But the cull will also include hundreds of investment salesmen in branches.HSBC employs more than 50,000 staff in its British operations, so the cull represents around 4 per cent of its workforce.

The move comes just weeks after HSBC posted a £13.8billion profit and handed its boss Stuart Gulliver a pay package worth £8million.

David Fleming, spokesman for the Unite union, said: ‘Bank staff deserve so much more than this awful treatment by HSBC or any other employer. ‘How can this bank consider staff cuts when it was the workforce that delivered it a profit of £13.8billion?’

He added: ‘The hypocrisy of CEO Stuart Gulliver taking home £8million, while talking up job losses in order to save money, will not be lost on the workforce.’

Unlike state-backed rivals Lloyds and Royal Bank of Scotland, which have slashed tens of thousands of jobs, HSBC remains hugely profitable.

But Mr Gulliver aims to shed 30,000 jobs worldwide by 2013 – 10 per cent of its workforce – as it looks to save £2.4billion a year. Last year HSBC cut 7,000 jobs outside the UK, leaving it with 288,000 employees.

It is also sacking hundreds of investment advisers in branches in response to a ban on commissions designed to present future mis-selling scandals. This will be enforced by the City watchdog at the end of the year.

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The Bank’s figures, described by one expert as horrific, highlight the nightmare facing small firms which urgently need money to survive or expand. Its authoritative report reveals lending to small companies has been falling for nearly three years.

Since October 2009, lending to small firms has dropped every single month, compared with the same month in the previous year.

The latest figures, published yesterday, show it was 3.9 per cent lower in February compared with last year, when it was also lower than in February 2010.

To make matters worse, the interest rate being charged by the banks has jumped to the highest level since the Bank cut the base rate to an historic low of 0.5 per cent in March 2009.

At present, the smallest firms in Britain are being charged an average interest rate of 4.83 per cent – nearly ten times the base rate. Lord Oakeshott, a leading Liberal Democrat peer, said: ‘These small business lending figures are simply horrific.

The banks keep charging more and lending less to [small firms].

‘Why can’t the Treasury see that the economy and jobs can’t motor while they let the banks keep siphoning the petrol out of small businesses’ tanks?’

The report comes just days after MPs warned small firms are facing ‘serious and often insurmountable problems’ in getting money from banks at a ‘reasonable’ rate.

The report, from the Treasury Committee, also raised doubts about the Government’s latest attempt to send a financial lifeline to small firms.

MPs said they were concerned that the National Loan Guarantee Scheme ‘was not designed to solve the problem that many small firms, who may be reasonable credit risks, are unable to access bank funding at all in the current market conditions’.

The scheme involves the Government guaranteeing up to £20billion of cheaper loans to small firms. The money, which will be handed out by banks such as Barclays, Santander and Royal Bank of Scotland, will be offered at a lower rate than businesses could normally obtain.

The Government’s previous scheme, Project Merlin, also failed after banks promised to hand out a gross target of £76billion to small firms but fell short by more than £1billion.

In July 2010, the Daily Mail launched its ‘Make the Banks Lend’ campaign to highlight the problems facing small firms.
John Walker, national chairman of the Federation of Small Businesses, said: ‘It is clear that more still needs to be done.’

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In a bitter blow to millions of households, deputy governor Paul Tucker said Britain will be stuck with high inflation for much of 2012.

The stark warning from Mr Tucker – who is among the favourites to succeed Sir Mervyn King as governor next year – dashed hopes that the worst squeeze on household incomes since the 1920s will come to an end any time soon.

The Bank also warned that Britain could already be in the midst of a nine-month recession before recovering in the second half of the year.

The gloomy verdict comes as cash-strapped families struggle to make ends meet in the face of muted wage growth and soaring prices.

Savers – who have been hammered since interest rates hit lows of 0.5 per cent more than three years ago – are also suffering as no high street savings accounts are currently beating inflation.

