Posts tagged "Europe"

Croatian president urges Britain to remain in the EU

Ivo Josipovic says British exit would have negative impact on trade bloc, as Croatia prepares to become 28th member state

The president of the EU’s newest member, Croatia, has urged Britain not to leave but instead to help reform Europe from the inside.

“The reason for us to enter is the same as yours is to stay,” Ivo Josipovic told the Guardian during a visit to London before Croatia’s formal accession on 1 July, when it will become the 28th member state. “It is a great opportunity. I always ask the critics what Greece would look like without the EU. I am a Euro-optimistic.”

Josipovic said his meeting with David Cameron on Thursday left him convinced that Britain would not abandon the EU. “Looking at situation here, I don’t think its going to happen. I heard the prime minister … and I read about the plans of your government. It’s not anti-European,” the Croatian president said.

He added a British exit “would be negative for Europe and for Croatia as well, because UK is an important country with an important economy, with important resources of all kind: the democratic tradition, historical, cultural. So definitely a break with the EU would not be a good thing … I would not like to see it.”

Since Croatia applied for EU membership in 2003, the fortunes of both have fluctuated and are experiencing a downturn. Croatia is in recession with an unemployment rate of over 18% and, in the short term at least, membership could worsen the economic situation.

Croatia will erect a tariff wall between it and some of its major Balkan markets to the east. It will mean that many tourists, Russian and Turkish for example, will require a visa to spend their holidays on the Croatian coast, and it could accelerate a brain drain if the nation’s best and brightest seek work across Europe.

However, Josipovic argued that EU trade and investment would outweigh the downsides to membership, and he pledged to do more to make it easier for European firms to invest in Croatia.

“It is complicated to come to do business – complicated because of the old mentality and the wish to put everything under norms. But the government is doing its best to change these things,” he said. “There are obstacles but day by day we are making it easier.”

Josipovic indicated that Croatia would side with the UK in seeking to focus the EU on its basic functions: maintaining a common market, promoting democracy and peace, while cutting back on what he saw as excessive Brussels bureaucracy.

He also said Croatia would be in favour of lifting the arms embargo on Syria “because in our history we were under aggression and couldn’t obtain weapons. So equal chances should be provided to both sides.”

Croatia has been criticised for the fact that there have been no convictions for the war crimes committed in 1995, when hundreds of Serb civilians were killed during and after Croatia’s Operation Storm offensive.

Josipovic argued that investigators faced obstacles looking into crimes committed nearly 20 years ago, especially as previous nationalist governments had been reluctant to prosecute. But he added that the prosecutors would not give up.

“The war crimes investigations will never be suspended. There are no time limits,” he said, adding that none of those responsible for the war crimes “will sleep peacefully”.

Europe needs a more European UK, says ECB president

Mario Draghi stresses ‘depth of interconnection’ between UK and Europe, in speech to bankers in City of London

Mario Draghi, president of the European Central Bank, has called for the UK to be “more European” and said the continent’s key institutions could face dissolution if the UK leaves the European Union.

In a speech to bankers in the City of London, Draghi said: “Europe needs a more European UK as much as the UK needs a more British Europe.”

He said he was not about to enter into a domestic policy debate but wanted to remind financiers of the “depth of interconnection” between the UK and Europe.

“With such deep interconnections, the UK and the euro area share a common interest: the stability in the functioning of our economic system and particularly our financial markets,” he said.

Draghi reminded the audience that all major eurozone banks had important branches in the City, and Britain’s banks were leading players in financial markets across Europe.

“More than twice as many euros are traded in the UK’s foreign exchange market [than] in all the countries of the euro area combined and more than in the US,” he said.

He added that the UK accounted for 40% of non-eurozone deposits in eurozone banks, and the single currency area was the UK’s largest export market, accounting for £200bn of exports last year.

The Italian central banker said he saw “encouraging signs of tangible improvements” in the UK, and said Ireland, Spain and Portugal had made impressive improvements in their export performance.

However, he called on Europe’s leaders to focus on “securing economic stability and prosperity for the people of Europe” by forging ahead with deeper integration.

“After a deep financial and economic crisis, we now see the restart of the European process, building on the agreement of the June 2012 summit,” said Draghi. “This process ultimately entails some transfer of national sovereignty in the areas of budget and structural policies.”

The speech, on Thursday night, came almost a year after he vowed to do “whatever it takes” to save the euro. On Thursday night he said: “The answer to the crisis has not been less Europe but more Europe.”

Derivatives trader: ‘Trading can take over your life – but only if you let it’ | Joris Luyendijk

A migrant derivatives trader working in London talks of how he trades on volatility to buy himself financial security

• This monologue is part of a series in which people across the financial sector speak to Joris Luyendijk about their working lives

He describes himself as “a third-world migrant in his early 20s from near the equator”. He worked as a derivatives trader in a small European country and now trades for a big institution in London after completing a quantitative degree in continental Europe.

