The UK said it believes in a "prudent
interpretation" of the pact and insists that public investment is
Such an interpretation should "take into
account the economic cycle [and] the long-term sustainability of
public finances," a government statement said.
Under the UK's own fiscal rules, the budget must
balance, but only over the whole economic cycle, and public investment
is excluded from the calculation.
As the UK is not in the eurozone, it cannot be
fined by Brussels.
But the European Commission is to launch an
"excessive deficit procedure", which will be a slap on the
wrist for Chancellor Gordon Brown, current president of the EU's
Council of Finance Ministers.
Other nations that have breached the pact in recent
years include Germany, France, and Italy.
The trio have ignored calls from the European
Commission to rein in spending and rejected complaints from smaller
euro nations, while continuing to run budget deficits in excess of 3%
There have been complaints that the limit is too
inflexible, and that to fine offenders merely makes their economic
A report from the Commission says analysis suggests
the UK has not been successful in meeting the "deficit
IMF CUTS GLOBAL GROWTH FORECASTS
The International Monetary Fund has cut its global
growth estimates blaming the effect of record oil prices and warning
that there may be a further slowdown.
World growth is expected at 4.3% this year, down
from an earlier estimate of 4.4% and 5.1% in 2004, the IMF said.
US forecasts have been trimmed after Hurricane
Katrina and in the UK the IMF sees growth below government targets.
Any dip should be short-lived, however, and there
are bright spots with China and India tipped to power ahead.
"The world economy has proved tremendously
resilient over the last few years," the IMF's chief economist
Raghuram Rajan said.
"Disease, natural disasters and soaring oil
prices have only caused minor blips in an overall picture of healthy
growth," he added.
But "higher oil prices are a clear and present
danger," Mr Rajan told reporters.
The biggest concern for the IMF is that record oil
and petrol prices deter consumers from spending.
Should that happen then the slowdown in the world
growth may be more pronounced.
The IMF said its forecasts were based on an average
oil price of $54.23 a barrel in 2005 but "persistently high oil
prices will adversely affect activity".
On Wednesday, oil prices rebounded to close to $67
as Hurricane Rita threatened to disrupt US supplies.
"The expansion remains broadly on track,"
the IMF said in its twice yearly World Economic Outlook report.
"Although the risks are still slanted to the downside."
BANKERS 'TO SEE JUMP IN BONUSES'
Investment bankers in the City of London are set to
enjoy their biggest annual bonuses in four years, a study by a
recruitment consultancy has found.
With the FTSE 100 reaching a four-year high this
week, and an upsurge in takeovers and mergers, one in four bankers
expect their bonuses to double.
Almost three-quarters expect their bonus will at
least be higher than last year, Morgan McKinley found.
A separate Reuters poll also predicts that City
bonuses are to rise strongly.
Most City bonus packages are awarded for the
financial year starting on 1 April.
Bonuses for bankers working in the heart of the
UK's financial district for the current 2005/06 year will typically be
paid between January and April next year.
EU AND US TRY TO SPUR TRADE TALKS
EU and US officials have made new efforts to
resolve their differences and break the deadlock that is delaying a
worldwide free trade agreement.
EU Trade Commissioner Peter Mandelson and US Trade
Representative Rob Portman met in Paris on Thursday to discuss their
subsidies to farmers.
But in the run-up to the three days of talks, both
men said they would make no concessions until others do the same.
The stalemate on agriculture may wreck World Trade
Organization (WTO) plans.
The WTO's Doha round of talks resumes in Hong Kong
in December with the aim of delivering an agreement on free trade by
SAUDI STOCKS HIT NEW HIGH
Saudi stocks closed the trading week on Thursday
last at a lifetime high in heavy trade fuelled by hopes of strong
third quarter results and the rise in crude oil prices, traders said.
The all-share index closed at 15,050 points, 0.6
per cent above the previous week. It has gained 83 per cent since the
start of the year and more than 465 per cent over the past three
Fouzan al-Misfer, team leader at Samba Financial
Group's brokerage unit, said the gains this week were due to abundant
liquidity, high demand and prospects of higher dividends, mainly for
banking and petrochemicals stocks.
This trend should continue in the coming few weeks,
he said. The value of shares traded was almost unchanged from last
week at 112 billion riyals ($30 billion).
EU DROPS HARDLINE STANCE ON IRAN
The EU's "big three" are said to have
backed down from a demand that the UN nuclear watchdog should
immediately report Iran to the Security Council.
Diplomats from France, the UK and Germany said the
shift came amid opposition from Russia and China.
They are now reportedly proposing that the
International Atomic Energy Agency (IAEA) in Vienna should only
implicitly threaten Tehran with such action. Iran is accused of
developing atomic weapons, an allegation it denies.
OIL FIRMS BRACED FOR RITA'S RAGE
More US oil refineries in the path of Hurricane
Rita have closed, but crude prices have eased on hopes that much oil
production may be spared the worst.
US light crude fell 34 cents to $66.16 a barrel in
Asian trading, while London Brent crude slipped 59 cents to $64.01.
Rita is due to hit Texas on Saturday and oil firms
are taking precautions.
The shutdowns in the state, which processes a
quarter of US oil, come as the industry is struggling to recover from
Hurricane Katrina's devastation.