And millions of thrifty pensioners have seen their retirement plans shattered by the Bank’s £325billion money printing programme

Official figures yesterday showed the average pay rise across the country is just 1.1 per cent – well below inflation, which rose from 3.4 per cent in February to 3.5 per cent in March.

Scott Corfe, senior economist at the Centre for Economic and Business Research, said: ‘Household incomes continue to fail to keep pace with the rising cost of living, implying an ongoing erosion of living standards.’

In February, the Bank forecast that inflation would fall to the official 2 per cent target later this year, having peaked at 5.2 per cent last September.

At the time, Sir Mervyn said: ‘With falling inflation and the prospect of an end to the squeeze in real incomes leading to a recovery in growth, we are moving in the right direction.’

But Mr Tucker yesterday admitted there had been ‘bad news on the inflation front’ and it ‘remains uncomfortably above target’, dealing a blow to hopes of recovery.

He told a conference in Liverpool: ‘I think inflation might remain above 3 per cent throughout the second quarter of this year and possibly into the second half of the year.’

Simon Ward, chief economist at asset management firm Henderson, said the Bank was on course for another ‘forecasting miss in 2012’.

He warned that even the projection that inflation would finish the year at 2.75 per cent may be too optimistic.
The Bank is likely to have to ratchet up its predictions once again in next month’s Inflation Report, in another embarrassing revision to its forecasts.

Mr Tucker blamed a 5 per cent rise in oil and gas prices since February and a host of tax changes in last month’s Budget, including a 37p rise in cigarette duty.

‘Already in February there was a risk that inflation might fall back towards target less quickly than incorporated into our “most likely” central outlook,’ he added.

Mr Tucker’s comments suggested that the Bank will not sanction printing any more money through its controversial quantitative easing programme.

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A report by the Institute of Economic Affairs found that stimulus measures pursued by Western governments in response to the economic crisis did not work.

Shadow Chancellor Ed Balls has repeatedly called on the Government to soften its deficit reduction plans and embark on a ‘Plan B’, which would include more public spending in an attempt to boost growth.

But the institute’s study said Plan B would be disastrous for the British economy, and that all Western economies needed drastic fiscal and tax reform if they were to overcome their sovereign debt crises.

Mark Littlewood, director general of the Institute of Economic Affairs, said: ‘We must resist the calls of those who say that one last, big spending push could get the economy back to meaningful growth.

The opposite is true.

‘Many Western economies might well be tipping back towards recession partly because of these giant fiscal packages that were enacted in 2009, and the coalition Government must resist calls for any Plan B that involves more government borrowing and spending.

‘The Government must be firm on deficit reduction – in fact it should go a lot further, and should look to robust supply-side reform to boost growth.’

The study concluded that the negative effect of Labour’s stimulus package in 2009 might even be being felt now, and that the UK might be experiencing faster growth if Labour had not increased spending.

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Maybe not its total evaporation, but certainly shrinkage with peripheral or weak countries falling off the currency’s map and in all cases, according to the experts, with a heavy price to pay.

Analysts agree that no country would emerge unscathed, at least in the short term. As for the long term? Well, few even dare to imagine the fall-out.

In the view of London-based Capital Economics, even a limited re-drawing of the eurozone’s borders, with the exit of the bailed-out trio of Greece, Ireland and Portugal over the next two years, would trigger a drop in eurozone gross domestic product (GDP) of 1.0 percent in 2012 and 2.5 percent in 2013.

That would equate to the same sort of economic contraction endured between 2008 and 2009 following the financial crisis triggered by the collapse in the US home loan market.

In a recent note to investors, UBS bank calculated that if a “weak” euro country like Greece gave up the currency it would cost every man, woman and child there some 10,000 euros (more than 13,000 dollars) each in the first year, and thousands more over the adjustment period.

Even a “strong” country like Germany would see a loss of between 6,000 and 8,000 euros per head in year one — between one quarter and one fifth of the country’s annual economic output.

According to Jens Nordvig of Japan’s Nomura Securities, Germany’s currency would rise against the dollar, but Greece would lose 60 percent of its money’s value. Italy, Spain or Belgium would lose around a third each.

