Interest rate hike could derail recovery – Papers

A rise in UK interest rates over the next couple of months could derail the economic recovery, says a new report.

Accountants BDO said growth would remain sluggish and any imminent rate rise could prolong the weakness, writes the BBC.

With inflation at twice the Bank of England's 2% target, many economists say a rate rise soon is highly likely.

But BDO's business report said manufacturing could be hit, as a rate rise would strengthen the pound and reduce export competitiveness.

It said confidence in the manufacturing sector had risen to a seven-month high during February, with the BDO Optimism Index reaching 95.5.

But despite the rise, it said medium-term prospects still looked bleak, with the index failing to reach the 100 mark, which signals sustainable economic growth.

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Banks have £1.6trn exposure to ailing Euro quartet

The total exposure of foreign banks to the struggling quartet of Greece, Ireland, Portugal and Spain tops $2.5 trn (£1.6trn) once all forms or risk are included, according to the latest data from the Bank for International Settlements, writes the Telegraph.

On an "ultimate risk" basis that includes the potential loss on derivatives and credit guarantees of different kinds, the figure rises to $2.51trn as of September 2010, well above the headline figure of $1.76trn in cross-border loans.

The sheer scale highlights the systemic dangers if the EU fails to stabilize the debt crisis.

Eurozone leaders agreed to boost the lending power of the EU bail-out fund on Friday, but Germany vetoed proposals for a debt buy-back scheme or an activist policy of bond purchases.

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Companies let off hook for up to £16bn in tax

The Treasury could be missing out on £16bn in unpaid taxes, according to an in-depth report that has found more than half a million companies disappeared last year without paying tax and in most cases without filing accounts.

The losses are equal to almost half of the entire corporation tax receipts last year and would pay for many of the services under threat from government spending cuts, said anti-poverty campaigners, writes the Guardian.

Tax Research UK, an independent consultancy, said regulators had failed to clamp down on fraudulent firms that avoided filing accounts.

Meanwhile, the tax authorities allowed firms to disappear without checking if they owed PAYE tax on employees, national insurance payments or corporation tax on company profits.

The study, released today, found more than 500,000 companies were dissolved in the year to March 2010, with most removed from the official register because they failed to file accounts.

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RBS paid £1m to 300 staff last year

Taxpayer-backed Royal Bank of Scotland will stoke up controversy about bankers' pay this week when it announces that 300 of its top staff received packages averaging £1m each last year.

The group, in which the Government holds an 83% stake, will reveal the figures when it publishes its annual report on Thursday, writes the Mail.

It is the first time the bank will have had to publish figures on the pay of its senior staff following the introduction of a new code on remuneration from City watchdog the FSA and an agreement reached with the Government as a result of the Project Merlin deal.

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British M&A dealmaking at four-year high

British companies have more than doubled their dealmaking so far in 2011 to a four-year high of $86bn (£53.6bn), according to Thomson Financial, the research group.

BP's $9bn investment in oil and gas fields owned by India's Reliance Industries and Ensco's $8.6bn takeover of the American firm Pride International, to form an offshore drilling group, are among a slew of significant energy-related deals that have contributed greatly to the surge in mergers and acquisitions between January and the middle of March, writes the Guardian.

After three years of vastly reduced deal activity, companies have finally begun to spend the cash they hoarded during the downturn, while private equity firms have stepped up takeovers as they rush to meet investment deadlines.

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Retail banks face significant challenge

The recent round of UK banking results shows that despite a rebound in 2010, retail banking faces "significant challenges" in the next three years, according to a new report.

KPMG's latest banking report said "future growth in profitability is a key concern for the sector" with little new mortgage lending and increased competition forcing lower margins, writes the Independent.

The report scrutinised the performance of the big five UK-listed banks: Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered.

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