“It’s funny. I am the current public bogeyman – not only am I a migrant, but I am a “banker” (deliberate use of inverted commas) too! Ironically, I can buy financial security by undertaking a job dealing with understanding insecurity and uncertainty. That’s a trade I am prepared to make.

“Fifteen years ago this job was completely different. Earlier practitioners would be standing up for ten hours in the “pit”, estimating option prices by plugging numbers into a basic calculator (big fat finger error risk!), shouting and waving hand signals. These days you sit in front of many computer screens, clicking and updating code. Lunch would occasionally be my left hand drinking soup and my right hand on the mouse. Trading options is ideal for someone who likes being in front of a screen.

“When I was working as a derivatives trader in a small European country my routine went like this: I’d come into the office just before 8am and switch on my seven screens. There are many programs to log into. I sort each data feed to update me preferentially on news in the underlying names I trade and on macro developments. I ensure my connections to all relevant exchanges are functioning. I calculate hedge limits and input them into the order book. I make sure all this is done before 8.45am, as the market opens at 9am. At 9.01am there can be some juicy trades – you want to be fast. I would leave around 6.30pm. Weekends were free.

“It doesn’t matter how much of a mathematical genius you are – when you first come in the challenge is learning how all the systems work. It’s more about systems now than ever before.

“I could trade options without knowing the exact proofs of their pricing. The model does that for you. It’s like trading cars. You don’t need to know every last detail of how, say, the piston works. What the firm wants is someone quick, assertive, mathematically competent, prepared to optimise reward/risk ratios.

“Some derivatives traders take nearly three hours every day to calculate the value of their positions and their P&L – I saw it in inflation instruments, but I don’t know exactly how all of them work. There may be “options on options”, “path-dependent options”, “correlation products” and much more.

“You’re asking how a risk manager would oversee a dozen traders like that, each in his own field. Well, as an options trader you are your own risk manager – particularly at a smaller firm. I wasn’t at a company with a big retail division attached to it. If we screw up then we take the hit (as we should!), as do the (wealthy) investors in the firm. No bailouts for us. In general the more complex and opaque the product, the more a trader needs to act as a risk manager. He may be one of the few people who fully understand the risks, though I think larger institutions have been bulking up with sharp risk managers of late, who don’t just hold their tongues.

“You don’t see people doing this work their whole lives. Trading can take over your life – but only if you let it! It can be surprisingly tiring staring at a screen intently for hours, clicking every few seconds. But being a fisherman in Comoros, a paramedic in Eritrea or a lumberjack in Zaire must be way more tiring, surely?

“Some people in finance can exaggerate a lot. I want to emphasise that to the readers. It’s not that stressful! I had my evenings free. I could relax. I could play sport. Sure – I work hard, but so do many billions of people and for far less pay too. I could basically manage my housework myself too, so it couldn’t have been that draining. Most important to me as a migrant worker was that I could save over 50% of my net salary – this is really lucky coming from a continent where 25% of people in my age group are unemployed and even more have no savings. I am very fortunate.

“Things seem very different in London, where finance is more of a lifestyle and a mentality. In northern Europe (possibly excluding Frankfurt) working in finance did not set you apart from society.

“In London if you don’t join your mates for a drink after work, it can be seen as a signal of disinterest. There’s a big culture of spending and splashing out. And job security is probably worse. Where I worked in northern Europe, people conceal their wealth. Ostentatious behaviour is socially unacceptable. There isn’t any discrimination towards the back office. Seniors don’t make juniors get food orders. No need for pinstripes. “It was completely natural for the secretary to join us for a drink. And it wasn’t like London where sometimes you can’t take your full annual leave without worrying what signal that may send out.

“From a lifestyle perspective I believe you have to be flexible. As migrants we are ideally placed to do that. Big institutions are still prepared to offer us work visa sponsorship. If I stayed in northern Europe for too long I might be pigeonholed. You can live a comfortable life. But at some point in your career you tend to gravitate to one of the “hubs” (London, New York, Hong Kong, Singapore).

“I just can’t plan my career more than two years ahead. The industry can change quickly anyway – for example, suppose you were trading in Sweden before the financial transactions tax came in. After it was extended in 1989 to cover a wider range of instruments, 98% of volumes in bond derivatives in Stockholm went elsewhere. Imagine you had been trading such products, but had married a local woman who insisted on staying put. What do you do? Will you get another similar job in a niche market if you aren’t prepared to migrate? Will you even be the first choice to be hired when volumes come back? Now imagine you are a migrant – probably a single man – no wife, no kids, no house, just savings. It’s easier for us, isn’t it?