While scope for exports would improve, debt restructuring on that basis would mean a dramatic rise in borrowing costs for those governments who write off the most.

National banking systems would collapse, experts say, due to a loss of confidence in the value of the currency that replaced the euro.

This isn’t rocket science panicking over hard-earned savings, experience shows citizens pull out what they can and flee while companies would struggle to raise investment capital.

If the economy stopped functioning normally, there would then be the threat of widespread social unrest. Germany, meanwhile, would lose export business due to a rising national currency and also the emergence of new, cheaper European competition.

It would be no different in the event Italy or some other big eurozone economy left.

Jacques Cailloux, a Paris-based economist with the Royal Bank of Scotland, told AFP that were France to exit the eurozone, Germany would suffer because “its banking system would be staring at exposure to French banking debt worth some 200 billion euros”.

US banks would be looking at 10 times that amount, Cailloux added ominously. Looking further down the line, Capital Economics believes prospects for ex-eurozone economies “may be improved by the ability of (these) former member states to set their own policy and allow their currencies to fluctuate.”

Wages would not have to drop under a devaluation, while suddenly a bottle of ouzo would not cost as much for others to import, for example.

“It’s hard to put a price on it, but clearly it would mean a huge cost, if not quite apocalyptic,” Cailloux said of the price for even partial eurozone break-up.

British banks and Asian-based multinational companies are already engaged in prudent contingency planning for the worst-case scenario.

And as Cailloux says, the problem is “everyone is going to have to plan for this eventuality, that’s the issue for 2012″.

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Speaking in New York late on Tuesday, chief executive Vikram Pandit said that the bank has already made $1.4bn in savings this year but needs to respond to slow markets by reducing costs further.

City A.M. understands that the cuts in the Europe, Middle East and Asia (EMEA) region involve six per cent, or 99 staff of its 1,600 capital markets front-office staff being laid off.

That is in addition to cuts in investment banking and mid- or back-office roles, which are said to be in the several hundreds.

Those made redundant will have to clear their desks this week after notices yesterday and today.

They will get at least three months’ pay with potential for more and the possibility of stock options being paid out.

Citi has said the cuts will produce a one-off cost of $400m. They will fall across numerous divisions within capital markets, including equities, fixed income, sales and trading.

Those familiar with the bank said that equities is likely to be hit hardest because it has escaped being cut as much as fixed income so far.

Overall, Citi has about 10,000 staff in London and 267,000 globally, which means the cuts announced on Tuesday amount to two per cent of its headcount, with Europe likely to take larger cuts than others.

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France is fighting desperately to retain its ‘triple-A’ credit status and has slashed spending and tightened up on tax revenues in an effort to stabilise its strained public finances but the markets are not convinced.

“Last week, the difference in yield between French and German 10-year government bonds breached 200 basis points, a euro-era record amid increased economic and financial market uncertainty in the region,” Moody’s Investors Service said.

“Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications,” it said in a website statement.

Even though the spread between German and French borrowing costs has since narrowed slightly, France still pays “nearly twice as much as Germany for long-term funding.

“With the government’s forecast for real (gross domestic product) growth of a mere 1.0 percent in 2012, a higher interest burden will make achieving targeted fiscal deficit reduction more difficult,” it said.

The agency, one of the top three credit-rating groups, said “the domestic and external economic growth outlook presents significant downside risks.

“The French social model cannot be financed if the French economy’s potential is not preserved,” it said, adding that managing the eurozone debt crisis only makes the government’s task harder.

The crisis “will influence the value and credit quality of sovereign assets on French banks’ balance sheets and affect their funding costs and capacity to lend and bolster the economy,” it said.

At the same time, Moody’s said that despite the deterioration in the debt profile and the potential for increased costs, the rating level itself appeared safe for the moment.

The problems facing France were highlighted again on Monday as the financial markets faced fresh turmoil, finding no support in a right-wing government winning power in Spain and fearful that efforts to reach a bipartisan deal to tame the massive US debt were about to fail.

