UK Treasury makes new cuts despite weak economy

Wednesday, June 26th, 2013 | Finance News

LONDON (AP) — Britain's Treasury chief announced 11.5 billion pounds ($17.7 billion) in spending cuts Wednesday, including benefit cuts for some retirees and more job losses for state workers, in an attempt to make ends meet.

George Osborne outlined a bleak program for national spending, with cuts in many departments, though defense was spared the axe.

"Britain is moving out from intensive care and from rescue to recovery," Osborne declared.

He cited challenges "from abroad" such as the financial crisis in the 17-country eurozone and higher oil prices as part of the reason "this country has to continue to make savings."

Osborne had hoped that Britain could move past austerity programs by the time he released the national spending review, which sets out state spending limits for 2015-2016. In his last review, in 2010, he laid out plans to eliminate the deficit by 2015 — in time for the next election.

But the deficit has remained stubbornly high, in part because economic growth is anemic. The budget deficit was 6.3 percent of annual GDP in 2012, according to figures from the Eurostat statistics agency. That was an improvement from 2011's 7.8 percent but is still more than twice the EU limit of 3 percent and at the same level as that of Cyprus, which needed a financial rescue.

Opposition leaders immediately attacked the government's plan, arguing that Britain would not be able to revive its moribund economy with more spending cuts.

The Labour Party spokesman on economic issues, Ed Balls, noted that Moody's Investors Service this year stripped the country of its top AAA credit rating because of the government's financial troubles.

Adding a personal dig, Balls reminded Osborne that President Barack Obama accidentally got the U.K. Treasury chief's first name wrong during the recent G-8 summit, calling him Jeffrey rather than George.

"Failed tests, broken promises — your friends call you George, the president calls you Jeffrey but to everyone else you are just Bungle," Balls said, referring to a clumsy British children's television character.

Some departments, such as that dealing with local communities and justice, received cuts of 10 percent. Cuts are coming in arts, sports, and other community programs while changes were broadly outlined to keep welfare spending from getting out of control.

The Treasury chief also said welfare program would face a cap starting in April 2015, but that pensions would not be affected.

Public sector employment was forecast to continue to fall. Osborne said that half a million posts had already been trimmed in the public sector since the last spending round in 2010, with another 144,000 forecast to go by 2015. There are some 5.2 million government jobs in Britain.

"We're saving 2 billion pounds a year, with a civil service now smaller than at any time since the war," Osborne said.

Defense fared better than many departments. The massive defense budget remained steady at 24 billion pounds. Police counter-terror programs were also spared, while the intelligence services — MI5, MI6 and GCHQ — received a 3.4 percent increase in their annual budget.

Economists at the Institute of Fiscal Studies suggest the British government is optimistic in its forecasts and that the country may need until 2020 to get past the age of austerity.

Osborne said borrowing is set to be 108 billion pounds this year.


US stocks rise for a second day; yields slip

Wednesday, June 26th, 2013 | Finance News

NEW YORK (AP) — U.S. stock indexes are moving higher for a second day as the bond market recovers from a slump.

Traders were also encouraged by an upturn in Europe.

The Dow Jones industrial average was up 84 points, or 0.6 percent, to 14,844 as of noon Eastern Daylight Time Wednesday. Boeing led the Dow higher with a jump of 1.8 percent.

The Standard & Poor's 500 was up nine points, or 0.6 percent, to 1,597. Eight of the 10 industry sectors in the S&P rose.

The Nasdaq composite index was up 20 points, or 0.6 percent, to 3,368.

A stampede out of the bond market reversed course after the government reported that the U.S. economy grew at slower rate in the first three months of the year than estimated earlier.


GM pleased with introduction of crucial big pickups: CEO

Wednesday, June 26th, 2013 | Finance News

By Ben Klayman

WARREN, Michigan (Reuters) - General Motors Co's introduction of its redesigned full-size pickup trucks, which are critical to boosting profits, has probably been the U.S. automaker's smoothest product launch ever, Chief Executive Officer Dan Akerson said on Wednesday.

The introduction of the 2014 Chevrolet Silverado and GMC Sierra is crucial, as the big trucks generate more than $12,000 per vehicle in profits. It is the most important vehicle introduction for the Detroit automaker since its bankruptcy and $50 billion U.S. taxpayer-funded bailout in 2009.

The trucks, which were last redesigned in 2006, are also a linchpin in GM's ongoing battle with No. 2 U.S. carmaker Ford Motor Co , whose F-150 truck is the auto industry's top-selling vehicle. GM's rollout will continue through this year and into next as it introduces different models of the big trucks and companion full-size SUVs.

GM's current big trucks and related SUVs account for about 60 percent of the company's global profit, according to analysts. Citi has estimated the new models could bring the automaker more than $1 billion in additional operating earnings in 2013 and 2014.

"We've produced tens of thousands of these new trucks," Akerson told reporters at the company's technical center in suburban Detroit. "Initial cut is it's probably our best launch ever."

Akerson was at the technical center in Warren, Michigan, to celebrate GM's performance in last week's J.D. Power and Associates initial quality study. The No. 1 U.S. automaker led the industry, with eight vehicles garnering top honors in their segments. He called it the most memorable day in his GM tenure, topping the November 2010 initial public stock offering.

David Sargent, vice president of global automotive at J.D. Power, said things would only get tougher for GM. Many of this year's award winners were older models, while the company is launching numerous redesigned vehicles, including the new pickups, in 2013 and 2014.

Sargent was in attendance to present the awards in front of more than 1,000 GM employees and dealer officials.

New models typically have more quality and customer satisfaction issues, causing scores on J.D. Power's survey to be lower. However, Akerson cited the Buick Encore SUV, a newly launched vehicle that still managed to win the J.D. Power quality award for its segment.

Sargent also told employees they had only done half the work. While the company has raised the quality of its vehicles, the perception with the public still lags.

"The perception of your quality is nowhere near where the reality is," he said. "You have the best initial quality in the industry, and if you go out on the street, nobody would say that."

He said 44 percent of GM customers cited expected reliability as a major factor that drove them to buy one of the company's vehicles. That number is 67 percent for Toyota Motor Corp and 72 percent for Honda Motor Co .

Akerson acknowledged as much. "This honor will mean very little if we do not build on it," he told employees. "I don't want to backslide."

Akerson also announced that Alicia Boler-Davis would shift her responsibilities for quality and customer experience to a global scale from just the U.S. market. She will report directly to Akerson.

GM has made customer satisfaction a focus, saying every percentage point gained in the company's customer retention rate equals $700 million in annual revenue.

Shares of GM were up 0.8 percent at $32.08 in morning trading.

(Reporting by Ben Klayman in Warren, Michigan; Editing by Gerald E. McCormick and Lisa Von Ahn)