“If you’re mid-level and you get laid off, it can be very difficult to get back in. Some financiers in London over-leverage themselves and save virtually nothing, despite their high salaries.

“I don’t understand how they can’t apply the same rules of risk management to their personal lives as they do in their professional lives. How could they be so over-confident?

I don’t think the state steps in to help that much in the Anglo-Saxon world compared to continental Europe (I’m talking about stepping in to help individuals here rather than banks!) Many migrants are from nations where there is no welfare state, so we plan for redundancy. We price it in.

“Let’s dig a little deeper into my job. There is very little information asymmetry anymore. Everyone has the same Bloomberg terminal, same market feed and (nearly) the same variant of the “Black-Scholes” model for pricing options. Making small margins on each trade is critical.

“The “algos” or high frequency computers will always trade faster than a human can. Most of your systems are executing the quick, “scalp” trades for you – your human input is how you programme it to hedge your exposure, and at what level you choose to take on a block trade.

“If you are a market-maker you are obliged to continually make live quotes in a pre-specified range of options, over a range of strikes and expirations. In return for providing this liquidity we can receive a rebate from the exchange.

“Trading options is a reductionist activity: you condense the underlying instrument’s price, the strike (exercise level), contract duration, prevailing market interest rates, stock borrowing rates, dividend expectations and volatility into two numbers – your bid price (where you are prepared to buy at) and your offer price (where you are prepared to sell at). The first three inputs I mentioned are all known – it’s only really the volatility you’re that unsure of.

“That’s essentially what we’re trading – volatility, hence our name – “vol” traders. You want to get as big a spread as possible on each trade – but if you quote too wide your prices won’t be competitive and nobody will trade with you. You need to find a balance between getting execution and minimising your adverse selection probability (that’s your chance of being “picked off” when the market moves uni-directionally).

“There are lots of parameters you need to monitor, and thus lots of ways you can make (and lose) money. Firstly I look at option “greeks” (first-order derivatives such as “delta”, “vega”, “theta” and “rho” and then second-order derivatives like “gamma”, “vanna” and “charm”). When you’re trading “vol” (the annualised standard deviation of returns of the underlying instrument) you’re hypothesising how much an instrument is going to move. You want to optimise your various ratios (gamma/theta) at different strikes to ensure that you have bought and sold optionality at good levels.

“Secondly, I want to make relative value trades between components in the same index or in the same business sector: eg how is volatility priced at the 25% delta put option in this French oil company versus the 25% downside in that Spanish oil company? Does it seem fair? Where has the spread been historically? How divergent are the skews in the volatility smile? How quickly have I noticed this? Can I trade? Have I been fast enough in identifying an anomaly and monetising it? If and when I do, it is back to dynamic hedging, responding to broker requests from our sales traders, coding and repricing in line with new market developments. Depending on how fast your systems are you can implement volatility arbitrage strategies too. It’s like playing Gran Turismo but your gear changes on the controls are manual. Not automatic.

“Vanilla” options are contracts giving you the right (but not obligation) to buy (call) or sell (put) an underlying stock, index future, commodity future or bond future at a particular level and at a particular (series of) moment(s). When the duration of an option contract runs out, it “expires”. When that particular ‘expiration’ moment arrives, it’s incredibly tense. One evening every month I’d be like: “Don’t bother me because I’ll just ignore you.” Imagine having to analyse between seven and ten names between 5.30pm and 5.35pm and ensure that you hedge your “delta” exposure on each one.

Those five minutes are the auction, where market participants determine the closing price. That affects if an option is “in the money” or “out of the money” – ie whether it will be exercised or not.

“Probably the most turbulent time was over the summer of 2011 when it was believed that Greece might default. For three days I just reserved one of my screens to show televised footage of Greek parliamentary votes – that was the market barometer at the time.

“You only saw buyers on the screens – people were too afraid to sell. But I am required to quote prices. I have to react fast enough to keep an offer price at a safe enough level. At times like that it’s not about stocks anymore – what moves markets is macro news. All it takes is for the likes of Ben Bernanke (US Federal Reserve chairman) or Mario Draghi (ECB president) to be a little bit hesitant.

“Sometimes there’s a deep sense of powerlessness. Suppose I have a short gamma position (ie I’ve sold volatility) in an airline company. That company issues a profit warning at 8.58am and the options market only opens at 9.01am. I know that a profit warning means the price will dive (in general, the smaller the market capitaliaation, the bigger the drop), but there’s nothing I can do in those three minutes but re-price my options, my term structure and put in some respectable bids so I can buy back option premium. Oh – and I need to sell some stocks fast to minimise the size of my “long delta” position I get from being short on options.”