If the Washington talks do fail, as most feel is now likely, then the US debt problems would take centre stage, compounding the eurozone crisis.

Analysts in Paris said Moody’s warning was hardly surprising, highlighting the difficult situation France and the eurozone face as the crisis saps confidence and encourages investors to seek out safety at all costs.

Moody’s statement highlights the fact “that France no longer deserves its triple ‘A’ rating,” said Laurent Geronomi at Swiss Life Gestion.

“The markets are going even further and wonder now when France is going to lose its triple A — before or after the (May 2012 presidential elections,” Geronomi added.

President Nicolas Sarkozy, lagging in the opinion polls, says he will do everything possible to ensure France keeps its top rating.

The stakes could not be higher.

“France is caught up in the contagion spiral,” said Frederik Ducrozet, bond strategist at Credit Agricole.

“The government can announce all the austerity measures it likes but the country is trapped now in a vicious circle,” he said.

Edward Hugh, an independent economist based in Spain’s Catalonia, warned that until Germany, Europe’s paymaster and largest economy, puts up the money to back weaker eurozone states, “this is not going to stop.”

Paris faces a real problem, Hugh said. “The French banking system has 400 billion euros’ exposure to both public sector and private sector debt in Italy … so if anything happens to Italy, France has gone.” – AFP.

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Many aspects of the property and mortgage market have been encouraging in recent months, with Barclays relaunching into 90 per cent mortgages and Nationwide improving its availability of high loan to value (LTV) loans.

The story over the summer was one of improving mortgage rates and more competition in the market that was providing more opportunity for borrowers to make savings, says David Hollingworth from mortgage brokers London & Country.

Landlords have been rubbing their hands with glee over rising rents and lenders have been getting on board. The volume of buy-to-let mortgages has jumped by 16 per cent in the last quarter, according to the latest figures from the Council of Mortgage Lenders (CML), totalling 34,500 in the three months to September and marking its highest level in three years.

Nottingham Building Society currently offers a deal at 4.19 per cent, albeit with a hefty £1,299 fee, fixed until February 2014 for borrowers with a 25 per cent deposit. In one recent move in the buy-to-let market, Woolwich improved the maximum LTV it would offer to wannabe landlords to 75 per cent.

However, Mr Hollingworth says the trend for ever cheaper mortgage rates is one that is on the turn, and points to rate changes this week from Nationwide, Woolwich/Barclays, Skipton and ING.

Although lenders have been seemingly more competitive, he reminds homeowners that the amount of lending in the market has not increased and could fall back a little depending on how the eurozone pans out.

“The continued problems in the eurozone have resulted in an increase in funding costs for lenders and that is feeding through to the mortgage products in the UK,” says Mr Hollingworth. “Some may have come down a little but these tend to be the exception to prove the rule.”

New CML statistics also show that the number of loans dipped in September. There were 48,200 loans taken out for house purchase in September (worth £7.1bn), down 2 per cent on August, although up 3 per cent compared with September 2010.

For remortgaging, there were 34,200 (worth £4.3bn), representing a 1 per cent decline the month before, but a 25 per cent uplift on a year ago.

For anyone wanting to remortgage now, the experts say that this could be the ideal time to switch to a fix. Fixed-rate mortgages offer protection against future rises in interest rates anyone looking for security should act now.

“Several lenders have increased their rates in recent days, often with little or no notice at all, and I expect this to continue,” says Andrew Montlake from mortgage brokers Coreco. “With this in mind it seems that we have now passed the lowest point in the current interest rate cycle and it does seem sensible to look at locking into a rate now.”

He argues that even if the situation begins to settle and more competition returns to the market, it is still highly unlikely that rates will come back down below the current levels.

“The potential upside of rates getting lower is a small one, while the downside of rates getting ever more expensive once more is much larger and there are many, who feel they have ridden their luck long enough,” says Mr Montlake.

