-worthiness issues, certification issues, that will have to be gone through before the aircraft can come into service.”

But industry insiders familiar with the Sikorsky project say the Cyclone helicopters being built for Canada are a new design with a lot of sophisticated electronics and military mission systems that aren’t yet even installed, all of which will take years to integrate and become combat-ready.

Repeated calls to Sikorsky were not returned.

The Sikorsky Cyclone, full of modern systems, is considered vital to Canadian naval operations. The Sikorsky Cyclone, full of modern systems, is considered vital to Canadian naval operations. (Sikorsky/Reuters)

The helicopters, crammed with modern systems, are considered vital to naval operations, flying off the decks of Canada’s naval frigates to scan the seas for enemy threats.

The Department of National Defence says in a briefing note that critical work needs to be done before Canada will accept delivery of the first Cyclone helicopter, and officials apparently don’t think that will be anytime soon.

Two frigates the Canadian navy had retrofitted at an undisclosed expense so the Sikorskys could land on their decks are now being reconfigured right back to the way they were, to handle the old Sea Kings.

‘They haven’t given us a date’

Public Works Minister Rona Ambrose, whose department is responsible for enforcing deadlines in the contract with Sikorsky, tells CBC she wouldn’t even guess when the company might deliver the entire fleet.

“They haven’t given us a date,” Ambrose says, suggesting that even if the company did commit to a new deadline, it might not amount to much.

“As we know, their dates — the promises they have made to us — have shifted numerous times.”

The original 2004 contract with Sikorsky stipulated the company had to deliver the helicopters by 2008.

When that deadline passed with no helicopters in sight, the Harper government could have hit Sikorsky with $36 million in contract penalties.

Instead, it was Canadian taxpayers who reached into their pockets.

The government agreed to let Sikorsky extend the deadline another four years to June this year — and increase the original contract price by about $300 million.

So far, Sikorsky has paid zero in penalties.

‘We do expect that when we sign a contract with a company, that they fulfil their obligations.’—Public Works Minister Rona Ambrose

As of last month, Sikorsky had only provided a couple of prototypes that have no military mission systems, and aren’t certified to fly over water or at night.

The two helicopters apparently spend most of their time on the tarmac at Shearwater Heliport at CFB Halifax as “training aids” for ground mechanics.

The machines are so incomplete the Canadian government refuses to accept them as an official delivery of anything in the contract.

Public Works Minister Ambrose says Sikorsky missing the latest deadline officially puts the company on the hook for $94 million in contract penalties.

But she sounds anything but certain Canadian taxpayers will see much compensation.

“We do expect that when we sign a contract with a company, that they fulfill their obligations. And so we are in discussions with them right now; we’ve had ongoing, high-level discussions with them for the last number of months.

“They do have some challenges, and we understand that.”

None of which is likely to surprise anyone familiar with the naval helicopter saga, surely one of the longest-running gong shows in Canadian procurement history.

Decades-long procurement process

Thirty-five years ago, the Trudeau government first set out to buy replacements for the 1960s-era Sea Kings, even then considered close to their best-before dates.

A Canadian Forces Sea King helicopter with Prince William on board takes part in a rescue demonstration in P.E.I. last year.A Canadian Forces Sea King helicopter with Prince William on board takes part in a rescue demonstration in P.E.I. last year. (Patrick Morrell)

In 1992, Brian Mulroney’s government ordered 50 Cormorant helicopters for both naval surveillance and maritime search-and-rescue, at a total cost of $4.8 billion.

The following year, Jean Chretien fulfilled an election promise to kill the deal to buy Cormorants he called unnecessary “Cadillacs,” a move that cost taxpayers $478 million in cancellation penalties.

Five years later, after a long and carefully controlled bidding process for 15 new search-and-rescue helicopters, an embarrassed Chretien government (and an enraged prime minister) wound up having to buy the same Cormorants.

In 2004, Paul Martin’s government chose Sikorsky to supply the remaining 28 naval helicopters after the Cormorant was mysteriously disqualified from the bidding.

Twenty years after Chretien pulled the plug on the original $4.8 billion Cormorant purchase, supposedly to save public money, the auditor general has estimated taxpayers will now pay about $6.2 billion for roughly half as many Sikorskys.