• To comment on this interview, please visit the accompanying blogpost

US pushes Europe to amend arms embargo on Syrian rebels

John Kerry seeks support for British-led move as means of pressuring Bashar al-Assad to enter into peace negotiations

The United States is lobbying European governments to back a British-led call to amend the EU arms embargo on Syria to put pressure on President Bashar al-Assad to enter into talks with the opposition.

John Kerry, the US secretary of state, has been urging the EU to reach consensus on a change that would allow weapons to be delivered to the rebels – though without any decision to do so at this stage.

Diplomatic sources said on Wednesday that Britain now has the support of France, Italy and Spain, while Germany is neutral. But Austria, Finland, Sweden and the Czech Republic are still opposed. Ambassadors of all 27 EU members have been called into the state department in Washington to be told of the latest US position ahead of a crucial foreign ministers’ meeting in Brussels next Monday.

Speaking in Jordan on Wednesday, Kerry pledged publicly that the US and its EU allies would step up support for Syrian opposition forces to help them “fight for the freedom of their country” if Assad does not engage in talks with the rebels in good faith. Efforts are under way, with Russian backing, to convene a peace conference in Geneva some time in June.

In Britain, however, plans to amend the EU embargo are being complicated by disagreements between the Conservatives and Liberal Democrats and a row in Whitehall about the risks of supplying weapons to rebels fighting Assad’s regime.

William Hague, the foreign secretary, who is with Kerry in Amman to discuss Syria, made clear the UK wants to alter the embargo to put pressure on Assad, but without yet deciding to send any weapons. Options include an amendment to allow weapons to be supplied to the opposition Syrian National Coalition or removal of the word “non-lethal” from the text. Another possibility is a short rollover of the embargo, which expires on 1 June, to see if the Geneva talks have any prospect of success – or deadlock. If there is no agreement the ban will lapse. That leaves open the possibility of unilateral decisions to supply arms, though in the UK that could clearly trigger a coalition crisis.

Nick Clegg, the Liberal Democrat leader and deputy prime minister, faces strong differences inside his own party. “There is a fallacy in the government position,” Menzies Campbell, the senior Lib Dem foreign affairs expert, told the Guardian. “It is said that the purpose of giving more sophisticated weapons to the rebels is to send a message to Assad but his regime is so heavily supported by the Russians that if there was any imbalance Moscow would be bound to redress it.”

Douglas Alexander, Labour’s shadow foreign secretary, said that David Cameron had allowed speculation to build about the government’s willingness to veto the EU embargo. “But how would the government prevent British-supplied weapons falling into the wrong hands?” he asked. “How does supplying weapons help to secure a lasting peace?”

The rebels and their supporters say the embargo must be lifted to help the anti-Assad camp resist overwhemingly superior Syrian government forces, which are equipped with tanks, aircraft and missiles and are supplied by Russia and Iran.

Labour says that regardless of the status of the embargo, any weapons deliveries would breach other EU and UN agreements that are binding on the UK.

Whitehall sources say the national security council, which is chaired by the prime minister, has “grave concerns” about the risk that weapons could fall into “the wrong hands”, amid concern about the growing strength and prominence of jihadi-type groups such as Jabhat al-Nusra, which is linked to al-Qaida.

Alistair Burt, the foreign office minister for the Middle East, told MPs on Tuesday night: “There are no guarantees, but over time we have established a series of links with moderate groups who would have no vested interest in allowing equipment that might be used against them to fall into the wrong hands.” Hague said on Monday that the UK could supply arms “only in carefully controlled circumstances, and with very clear commitments from the opposition side”. Some arrangements would “necessarily be confidential.”

Fighters with the Free Syrian Army, the mainstream rebel group, are being vetted in Jordan, where UK special forces and MI6 officers are believed to be involved. The CIA has reportedly been involved in training and coordinating arms deliveries from Saudi Arabia, Turkey and Qatar.

Information about the vetting process is shrouded in secrecy, but Hague said in a written parliamentary answer last week: “We are in close contact with the leadership of the Syrian National Coalition and Supreme Military Command Council in order to identify training beneficiaries that meet our criteria for the Law of Armed Conflict training. To ensure that the recipients of the training are legitimate members of the opposition all beneficiaries are carefully screened before they are invited to attend the training.”

The fragmentation of rebel groups, the lack of a centralised command structure, the kidnapping of UN peacekeepers and human rights abuses are all sources of concern. The recent incident in which a rebel commander in Homs was filmed eating the heart or lung of a dead government soldier caused widespread revulsion.

The Syrian National Coalition released a video yesterday entitled “Fighter not a Killer” — a YouTube and TV advert about the norms of international humanitarian law and human rights law. “In light of the recent events that have occurred within the Free Syrian Army, we felt that it is imperative to outline and educate what is acceptable and what is not,” said a spokesman, Khaled Saleh.

