UK house prices 'to fall by 30%'

The head of Barclays bank has predicted that economic gloom will deepen, with house prices to fall in total by 30%.

John Varley's warning comes ahead of the latest UK unemployment figures on Wednesday, where the number of jobless is expected to rise sharply.

A new survey suggests household debt is on the increase, and the value of sterling has fallen against the euro.

But EU governments have been told they cannot break the financial rules in order to boost their economies.

John Varley, group chief executive of Barclays, painted a bleak outlook in an interview on Sky News, during which he criticised mortgage borrowing levels over the last decade.

He warned the UK was only "halfway" through the slump with house prices set for even greater falls.

He said: "Our view was that from the top to the bottom, you would see a fall of something like 25 to 30%.

"I suspect we're about halfway through that at the moment. I mean that slowdown, the negative house price inflation started in 2007, it's accelerated in 2008.

"We're probably about halfway through that period, so in other words we've got another 10 to 15% to fall between now and the end of next year. That would be our assessment."

His bleak prediction extended into the jobs market.

He said: "Our view is that unemployment will rise. Unemployment is likely to go north of 7% over the course of the next 12 months or so, it might be as high as 7.5%.

"I think an additional 700,000 people unemployed over the course of the next 12 months is certainly possible to contemplate."

Mr Varley was speaking ahead of the release, on Wednesday, of the latest UK unemployment figures.

The number of jobless could rise sharply, with some forecasters warning the total of those out of work might hit two million or more.

Debt increase

Meanwhile, a survey commissioned by the Bank of England has suggested an increase in the number of households struggling with debt.

Many said they had less to spend after paying household bills and had saved less than they expected.

Nearly 2,500 households were interviewed for the survey in late September and early October.

More respondents were finding their debts to be a burden than in any similar survey since the mid 1990s.

The bank says after a period of growth and low inflation, it has seen an abrupt change in the circumstances facing British households.

Sterling's lows

International investors' lack of confidence in the UK economy has seen the the pound hitting new lows against the euro: last week one pound bought as little as 1.11 euros, the lowest ever.

But the government appears to have ruled out action to shore up sterling.

On Sunday the chief secretary to the Treasury, Yvette Cooper, told the BBC the government was not planning to step in to support the pound.

She said attempts by previous administrations to target exchange rates had been unsuccessful.

Instead the government would continue to try to keep inflation under control and support the economy, she said.

"We have never had a policy of targeting the pound. Our policy has been to target inflation and that, I think, has been the right way. It has paid off over the last 10 or 11 years."

Huge deficits

But the government has been warned that any action it takes to support the UK economy must not break EU rules.

European Central Bank President Jean-Claude Trichet told the Financial Times that the EU's "stability and growth" pact must not be allowed to fall apart.

The pact has rules designed to stop EU member states from racking up huge budget deficits and national debt in order to boost their economies.

"We would destroy confidence if we blew up the pact," he said.

Mr Trichet is said to be worried that fiscal indiscipline - such as governments printing large amounts of currency in order to boost spending - could threaten "already fragile" economic confidence.

Ecuador defaults on foreign debt

Ecuador is to default officially on billions of dollars of foreign debt it considers "illegitimate", says President Rafael Correa.

Mr Correa said he had given the order not to approve a debt interest payment due on Monday, describing the international lenders as "monsters".

The president said that some of Ecuador's $10bn debt was contracted illegally by a previous administration.

It is the first debt default by a country in Latin America since 2001.

At that time, Argentina failed to repay debt in the midst of its financial meltdown.

Restructure plan

Speaking in the city of Guayaquil, Mr Correa said "as president I couldn't allow us to keep paying a debt that was obviously immoral and illegitimate", according to the AFP news agency.

"We'll present a proposal to restructure the debt in order to resolve this problem as fast as possible," added the US-trained economist and ally of left-wing Venezuelan President Hugo Chavez.

His decision follows a government audit in November which recommended that Ecuador default on almost 40% of the $10bn foreign debt, accusing former officials and bankers of profiting irresponsibly from bond deals.

The country's foreign debt amounts to about a fifth of its Gross Domestic Product, or GDP.

In the past, Mr Correa has vowed to put money he has earmarked for spending on public programmes - ahead of paying foreign debt.

Correspondents say Ecuador's decision to effectively cut itself off from outside financing could lead to a budget shortfall, especially if the price of oil - the country's main revenue earner - continues to fall.