Tornadoes touch down in Saskatchewan

Three twisters touched down in Saskatchewan and some farmers were hammered by hail in another day of wild weather on the Prairies.

One of the tornadoes left a trail of damage at a local farm near Davidson, located about 100 kilometres southeast of Saskatoon.

Lawrence Beckie said he was relieved when the 30 minutes of rain, wind and hail had finally stopped.

Inside a tornado
Understanding updrafts, vortexes and funnel clouds

When it finally passed, Beckie went out to evaluate the damage — 50-year-old trees were snapped in half, a grain bin worth $15,000 was turned on its side and windows were shattered.

The farm was also hit hard during last week’s storms, said his wife Marg Beckie.

“We just finished cleaning up from last week,” she said. “My husband actually finished this morning. And we were without power for a couple of days. But it’s part of Saskatchewan.”

The tornado has left them without power again, and there is no word on when it will be back on.

The Beckies have called on family members to help clean up the recent mess and said they remain optimistic, despite the damage.

The Storm Chaser

Environment Canada also confirmed two other tornadoes touched down southwest of Wynyard and southwest of Watrous. No one was hurt and there was no serious damage.

Intense thunderstorm activity was also reported about 25 kilometres south of Outlook, Sask., on Tuesday afternoon.

The storm was moving quickly in a northeasterly direction at a speed of about 80 km/h.

The storms had the potential to produce a tornado, along with hail, damaging winds and torrential rain.

Greg Johnston is a storm chaser who said he saw a couple of tornadoes near Lake Diefenbaker at about 4:45 p.m.

“We caught on video two tornadoes that touched down,” said Johnston.

“As well as a few different funnels. We were at real close range. Probably about a hundred yards away when the tornado actually touched down. So, it was a little bit of a tense situation.”

Several towns around the province were reporting hail, including Bienfait, Rosthern, Kelvington and Perigord.

[View the story “More twisters on Tuesday” on Storify]

‘God particle’ likely discovered

Scientists working at the world’s biggest atom smasher in Switzerland say they have discovered what could be the long-sought Higgs boson, a subatomic particle dubbed the “God particle” because it is believed to have originated during the Big Bang and helped shape the subatomic particles that make up all matter in the universe.

Rolf Heuer, director of the European Centre for Nuclear Research (CERN) in Meyrin, Switzerland, near the border with France, made the announcement early Wednesday, saying that researchers “have now found the missing cornerstone of particle physics.”

He described the discovery as a boson, a wider class of subatomic particle, but stopped short of confirming that it’s a Higgs boson — an extremely fine distinction.

“As a layman, I think we did it,” he said. “We have observed a new particle that is consistent with a Higgs boson.”

The Higgs boson has been labelled the “God particle” in the mainstream media because of the fundamental questions it could answer about matter and the creation of the universe, and although most physicists avoid using the term, they do agree that the Higgs boson plays a key role in what is known as the Standard Model of physics, which describes the particles from which everything in the universe is made and how they interact.

Theory 1st proposed in 1960s

The Standard Model includes common subatomic particles like electrons and protons along with less familiar ones like muons.

The Higgs boson is the only one that remains undetected in experiments because it lives for only a fraction of a second before decaying into other subatomic particles, such as photons, muons or leptons. The only way to measure it, the CERN scientists said, is to measure the products of its decay.

The reason physicists have been so determined to find the Higgs boson is because it is believed to impart mass to all the other particles.

A graphic showing the decay of a possible Higgs boson into four muons in a 2012 particle collision conducted inside the Large Hadron Collider by the ATLAS team of CERN scientists.A graphic showing the decay of a possible Higgs boson into four muons in a 2012 particle collision conducted inside the Large Hadron Collider by the ATLAS team of CERN scientists. (ATLAS/CERN)

The existence of a Higgs boson was first proposed by British physicist Peter Higgs and his colleagues at Edinburgh University in 1964 as a way of explaining how particles gained mass, a property that at first did not seem to fit into the Standard Model of how electrons and protons interact.

Higgs proposed that particles gain mass by interacting with a medium that exists everywhere in space and is made up of unseen particles called bosons.

Higgs’s theory does not assign a specific mass to the boson itself but gives a range of values for the potential masses it could have. Based on these values, physicists can determine the amounts of secondary particles that the boson decays into that they should expect to find when observing high-speed particle collisions.