Oxfam also issued a warning against lifting the embargo: “Sending arms to the Syrian opposition won’t create a level playing field,” it said in a statement. “Instead, it risks further fuelling an arms free-for-all where the victims are the civilians of Syria. Our experience from other conflict zones tells us that this crisis will only drag on for far longer if more and more arms are poured into the country.”An estimated 80,000 people have been killed in Syria since the uprising began in March 2011. Millions have fled their homes inside Syria or become refugees abroad.

Shale gas investments ‘could be worth £4bn a year to UK economy’

The fuel could become a ‘new North Sea’ energy business, and create more than 70,000 jobs, according to a new report

Investments in shale gas drilling could yield an industry worth nearly £4bn a year to the UK economy and create more than 70,000 jobs, according to a new report from the Institute of Directors (IoD), becoming a “new North Sea” energy business in the process.

That is higher than previous estimates, and includes a wide variety of jobs from those directly employed in the industry, such as geologists and drilling experts, but also cement manufacturers and people working in local retail and service companies near the drill sites, which is a more controversial measure of employment. The report was published as politicians and businesses met in Brussels to discuss the EU’s future energy policy.

Corin Taylor, senior economic advisor at the IoD and lead author of the report, said: “Shale gas could be a new North Sea for Britain, creating tens of thousands of jobs, supporting our manufacturers and reducing gas imports. Further exploration will be needed to assess the size of technically and commercially recoverable resources. At the same time, partnerships need to be established between industry, government and communities to ensure that development of this vital national resource benefits local people.”

But green campaigners pointed out that the report had been sponsored by Cuadrilla, the only shale gas company with wells in the UK currently, and said the estimates were based on unlikely scenarios and downplayed the potential destruction and environmental effects of the drilling.

Tony Bosworth, energy campaigner at Friends of the Earth, said: “This industry-funded report paints a completely distorted view of the benefits of shale gas development in Britain. Shale gas extraction will have a major impact on local communities, undermine efforts to tackle climate change and do little to tackle soaring fuel bills. We should be embarking on a clean energy revolution to develop the huge potential from the wind, waves and sun – not rushing further down the dead end street of fossil fuel production.”

The IoD report supported recent suggestions by the government and by MPs that local communities should be offered incentives to encourage them to allow planning permission for drill sites. According to Taylor, the best way to do this would be for local authorities to keep 100% of the business rates from shale gas sites.

But this is controversial, as MPs have said the money for cash incentives should come from the companies extracting the gas, rather than taxpayers.

The report cited government estimates that 76% of the UK’s gas would be imported by 2030, costing £15.6bn. Taylor found that, against these estimates, shale gas production if vigorously pursued could reduce gas imports to 37% in 2030, with the cost of imports falling as a result to £7.5bn a year.

Dan Byles, a Conservative MP and chair of the new House of Commons group for supporters of unconventional oil and gas, said: “Shale gas is about more than simply gas. It is about wider British industry, providing secure energy and raw materials for manufacturers. The North Sea is rightly regarded as a model for effective offshore oil and gas regulation. If we get this right, in future I believe the world could look to the UK as the gold standard for a well-regulated and safe shale gas industry that benefits local communities and the nation.”

His intervention came as an energy summit took place among the European council in Brussels on Wednesday, aimed at framing the debate for the EU’s energy policy beyond 2020, when current renewable and climate change targets expire. Shale gas was one of the topics of discussion, as well as proposed improvements in energy efficiency and the future of Europe’s electricity generation.

Mónica Cristina, of Shale Gas Europe, an industry “resource centre”, admitted that shale gas was unlikely to have the sorts of impacts on the EU economy as it had in the US, where shale drilling has sent gas prices plummeting amid a glut of the fuel. There is estimated to be less shale gas resource available in Europe, and it will be much more difficult to extract given the high population density. But Cristina said the fuel could make a contribution: “There is a growing understanding amongst European decision-makers that shale gas development can take place within a responsible regulatory regime. The work to provide clarity about the environmental impacts or the compatibility of shale gas development with the agriculture sector, for example, must go on. Europe has the opportunity to take the best practices from North America, doing it right from day one. In the meantime, shale gas exploration must continue in order to enable an accurate assessment of existing resources.”

Green MEPs vowed to fight against plans for an expansion of shale gas across Europe. Claude Turmes, green energy spokesperson, said: “Shale gas is not the silver bullet for Europe’s energy policy but rather a dangerous Trojan horse. Moves to promote shale gas must be headed-off. Quite apart from the indisputable environmental and health risks associated with shale gas extraction, the economics of this energy-intensive technology are highly questionable and based on unrealistic estimates. The geographical and demographical situation in Europe is even more unsuitable and we should not make the same mistakes here.”

Mark Carney warns Europe against lost decade of austerity

Fall in UK consumer prices index gives incoming Bank of England governor room to manoeuvre

The incoming governor of the Bank of England has warned Europe it must make “sustained and significant reforms” if it is to avoid a Japanese-style lost decade caused by austerity measures.