Oil is Ecuador's main source of income and accounts for 40% of the national budget.

Oil rises to USD 47 as OPEC prepares production cut

Oil prices rose to above USD 47 a barrel on Monday in Asia as investors anticipated OPEC will announce a large production cut at its meeting this week.

Light, sweet crude for January delivery was up 92 cents to USD 47.20 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.



The contract on Friday fell USD 1.70 to settle at USD 46.28.



The Organization of Petroleum Exporting Countries, which accounts for 40 per cent of global supply, has signaled it plans to announce a substantial reduction of output quotas

at its meeting Wednesday in Algeria.



Oil Minister Gholam Hossein Nozari was quoted on his ministry's web site saying that Iran would push for a production cut of 1.5 to 2 million barrels per day.



Analysts have questioned whether OPEC members will follow through with any announced cut.



"They're talking about a severe cut, but the question is their discipline," said Christoffer Moltke-Leth, head of

sales trading at investment firm Saxo Capital Markets in Singapore.



"Unless they really surprise the market, this cut may not support the price much."



Oil has jumped from a four-year low earlier this month of USD 40.50 a barrel on expectations an OPEC output reduction could be the catalyst to stabilise the oil price, which has fallen 65 per cent since July.



Investors largely ignored OPEC's 1.5 million barrels a day output cut in October, focusing instead on a slowing

global economy that's hurt crude demand.



More bad macro-economic and company news from the U.S. and Europe over the coming weeks will likely push oil prices lower, Moltke-Leth said.

Irish banks to be recapitalised

The Irish government is to provide a fund of £9bn (10bn euros) to recapitalise all its listed banks.

The money will be available to AIB, Anglo-Irish, Irish Nationwide, Irish Life & Permanent and Bank of Ireland, which owns the Bristol & West bank.

However before any money is paid out, the banks must await the outcome of the most recent rights issue.

If private investors choose not to step in, then the state will have to provide the money instead using the fund.

Finance Minister Brian Lenihan told RTE News: "Some financial institutions are so embedded in our economy, in terms of their borrowing and in terms of their deposits, that they are of systemic importance to our economy.

"It's very important that our banking system is seen to sustain our economy and support our economy."

Bank of Ireland and AIB shares have fallen 92% and 88% respectively this year.

Banking fears

The Irish government said the objective of making the fund available was to ensure the long-term sustainability of the banking sector.

It pledged to secure the interests of the taxpayer through appropriate terms and return on the investment.

The Department of Finance said the state may use money from the National Pension Reserve Fund.

The move would help boost the flow of funds to the country's struggling economy, it added.

BBC business correspondent Joe Lynam said that, as a proportion of its economy and banking sector compared to the UK, the Irish bailout represents an even bigger capital injection than Britain's.

ICICI Prudential ties up with American Express

ICICI Prudential Life said that it has entered into a strategic partnership with American Express Banking Corp to offer its products to the bank's customers.

The partnership would enable ICICI Prudential Life offer its insurance products to customers of American Express Banking Corp, ICICI said in a statement in Bangalore on Monday.



The partnership has been established under the referral agency model for three years

Dollar falls on hopes of rate cut

Sterling has stayed near record lows against the euro, while the dollar fell on talks about possible US rate cuts and car industry bail-out scepticism.

Analysts predict the Federal Reserve will announce interest rate cuts on Tuesday after a two-day meeting.

Meanwhile, the pound was put under new pressure as a survey showed another sharp drop in UK house prices.

The dollar fell to $1.3465 against the euro and $1.4983 against the pound, Sterling was at 1.1128 euros.

Bail-out factor

The dollar declined on Monday as the US government said it might use money intended for banks to help carmakers.

Some analysts think that if the plan is implemented, the financial sector will have less funds to spend if needed.

"An interim bail-out plan for US automakers by the Bush administration is certainly weighing on the dollar, with many being sceptical as to how the industry can cope in the longer term and instead thinking that letting the market take its course would be a preferred route," said currency analyst James Hughes at CMC Markets.

The euro was supported by suggestions from European Central Bank officials that interest rates in the eurozone might not fall too much further.

Interest rates are at 2.5% in the eurozone, compared with 2% in the UK and 1% in the US.