This is the “footprint” of the Higgs boson that scientists said they found when analysing trillions of high-speed proton-proton collisions within CERN’s Large Hadron Collider.

The CERN physicists conducted two separate but parallel experiments over 2011 and 2012 using two particle-collision detectors, called ATLAS and CMS, respectively, that are part of the collider.

The scientists said data from both detectors gave “strong indications for the presence of a new particle, which could be the Higgs boson, in the mass region around 126 gigaelectronvolts.”

TRIUMF physicists involved in hunt

Wednesday’s announcement follows decades of work and billions of dollars spent on a project that has involved scientists in dozens of countries.

To mark the occasion in Canada, a few dozen physicists and other experts at TRIUMF, a particle physics lab in Vancouver that has been involved with the hunt for the Higgs boson, gathered overnight to celebrate.

“It’s a big day for CERN, a big day for international science, and a big day for science in Canada,” said Oliver Stelzer-Chilton, a physicist at the TRIUMF lab.

“But now, we have to come to the bottom of it,” he said. “What is nature telling us that this new particle is?”

“At this point, we can say it’s consistent with the properties that we expect from a Higgs boson, but we basically have to measure those properties to be sure.”

Hints of Higgs seen previously

Physicists working at the Large Hadron Collider had already found what they believe were hints pointing to the existence of the Higgs boson, but until now, it has remained a theoretical particle.

The ATLAS and CMS teams were tasked with running separate experiments that would each aim to spot traces of the boson independently.

British physicist Peter Higgs, left, for whom the boson is named, talks to Fabiola Gianotti, head of one of two teams that have been hunting for the elusive subatomic particle. Rolf Heuer, director of the European Centre for Nuclear Research, is seen in the background. British physicist Peter Higgs, left, for whom the boson is named, talks to Fabiola Gianotti, head of one of two teams that have been hunting for the elusive subatomic particle. Rolf Heuer, director of the European Centre for Nuclear Research, is seen in the background. (Denis Balibouse/Reuters)

The ATLAS collaboration includes researchers from around the world, including Canada, who have been working to analyze the vast amounts of collision data generated at CERN.

One-tenth of the data generated by the ATLAS experiment is sent to the TRIUMF supercomputer in Vancouver, where it is then analyzed by experts at a few Canadian universities.

On Wednesday, the leaders of the two CERN teams — Joe Incandela, head of CMS, with 2,100 scientists, and Fabiola Gianotti, head of ATLAS, with 3,000 scientists — each presented what was essentially extremely strong evidence of a new particle.

The announcement was timed to coincide with the first day of the International Conference on High Energy Physics in Melbourne.

The researchers stressed that the results are preliminary and that a full analysis of the data they gathered over 2011 and 2012 won’t be published until the end of July.

“Positive identification of the new particle’s characteristics will take considerable time and data,” the CERN statement said. “But whatever form the Higgs particle takes, our knowledge of the fundamental structure of matter is about to take a major step forward.”

CERN described the particle as a possible “bridge to understanding the 96 per cent of our universe that remains obscure,” a reference to the fact that the matter that we can see represents only about four per cent of all matter in the universe.

With files from Associated Press

Elliot Lake mall victim remembered as ‘neighbourhood mom’

More than a hundred people attended today’s funeral for one of the two women who died in the collapse of a mall roof in Elliot Lake, Ont.

Doloris Perizzolo, a 74-year-old widow, was to be buried at Woodlands Cemetery, not far from the lake that gives the town its name.

Hours after the service ended, the Ontario Provincial Police, who announced the evening before that they are conducting a criminal investigation into the June 23 disaster, pledged to “pour in as much resources as we need” to determine exactly what happened and why.

Perizzolo’s casket was brought into Our Lady of Fatima church with her family walking behind. During the service, mourners heard that she was known as a “neighbourhood mom” in the northern Ontario community.

Attendees included friends, family and residents of the town who didn’t know her, but said they came to pay their respects. Gary Gendron, the fiancé of Lucie Aylwin, the other woman who died in the disaster, was also there. He hugged Perizzolo’s family as he went in.

Doloris Perizzolo, 74, died after a section of the roof of the Elliot Lake Algo Centre Mall caved in. Doloris Perizzolo, 74, died after a section of the roof of the Elliot Lake Algo Centre Mall caved in. (Elliot Lake Funeral Chapel)

Perizzolo is survived by three daughters and two grandsons. One of her daughters lives in Elliot Lake, while the other two are from Guelph, Ont., and Hamilton.