At least 16 of the state's 26 refineries are
potentially in the hurricane's path, stretching along the Gulf of
WORLD BANK HOPES ON DEBT RELIEF
World Bank President Paul Wolfowitz has said he is
hopeful that "real progress" can be made to implement a debt
relief deal for the world's poorest countries.
But he warned winning endorsement for a deal struck
by leading rich nations earlier this year remained challenging.
The deal aims to cancel $40bn (£22bn) in debt owed
to international lenders by poorer nations, mostly in Africa.
Mr Wolfowitz was speaking ahead of the World Bank
and International Monetary Fund's annual meeting this weekend.
Campaigners and aid agencies are pressing for
ministers and officials representing the 184 member states of the
World Bank and IMF to back the debt relief deal at the gathering in
DELTA TO SHED UP TO 9,000 WORKERS
Troubled US carrier Delta Air Lines has announced
plans to cut up to 9,000 jobs and reduce the pay of those still left.
The move, aimed at saving $3bn (£1.7bn) by the end
of 2007, comes just over a week after the airline filed for Chapter 11
Delta, the third-largest airline in the US, has
lost $10bn since 2001 and is saddled with $14bn in debt.
ITALY ECONOMY MINISTER RESIGNS
Italy's Economy Minister Domenico Siniscalco has
resigned in protest at the handling of a banking scandal.
He was an outspoken critic of central bank governor
Antonio Fazio whose resignation he had sought.
Mr Fazio was at the centre of controversy over his
role in blocking the takeover of Banca Antonveneta by rival Dutch bank
SONY-BMG MERGER IN EU CHALLENGE
A European Commission decision to allow the merger
of record giants Sony and Bertelsmann (BMG) is being challenged by
independent music companies.
The case, before a one-day hearing at the European
Court of First Instance, contests the merger of two of the world's
five biggest record companies.
The commission made legal errors by allowing the
move, says the Independent Music Companies Association (Impala). But
the EU reportedly backed the merger as there was no case against it.
OTTAKAR'S SUFFERS NEW SALES SLUMP
Bookstore chain Ottakar's, which backed a takeover
bid from HMV last week, says trading conditions have deteriorated in
Like-for-like sales fell 3.8% in the first seven
weeks of the second half of its financial year, after a 0.2% increase
in the six months to 30 June.
Ottakar's reported a pre-tax loss of £4.7m, after
a £2.9m deficit last year.
HMV is offering 440p-per-share for Ottakar's
bookstores, valuing the firm at £96.4m ($177m).
MAJOR UK MOBILE TV TRIAL STARTS
A full-scale UK trial of the technology that will
let people watch TV directly on their mobiles has been launched.
The Arqiva and O2 trial with 400 people in Oxford
will test the technology that lets mobiles receive direct TV signals,
and people's desire to watch mobile TV.
Sixteen channels will be available to the
triallists, including BBC One and Two, ITV 1 and 2, and Channel 4.
TV is touted as the next phase of mobile
entertainment. Orange already offers some shows on its 3G network.
UK FACTORY ORDERS 'REMAIN WEAK'
Manufacturing orders improved slightly in
September, but remain near two-year lows, business group the CBI has
Its latest monthly industrial trends survey showed
that 39% of firms said order books were below normal, while only 12%
said they were above.
This created a balance figure of minus 27% for
September, a slight improvement on August's minus 29% showing.
The survey also indicated a marked drop in exports,
with the export balance at its lowest point since January.
September's exports figure was minus 25 compared to
August's minus 17.
"A combination of weak consumer spending and
challenging world markets is weighing on UK manufacturing," CBI
chief economic adviser Ian McCafferty said.
This report offers further evidence that the
manufacturing sector's performance remains very disappointing and will
no doubt lead to further calls for [interest] rate cuts
BANK UNANIMOUS IN HOLDING RATES
The Bank of England's decision to keep interest
rates on hold this month was unanimous, minutes of its September
All nine members of the Monetary Policy Committee (MPC)
voted to keep rates at 4.5% during the two-day meeting.
Analysts had expected a unanimous decision, and now
predict rates will remain unchanged for the rest of 2005.
FED LIFTS INTEREST RATE TO 3.75%
The US Federal Reserve has raised interest rates
for an 11th consecutive month, despite concerns the economy will slow
after Hurricane Katrina.
Borrowing costs rose a quarter of a percentage
point to 3.75% from 3.5%.
Even though there are fears Katrina will hit
consumer spending, the biggest driver of the economy, analysts see
rates rising to between 4% and 4.5%.
OPEC TO INCREASE OIL PRODUCTION
Oil cartel Opec will release an extra two million
barrels a day, some of the last spare oil production it has, in an
effort to ease crude price pressures.
The extra supplies will be available for three
months from 1 October and follow calls for Opec, which represents 11
producer nations, to lift output.
Oil prices hit record levels in the wake of
Hurricane Katrina and there are worries it may slow the global
INDIAN STOCK MARKET AT NEW PEAK
India's benchmark Bombay Stock Exchange (BSE) index
has breached the 8,500 point level to reach another new high.
The BSE sensitive index (Sensex) closed up 55.44
points at 8,500.28.
The Sensex has gained more than 25% this year,
spurred on by foreign investors who are pumping money into Mumbai's
Banks were the biggest winners, with the
government-owned State Bank of India and private sector ICICI Bank
both rising strongly.
India's economy, one of the fastest-growing in the
world, is forecast to grow by 7% this year, despite concern over
rising oil prices.