Mark Carney, in his last speech as governor of the Bank of Canada, said Europe “can draw lessons from Japan on the dangers of half measures”.

He added: “Europe remains in recession, with economic activity constrained by fiscal austerity, low confidence and tight credit conditions. Deep challenges persist in its financial system. Without sustained and significant reforms, a decade of stagnation threatens.”

He described Japan’s recent efforts to kick-start its economy and bring an end to a decade of deflation as a “bold policy experiment”. The initiatives, dubbed Abenomics, involve monetary and fiscal measures, including a huge money-printing exercise. He said Europe should learn “lessons from Japan on the dangers of half measures.”

He was speaking shortly after UK data showed inflation had fallen more than expected last month, potentially giving Carney more room to shore up the economy with a new round of quantitative easing – electronic money printing – should the recovery falter.

It was the first drop in the consumer prices measure of inflation (CPI) since last autumn, down to 2.4% in April from 2.8% in March. The softening was driven by lower fuel costs and airfares as the oil price fell, the Office for National Statistics (ONS) said.

The only real upward effect on the headline inflation number was a rise in food prices after damage to crops over the long winter. Food prices were up 4.6% on a year ago and within that vegetable price inflation was at a four-year high of 9.9%.

Economists had forecast CPI to come in at 2.6% for April and said the softer outcome would ease some of the immediate pressure on Canadian central banker Carney when he takes the helm at the BoE in July. But most predicted inflation would pick up again over the summer.

“The bottom line is this is not the start of a collapse. A lot of the fall is temporary. However, it probably does spare Mark Carney the bother of writing to the chancellor to explain why inflation is above 3% within his first month in office,” said Alan Clarke at Scotiabank in London.

Inflation has been above the Bank’s government-set target of 2% for more than three years and rose as high as 5.2% in autumn 2011. Tuesday’s data showed the first drop in the rate since last September but economists and the BoE predict it will tick higher again, partly as the downward effect of a period of falling fuel prices comes to an end. Between March and April this year, petrol and diesel prices both fell – by 2.1p and 3.9p a litre respectively – compared with rises of 3.2p and 2.1p a year earlier.

Samuel Tombs at Capital Economics said: “Inflation still looks set to climb again in the coming months as we reach the anniversary of a period of falling petrol prices and deep discounting on the high street. However, the peak, probably in June, could now be closer to 3% than the 3.5% we had expected beforehand. What’s more, underlying price pressures still look subdued.”

The ONS said core inflation, which strips out the erratic components of food and energy, fell to 2%, the lowest rate since autumn 2009.

The retail prices index, which includes mortgage payments, fell from 3.3% to 2.9%. Separate ONS data showed factory gate inflation, which measures prices charged by producers, was the slowest since autumn 2009.

The government welcomed the drop in headline inflation. “This is good news for families and businesses. Inflation is down by more than a half from its peak,” the Treasury said in a statement.

But critics of the government’s austerity drive noted price rises were still outstripping average pay growth of 0.8%, leaving many households struggling to cover basic costs such as food and energy bills.Labour’s shadow treasury minister Cathy Jamieson commented: “On top of stagnant wages, rising food prices and soaring energy bills, the average family is £891 worse off this year because of tax and benefit changes since 2010.”

The TUC calculates that workers are £43 a week worse off in real terms compared with three years ago. TUC general secretary Frances O’Grady said: “Average pay packets have fallen by nearly 10% over the last three years – eroding the spending power of households and eating away at the value of savings for those families still fortunate enough to have them.

“Unless we start to see real wages increase, consumer spending will remain weak and the economy will continue to struggle.”

Ryanair profits and customers rise

Low-cost airline saw annual profits rise by 13% but warned that the recession across much of Europe will dampen growth this year

Low-cost airline Ryanair saw annual profits rise by 13% but warned that the recession across much of Europe will dampen growth this year.

The Dublin-based company, which operates on more than 1,600 routes, carried 79.3 million passengers in the year to 31 March, an increase of 5% on a year earlier as revenues improved 13% to €4.8bn (£4.1bn).

Post-tax profits rose to €569m and the airline is hopeful of another rise this year, albeit at a slower rate of growth as economic conditions put pressure on average fares across the industry.

Ryanair expects traffic to grow by another 2 million passengers to 81.5 million in the current year, helped by this summer’s addition of more than 200 routes and seven new bases, including at Eindhoven, Krakow and Marrakech.

It said costs will continue to rise, with higher oil prices again the culprit after its fuel bill increased by €290m in the last financial year. Fuel now represents 45% of all the airline’s costs.

Ryanair’s average fares increased by 6% in the year to March, although this was outpaced by a 20% jump in revenues from additional services such as reserved seating to €1bn – representing 22% of all sales in the year.