She was buying a lottery ticket from Aylwin, 37, at a kiosk in the Algo Centre Mall on June 23, when the building’s roof caved in and fell two storeys.

Perizzolo went to the mall weekly to buy a ticket, and was well-known in Elliot Lake, population 11,000, as the “lottery-ticket lady.”

There will be a celebration of Aylwin’s life on Monday.

Both victims were honoured in a moment of silence Tuesday night at an Elliot Lake town council meeting.

Criminal investigation

Ontario Provincial Police announced Tuesday they are now conducting a criminal investigation into the collapse. Spokesperson Sgt. Pierre Chamberland told reporters a couple hours after Perizzolo’s funeral that information came to light while officers were assisting the Office of the Chief Coroner for Ontario in its probe of the roof collapse, and that “our investigators assessed the information that was available and decided it was prudent to conduct a criminal investigation.”

He wouldn’t give details of what exactly those officers learned.

The criminal probe is taking priority over the investigations by the coroner’s office and Ontario’s Labour Ministry, Chamberland said.

“We’ll be looking at the state of the building, it’s current state. We’ll be looking at reports and information that we get from the public in regards to any potential previous state. We’ll be looking at anything that’s been filed and investigations or any inquiries or any reports that have been completed in regards to that particular building,” he said.

“We’ll be looking at all aspects – we’re not going to exclude anything.”

Chamberland said the provincial force would “pour in as much resources as we need… in order to get to the bottom of what happened.” Multiple people could face a range of charges, he said.

The mall had a history of roof problems dating back years, largely due to leaks. In 2007, a segment of drain pipe fell from part of the roof and struck a mall employee, causing a concussion. As recently as eight months before the cave-in, a plumber working on the roof said he noted obvious signs of water damage. But an engineering study done just over a month ago turned up no major issues.

Police will be looking into that study and various other structural assessments to make sure no one cut corners or was criminally negligent, CBC’s Natalie Kalata reported from Elliot Lake on Wednesday.

Premier Dalton McGuinty announced on Friday that a public inquiry will be held and the provincial Labour Ministry is conducting its own investigation.

The mall remains closed, and business owners and workers have been told that due to safety reasons they won’t be allowed back into the building to retrieve personal items.

With files from The Canadian Press

Diamond could leave with pay-off of £30m

He will give his side of the story today when he is cross-examined by MPs on the Treasury Select Committee over how much he knew about moves to manipulate lending rates.

Mr Diamond was followed rapidly out of the door yesterday by Jerry del Missier, who quit as the bank’s chief operating officer. The growing storm has now claimed three scalps at Barclays, with Marcus Agius announcing his resignation as chairman on Monday. He will now remain with the bank to lead the search for a new chief executive before stepping down.

The prospect of Mr Diamond walking away with a massive “golden goodbye” will intensify the storm raging over Barclays. The bank refused to be drawn on its size, but Lord Myners, the former City minister, suggested it could be as much as £30m.

He said: “Defining the pay-off is complex because senior executives get paid in multiple ways. But I think the amount of money, if you include his share options, restricted share rights, matching share options, retained bonus, pension, life and medical cover, is probably in the order of £20m to £30m.”

It emerged yesterday that Mr Diamond could be urged to return nearly £20m in unvested – or provisional – shares awarded to him in recent years. It is understood that Alison Carnwarth, chairman of the bank’s remuneration committee, is to ask him to return the bonus.

Mr Agius said the search for a new chief executive would take “as long as it needs” and that “we will not compromise on quality”.

Asked about Mr Diamond’s severance package, he said Barclays’ board had not yet had time to address the issue, although he denied the former chief executive could be due some £20m in long-term incentive schemes. “That figure certainly didn’t come from me,” he said.

But shareholders, who have seen billions of pounds wiped from the value of their investments, are sure to demand that at least part of the bonuses he is owed are clawed back from Mr Diamond. A large minority voted against Barclays’ 2011 remuneration report at this year’s AGM, a situation Barclays is desperate to avoid in future. The National Association of Pension Funds, which represents a number of Barclays’ biggest shareholders, last night demanded any pay-offs be kept to a minimum.