PSU banks cut rates on home loans up to Rs 20 lakh

Public sector banks announced on Monday that home loans up to Rs five lakh would be given at a maximum interest rate of 8.5 per cent, while those between Rs 5-20 lakh would be offered at 9.25 per cent.

Besides, the banks would not charge any processing fees and pre-payment charges for loans up to Rs 20 lakh, and would also provide free insurance cover, the Indian Banks Association (IBA) said on Monday.



Outlining the new housing loan package in accordance with the stimulus package announced by the government on 7th December, SBI chairman O P Bhatt said the interest rate under the two schemes could come down, but would not go up beyond the threshold limit of 8.5 and 9.25 per cent for a five year period.



The offering under the packages would be made till 30th June, next year, Bhatt said, adding that after the lock-in period of five years the borrowers could look in for free or floating rates that could change in accordance with market conditions.



To make the package attractive, the public sector banks would give the loans at a margin of 10 per cent up to Rs 5 lakhs and 15 per cent for loans between Rs 5 lakh and Rs 20 lakhs, and in either case, banks would offer free insurance cover, Bhatt said.



Leading private lenders, including ICICI Bank and HDFC, appeared favourably inclined to cut their rates, with sources saying the two lenders would study the PSU banks' package before taking a call.



The sources said any decision would be taken after ascertaining whether PSU banks are getting any government subsidy for implementing the package.



The banks have also decided to cut the lending rates for the micro and medium enterprises by 100 basis points.

Watchdogs criticised over 'fraud'

One of the City's best-known fund managers has criticised US financial regulators for failing to detect early an alleged $50bn (£33bn) fraud.

Nicola Horlick, boss of Bramdean investments, said US regulators had "fallen down on the job".

Bernard Madoff has been charged with fraud in what is being described as one of the biggest-ever such cases.

Among the banks which have been affected are Britain's RBS, Spain's Santander and France's BNP Paribas.

'Financial scandal'

Mrs Horlick told the BBC: "I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they haven fallen down in the job."

"This is the biggest financial scandal, probably in the history of the markets - $50bn is a huge amount of money," she said.

Among those financial institutions which have so far announced investments with Bernard Madoff:

* The Royal Bank of Scotland said on Monday it could potentially lose about £400m from the alleged fraud, if all its investments had to be written off
* Spain's largest bank, Santander, which also owns the UK High Street banks Abbey, Alliance & Leicester and Bradford & Bingley, said one of its funds had $3.1bn invested in the firm run by Bernard Madoff
* France's BNP Paribas estimated its exposure to be more than $460m
* The French bank, Natixis, a subsidiary of Caisse d'Epargne and Banque Populaire, said it could potentially lose up to 450m euros (£402m; $605m)
* One of the world's biggest investment groups, Man, said it had invested about $360m through its RMF institutional fund of funds business, representing 0.5% of its total funds
* Japanese bank Nomura said its exposure was relatively small, at about 27.5bn yen (£201m), and added: "We regard this as non-material, considering our capital base."

'Systemic failures'

Mrs Horlick said 9% of Bramdean's funds were invested with Mr Madoff, but she said even if the money was written off, the fund involved would be down just 4%. I just want to make it clear to investors that even after this, they they would have done extremely well, relative to anything else they could have invested in," she said.

In a statement, Bramdean said: "It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the Madoff funds in good faith.

"The allegations made appear to point to a systemic failure of the regulatory and securities markets regime in the US."

Correspondents say the case is likely to fuel uncertainty about the entire hedge fund industry.

US prosecutors say Mr Madoff, a former head of the Nasdaq stock market, masterminded a fraud of massive proportions through his hedge fund and investment advisory business.

Mr Madoff is alleged to have used money from new investors to pay off existing investors in the fund.

A federal judge has appointed a receiver to oversee Mr Madoff firm's assets and customer accounts, while the 70-year-old banker has been released on $10m bail.

High returns promised

Mr Madoff founded Bernard L Madoff Investment Securities in 1960, but also ran a separate hedge fund business. According to the US Attorney's criminal complaint filed in court, Mr Madoff told at least three employees on Wednesday that the hedge fund business - which served up to 25 clients and had $17.1bn under management - was a fraud and had been insolvent for years.

He said he was "finished", that he had "absolutely nothing" and "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.

Under a Ponzi scheme, which is similar to pyramid schemes, investors are promised very high returns on their investment, while in reality, early investors are paid with money collected from later investors.

If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m.