With Ryanair hoping to carry more than 100 million passengers a year by the end of 2018, it recently announced plans for the delivery of 175 new Boeing aircraft.

Chief executive Michael O’Leary said: “Ryanair is now uniquely positioned to offer many of Europe’s airports sustained traffic growth in return for low-cost, efficient facilities.

“I am confident that in time this new order will enable Ryanair to extend its traffic leadership over Europe’s airlines, and generate further returns for our shareholders.”

Leaving Europe would be bad for British business | John Cridland

We must not lose sight of what’s important – economic growth. This means maintaining access to, and influence over, the EU

This week’s political demands for a bill to underpin the prime minister’s promise of an EU referendum have been a distraction from securing growth and jobs, which have to be the UK’s top priority. On Friday, when I speak at the British-American Business Council, I’ll be laying out the case to re-focus on economic growth – both at home and abroad. And the best way to achieve that is to keep a firm foothold in European trade at the same time as increasing exports elsewhere in the world.

Just as the prime minister was trying to do the right thing in Washington – showing leadership on the transatlantic trade and investment partnership and highlighting the positive value of the EU – back home, that focus was lost.

The recent tussle presents an inward-looking picture of British politics to the outside world. For those in business, it feels like a diversion from what we should be doing in Europe: restoring growth through trade deals; and championing reforms that we want to make all of Europe more competitive. These issues matter to the public too because their main concerns are about the economy, jobs and the cost of living.

The demands for a bill to underpin what the PM had already promised don’t actually move the debate forward. David Cameron had already set out his terms for a referendum by 2017 on continued membership of a reformed EU. We already had clarity over the process – if not the outcome.

Business has to make the nuts-and-bolts case for what our relationship with Europe should look like. Maintaining our influence over, and our access to, the single market will be central to that. We have to focus on a positive vision of reform so Europe does less of the things we don’t want, and more of the things we do: boosting competitiveness and resisting bad policies that work against growth and stability. Let’s be clear: being a member of a reformed EU is the best way to preserve market access.

There are some who say that we could retain access to the single market without being a member of the EU; that the UK could withdraw and have a relationship more akin to Norway’s or Switzerland’s. I’d urge them to really look at the detail.

Norway’s membership of the European Economic Area (EEA) – being outside the EU but part of the single market – means that it still pays the bills and follows the rules but has much less influence on EU decision-making than if it had a seat at the table. As the Norwegian Conservative MP Nikolai Astrup said to my team during their recent fact-finding mission to Norway: “If the UK wants to run Europe, it needs to be in Europe. If you want to be run by Europe, feel free to join us in the EEA.”

While this works for Norway’s economy, the British would never accept such a relationship. It removes none of the issues identified as problems by those who want to leave the EU. And while Switzerland appears to have greater flexibility to pick and choose the EU regulations it applies, the 120 or so agreements that govern the EU-Swiss relationship took years to negotiate from the point at which it rejected the terms of the EEA in the early 90s.

At a time of great economic challenge, could UK businesses struggling at the margins survive without access to our primary market for an unknown period? Submitting to rules without the power to influence them is not my idea of much-touted greater sovereignty.

The debate over our future relationship with Europe is a worthy and valid one, but we must maintain our perspective. What we need now is economic growth and jobs across the European continent. That means putting all hands to the pump to boost our competitiveness in the international arena and getting some major trade deals signed on the dotted line.

Leaving Europe would be bad for British business | John Cridland

We must not lose sight of what’s important – economic growth. This means maintaining access to, and influence over, the EU

This week’s political demands for a bill to underpin the prime minister’s promise of an EU referendum have been a distraction from securing growth and jobs, which have to be the UK’s top priority. On Friday, when I speak at the British-American Business Council, I’ll be laying out the case to re-focus on economic growth – both at home and abroad. And the best way to achieve that is to keep a firm foothold in European trade at the same time as increasing exports elsewhere in the world.

Just as the prime minister was trying to do the right thing in Washington – showing leadership on the transatlantic trade and investment partnership and highlighting the positive value of the EU – back home, that focus was lost.

The recent tussle presents an inward-looking picture of British politics to the outside world. For those in business, it feels like a diversion from what we should be doing in Europe: restoring growth through trade deals; and championing reforms that we want to make all of Europe more competitive. These issues matter to the public too because their main concerns are about the economy, jobs and the cost of living.

The demands for a bill to underpin what the PM had already promised don’t actually move the debate forward. David Cameron had already set out his terms for a referendum by 2017 on continued membership of a reformed EU. We already had clarity over the process – if not the outcome.