Its chief executive, Joanne Segars, said: “Shareholders want any severance payments to be kept to a contractual minimum and clawback mechanisms for past pay and bonuses to be fully explored. There must be no reward for failure.” She said this was because shareholders had lost significant sums of cash as a result of the scandal.

George Osborne, the Chancellor, who learnt of the planned resignation on Monday night, said Mr Diamond made the right decision for the bank and for the country.

In private, ministers expressed the hope for a wider clear-out at Barclays and that he would not be replaced by one of his allies. “The problem was not just Diamond but his cronies as well,” one minister said. “They [Barclays] need to get rid of the gamblers. They need to have some stability and a safe pair of hands.”

Among Mr Diamond’s high-profile close associates still at the bank is Rich Ricci, chief executive of corporate and investment banking. In 2008 he led the bank’s acquisition and integration of Lehman Brothers.

Mr Diamond, who received nearly £18m last year, remained defiant in his resignation statement. “The impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth,” he said.

Diamond: ‘Unacceptable face of banking’ who showed no remorse

Diamond, 60, only became chief executive of Barclays at the beginning of 2011. But there was never any doubt that he was the only man to take over from John Varley, who was related by marriage to one of the Quaker families which founded the bank more than three centuries ago.

Diamond joined Barclays in 1996 at a time when some executives were questioning whether it had made the right move creating a huge investment bank following the Big Bang deregulation which happened a decade earlier.

A staunch Republican, he not only convinced them it was right but that it should be pursued even more aggressively. By 2004 he was the head of Barclays Capital – a name which the bank is now desperately trying to shed under its “One Barclays” campaign.

BarCap surged under the leadership of Diamond and his two lieutenants Jerry del Missier and Rich Ricci. In the best years it accounted for two-thirds of Barclays’ entire profits.

Diamond also almost single-handedly struck the deal to buy the New York arm of Lehmans, after it went bust in September 2008, for a knock-down price of £1.1bn. He was only thwarted from buying the UK operations by the then Chancellor Alistair Darling.

At that time, one senior insider said, the upper floors of Barclays Canary Wharf headquarters was split between: “‘Bob’s people’ and ‘John’s people’ – you couldn’t be both. I think John was a little scared of Bob and I suspect Marcus Agius [who resigned as chairman on Sunday] is too.”

Diamond was also a key figure in negotiating the injection of fresh capital into Barclays by Middle-East sovereign wealth funds during the global financial crisis rather than looking to the UK taxpayer for a bailout.

But his massive pay packages – £17.7m last year – and tax arrangements have always drawn the ire of politicians. His personal wealth is reckoned to be north of £100m. Lord Mandelson branded him as the “unacceptable face of banking” when it was claimed he picked up £63m in a single year when Barclays sold its fund management arm in which he held shares.

Robert Edward Diamond Jr, a father of three, was brought up in Massachusetts as the eldest of nine children, and spent the first year of his working life as a lecturer teaching a business course to students at the University of Connecticut. But he soon switched from teaching to banking and spent 15 years at Wall Street’s Morgan Stanley before switching to Credit Suisse ahead of joining Barclays.

He and his wife Jennifer live in Kensington but also have US homes in Manhattan, overlooking Central Park, and on the island of Nantucket in New England.

He is an avid fan of Chelsea Football Club and the Boston Red Sox baseball team. A season ticket holder at Stamford Bridge, he also presented the Barclays-sponsored Premier League trophy to club captain John Terry three times over the last seven years.

Diamond enjoys a good lifestyle but eschews the “Porsche and Petrus” ostentation of more junior investment bankers. He even claims to be a fan of the soap EastEnders.

He is a philanthropist who has a picture of himself shaking hands with the Pope. He is a trustee and generous backer of the Mayor’s Fund for London. Boris Johnson once said: “Bob Diamond is the Mayor’s best friend.” That certainly was helped with the bank’s sponsorship of London’s Boris Bikes hire scheme.

It is just over a year ago that Diamond told MPs at the Treasury Select Committee: “There was a period of remorse and apology for banks. I think that period is over.”

Today, when he appears again that same committee is unlikely to hear another apology from him.

Services sector suffers worst performance in eight months

The Markit/CIPS survey for overall services activity, in which a reading above 50 represents growth, came in at 51.3, down from 53.3 in May and its lowest reading since October.

Chris Williamson, chief economist at Markit, said it was one of the worst performances since the recovery began three years ago and showed signs that the sector’s 18-month run of growth was in danger of stalling.

The Queen’s diamond jubilee disrupted trade while new business slowed as the eurozone debt crisis sent confidence to a six month low and traders feared a post-Olympics lull.

With data earlier this week showing the manufacturing and construction data were both in decline in June, James Knightley, an economist at ING Bank, said the data suggested the UK’s double-dip recession continued in the second quarter of 2012.

Mr Knightley thinks GDP for the second quarter of 2012 will be flat to modestly lower.

The Bank of England is now widely expected to order a further £50 billion to be pumped into the economy through its quantitative easing scheme tomorrow on top of the £325 billion already sanctioned.

Mr Williamson added: “A steep drop in service providers’ expectations about the year ahead also casts a gloomy shadow on prospects for the sector in the short term.

“The services PMI probably cements the case for further stimulus from the Bank of England, with the three surveys now collectively down firmly into territory that has triggered action from the Monetary Policy
Committee in the past.”

Employment levels in the sector rose for the seventh month in a row, but the expansion was only modest.

The prices charged by services companies fell amid discounting and a lack of demand.

This put profit margins under pressure, with operating costs driven up as rising energy, labour and travel prices more than offset lower fuel costs.

Howard Archer, chief economist at IHS Global Insight, predicts a 0.1% fall in GDP in the second quarter of 2012, following declines in the two previous quarters.

He said: “Even allowing for the fact that services activity was likely held back significantly in June by the two-day public holiday at the start of the month, this looks to be a fundamentally soft survey.”


Mortgage debt down by £8.8bn

The figures indicate that households are putting more money into the housing market, through deposits or mortgage repayments for example,
than they are taking out, with a cumulative £122 billion injected since
the summer of 2008.

However, the Bank said there was “little sign” that households are trying to pay down debt more quickly than in the past, and a lack of
activity in the housing market and a reduction in re-mortgaging are underlying the figures.

Several surveys have forecast house sales to remain sluggish this
year, with continued uncertainty over the economy and the eurozone and lenders predicted to tighten their borrowing criteria further and raise their rates.

There has been a general trend towards injections of housing equity since the start of the financial crisis, with a reduction of nearly £8.6 billion in mortgage debt in the final quarter of last year.

The latest figure shows that households spent the equivalent of 3.3% of their post-tax income on reducing their mortgages.

However, the figure remains below a record net injection of £10.1 billion seen during the spring last year.

The weak and patchy housing market has left many people with insufficient equity in their homes to withdraw money, while home owners could also find it harder to increase the size of their mortgage due to the tighter criteria being applied by lenders.

Analysts said the trend towards an injection of cash rather than a
withdrawal seen for 16 quarters in a row could have a restricting effect on consumer spending, affecting the wider economy.

Howard Archer, chief UK and European economist at IHS Global Insight said that despite the Bank playing down people’s desire to pay down their debt more quickly as a factor, poor returns on savings have “undeniably” made it more attractive for people to use any spare funds to reduce their mortgages.

He said: “House prices currently remain soft, which could well further encourage a net injection of housing equity in the near-term at least along with the very worrying economic outlook and deteriorating labour market.”

Vicky Redwood, chief UK economist at Capital Economics, said: “The low level of transactions has also reduced the opportunity for households actively to withdraw equity when they buy a house or remortgage.

“And for many households, this will therefore have reduced the funds they have available to spend.

“The need to keep loan-to-value ratios low in order to get the best mortgage deals may also have discouraged some people from withdrawing equity.”

She added: “Looking ahead, the combination of tight credit constraints, falling house prices and weak consumer confidence is likely
to keep equity withdrawal falling for some time yet.”


Bank of England may give another £50bn boost

The Bank of England’s Monetary Policy Committee (MPC) is widely predicted to boost its Quantitative Easing (QE) programme by another £50
billion to £375 billion when it announces the outcome of its latest monthly meeting.

Figures released this week showed the economy
worsened in June, after the construction and manufacturing sectors contracted and the powerhouse services sector suffered its worst performance in eight months.

Economists said the figures suggested the economy continued to shrink or at best was flat in the second quarter of 2012, making it more likely the Bank would swing into action.