Business has to make the nuts-and-bolts case for what our relationship with Europe should look like. Maintaining our influence over, and our access to, the single market will be central to that. We have to focus on a positive vision of reform so Europe does less of the things we don’t want, and more of the things we do: boosting competitiveness and resisting bad policies that work against growth and stability. Let’s be clear: being a member of a reformed EU is the best way to preserve market access.

There are some who say that we could retain access to the single market without being a member of the EU; that the UK could withdraw and have a relationship more akin to Norway’s or Switzerland’s. I’d urge them to really look at the detail.

Norway’s membership of the European Economic Area (EEA) – being outside the EU but part of the single market – means that it still pays the bills and follows the rules but has much less influence on EU decision-making than if it had a seat at the table. As the Norwegian Conservative MP Nikolai Astrup said to my team during their recent fact-finding mission to Norway: “If the UK wants to run Europe, it needs to be in Europe. If you want to be run by Europe, feel free to join us in the EEA.”

While this works for Norway’s economy, the British would never accept such a relationship. It removes none of the issues identified as problems by those who want to leave the EU. And while Switzerland appears to have greater flexibility to pick and choose the EU regulations it applies, the 120 or so agreements that govern the EU-Swiss relationship took years to negotiate from the point at which it rejected the terms of the EEA in the early 90s.

At a time of great economic challenge, could UK businesses struggling at the margins survive without access to our primary market for an unknown period? Submitting to rules without the power to influence them is not my idea of much-touted greater sovereignty.

The debate over our future relationship with Europe is a worthy and valid one, but we must maintain our perspective. What we need now is economic growth and jobs across the European continent. That means putting all hands to the pump to boost our competitiveness in the international arena and getting some major trade deals signed on the dotted line.

EU referendum bill to be put forward by Tory MP

No 10 confirms that Tory MPs will be instructed to vote for bill but will not have the support of their coalition partners

A drawn-out parliamentary battle over the holding of an EU referendum by 2017 is now in prospect after the Tory MP James Wharton came top of the private member’s ballot and vowed to try to pilot such a bill on to the statute book.

Downing Street confirmed that Conservative MPs would be instructed by their whips to vote for the bill but they will not have the support of their coalition partners.

The move follows a show of strength by Tory Eurosceptics on Wednesday night in a vote on an amendment on the Queen’s speech that regretted the absence of an in/out EU referendum bill in the government’s legislative programme. Dissenting Conservative MPs numbered 114, although David Cameron’s aides insisted the vote was not a blow to his authority because he had allowed a free vote and was relaxed about the outcome.

John Baron, the leader of the Tory dissidents, said: “We are going to keep at this. There is deep distrust out there. Legislation is more realistic than a manifesto promise.”

Wharton, the young MP for Stockton South, said his bill was the best way to deal with the issue and to allow parliament to decide.

“I think that the prime minister has been very clear in saying that the Conservative party position is that people should be given a say by the end of 2017, and parliament should be given an opportunity to legislate on that,” he said.

“I hope that when it is brought before parliament, that other MPs from other parties will be able to support it and agree with me that, whatever you think about Europe and our relationship with Europe, the matter needs to be settled and people need to be given a choice.”

Wharton’s bill will receive its first reading in the Commons on 19 June. The first slot for a private member’s bill debate in the Commons is 5 July and Wharton has said he has already been in discussions with the government whips to take up the bill prepared by the Conservative party earlier this week.

Wharton, one of the 114 dissenters, is likely to be able to ensure the bill receives a second reading, moving it on for line-by-line scrutiny at the committee stage. But the bill will struggle at the report stage if hundreds of amendments are tabled and there is insufficient time.

Only a government minister can move a programme motion, but the lack of Liberal Democrat support for the bill means the leader of the house, Andrew Lansley, will not be able to do so.

Cameron will impose a three-line whip and order MPs to vote for the EU referendum bill. A Downing Street spokesman said the prime minister, who had not spoken to Wharton about the bill, “intends to give it the full support of the Conservative party”.

Asked if Cameron was concerned about provoking a fight with the Lib Dems, the spokesman said: “No, for the simple reason that the prime minister and deputy prime minister have always acknowledged a difference of opinion on this issue.”

Baron, who tabled Wednesday night’s amendment, said he would back the bill even though he regards it as a “second-best option” because it was important to try to get legislation through.

In the Commons, Angela Eagle, the shadow leader of the house, said the Tory party had “descended into chaos on Europe, and the bill was ‘entirely spurious’ and did not include a implementation clause or money resolution.

“[Last night] was the 35th Tory rebellion on Europe in this parliament. If that isn’t an undisciplined team and a prime minister who follows his party, rather than leads, would you like to tell me what is,” she told the Commons leader, Andrew Lansley, who had insisted Wednesday’s vote was not a rebellion.

The Liberal Democrats’ deputy leader, Simon Hughes, accused the Tories of “obsessing about Europe”.