Nida Ali, economic advisor to the Ernst Young ITEM Club, said the surveys released this week “have disappointed and strongly suggest that the Bank of England will authorise additional QE at tomorrow’s meeting, probably to the tune of £50 billion”.

And Chris Williamson, chief economist at Markit, which helped devise the surveys, said the results were “firmly in the territory that has triggered action from the MPC in the past”.

The Bank and Treasury have recently made major moves to try to kick-start lending and rescue the country from a double-dip recession.

On Friday, the Bank said rules should be relaxed to free up billions of pounds of cash held on their balance sheets as a so-called liquidity buffer.

This followed the announcement earlier this month of a £100 billion-plus scheme to boost bank lending.

The Bank is working on a new “funding for lending” scheme, while last week it held its first £5 billion monthly auction under a six-month
loan facility programme.

Bank Governor Sir Mervyn King said last week he was shocked at the pace at which economic conditions had worsened as he unveiled the biannual Financial Stability report.

Official figures also showed the double-dip recession was deeper than originally feared as revised figures revealed a sharper decline in the economy in the final quarter of last year, when gross domestic product (GDP) shrank by 0.4% between October and December, compared with a previous estimate of 0.3%.

In addition, inflation has fallen by more than expected in recent
months, with CPI inflation coming down to 2.8% in May – the lowest level since November 2009 – which will give the Bank more leeway to restart its money printing programme.

The MPC has already come close to pushing the button on more QE, when minutes of the June rates meeting showed four of the nine-strong committee – including Sir Mervyn – were narrowly out-voted on more QE.

Against this backdrop, economists believe this month’s will see the Committee agree on extending QE.

Howard Archer, chief economist at IHS Global Insight, is pencilling in a £50 billion increase, although he thinks £75 billion is also a possibility.

He said: “The MPC was on the brink of approving more QE at their June meeting and with latest economic data and surveys largely grim and the outlook uncertain and troubling, we believe that a majority of MPC members will decide that more QE is now warranted and justifiable.

“Meanwhile, the eurozone situation is still troubling, despite some recent positive developments.”

However, the Bank is not expected to cut interest rates below their current historic low of 0.5%, despite a predicted rate cut by the European Central Bank on the same day.

Mr King and his MPC colleagues told MPs in a recent hearing on the Bank’s last inflation report that while they stood ready to cut rates if needed, they saw little use of doing so.

They believe a rate cut could do more harm than good, by further reducing interest margins for small building societies, which could threaten their future and limit competition in the industry.

The Bank is expected to prefer to use other monetary tools to kickstart lending in the UK.

But there have been concerns that its actions will not encourage lenders to offer more cash, or indeed see recession-hit businesses borrow more.


Oman expects to erase $3.1bn budget deficit

Oman expects to erase its OR1.2bn ($3.1bn) budget deficit projected for 2012 as oil prices have been higher than forecast, a finance ministry official said on Wednesday.

“Up to May, we have sold our oil 50 percent above the price we estimated for the 2012 budget, and that has pushed up revenues beyond our expectations,” a finance ministry official in the budgeting department told Reuters.

“At this rate, we are comfortably going to wipe out the deficit,” said the official, who did not want to be identified under briefing rules.

Oman sold its oil at an average price of $115 per barrel in the first five months of 2012 and the sultanate’s revenue reached “a little over OR5bn” in that period, he said.

The non-OPEC oil exporter posted a budget surplus of OR1.5bn in January-April, data showed last month, which is equivalent to about 5.3 percent of its 2011 nominal gross domestic product, according to a Reuters calculation.

Analysts polled by Reuters in March expected Oman to post a fiscal surplus of 5.0 percent of GDP in 2012, up from 3.5 percent last year.

The price of Brent crude plunged $40 to as low as $88 per barrel between March and June but has since recovered to around $100. Oil accounts for around three-quarters of Oman’s budget income.

Its 2012 budget plan is based on an oil price of $75 per barrel, with expenditure projected at OR10bn and revenue at OR8.8bn.

The International Monetary Fund forecast in December that Oman’s budget break-even oil price would be $81 per barrel this year. But that level is expected to rise to $105 by 2016.

The Gulf Arab country, which faces a pressing challenge to create tens of thousands of jobs every year for its fast-growing population, boosted spending last year following public protests demanding more jobs and an end to corruption.