Even with no indication that we will see an upward movement in base rate soon, fixed rates still look appealing. Top deals include the 2.89 per cent fix (until November 2014) from Yorkshire BS at 75 per cent LTV with a £495 fee and for first time buyers (FTBs).

Skipton is offering a 95 per cent LTV deal costing 5.99 per cent until January 2014 with a £195 fee, and HSBC has a fee-free 4.89 per cent loan at 90 per cent LTV, fixed until January 2017.

Helen Adams from FirstRung Now.com has concerns about the future for new homeowners. Deposit demands are still a huge hurdle but this week first timers may have had some good news in the shape of Clydesdale and Yorkshire offering attractively priced mortgages with as little as 5 per cent deposit, at a rate of 5.49 per cent fixed for three years, with a fee of just £599 (although this rises steeply to 6.12 per cent for 95 per cent LTV loans). However, Ms Adams predicts that things could soon turn sour.

“I foresee more hesitancy from lenders towards FTBs,” she says. “The trend for parental help will continue. My advice: keep your head down, tighten your belt and save. You never know what’s round the corner.”

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The Bank of England said the crisis in the eurozone and slowdown in the global economy have deprived UK lenders of access to vital funds.

Britain has a one in three chance of tumbling back into recession but the squeeze on household finances is finally coming to an end, the Bank added yesterday.

Governor Sir Mervyn King said the UK economy ‘could be broadly flat until around the middle of next year’ as the Bank slashed its forecasts for growth and inflation.

Weaker growth threatens to blow a hole in the Chancellor’s plans to slash the record deficit racked up by years of borrowing and spending under Labour.

It piles pressure on George Osborne to produce a comprehensive plan to boost economic growth in the Autumn Statement at the end of this month.

In its latest inflation report yesterday, the Bank said British lenders have found it increasingly hard to raise funds since the eurozone debt crisis escalated over the summer.

One key funding measure – the cost of insuring UK banks against default – rose ‘significantly’ in August and September to above the level seen ahead of the collapse of U.S. investment bank Lehman Brothers.

The report warned that if the ‘strains’ on the UK banking system persist, it will hit households and businesses ‘as banks pass on higher funding costs to borrowers and scale back lending’.

That would wreak havoc in the housing market and leave millions of small businesses already starved of the loans they need to prosper facing collapse.

The Bank slashed its economic growth forecasts to around 1 per cent for both 2011 and 2012 from the 1.5 per cent and 2.2 per cent predicted in August.

It pencilled in growth of around 2.5 per cent in 2013 but conceded that the ‘prospects for the UK economy have worsened’ over the summer.

Sir Mervyn said the crisis in the eurozone is the ‘single biggest risk’ to Britain and admitted the Bank has ‘no idea how this will be resolved’ in an attack on dithering politicians in the single currency bloc.

Official meetings come and go but the underlying global problems remain,’ said Sir Mervyn. ‘The journey to a more balanced world economy will be long and arduous.’

But he added that inflation will ‘fall back sharply next year’ towards the 2 per cent target from the current level of 5 per cent.
‘The extraordinary squeeze on real take-home pay that we have seen in the last three years should now begin to come to an end,’ he said.

It was the one silver lining in a bleak report.

Last night experts warned that the Bank’s report may be ‘optimistic’. Vicky Redwood, chief UK economist at Capital Economics, said: ‘Even the Bank’s downgraded growth forecasts still look optimistic to us. We expect zero growth next year.’

Ross Walker, chief UK economist at Royal Bank of Scotland, said: ‘The UK economy isn’t back in recession but it is on the edge. We are stalling.’

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“Credit has been growing at an extraordinary pace, particularly for loans in foreign currency,” the IMF said in a report released today. Such growth may “lead to a worsening of average credit quality” and create “strains on bank funding,” it said.

The U.S. Fed’s pledge to keep borrowing costs at near zero through at least mid-2013 and credit tightening in China have spurred loan demand from Chinese companies in Hong Kong, where a currency peg means the city’s interest rates track those in the U.S.

Chief Executive Donald Tsang warned last week that there’s a 50 percent chance the global economy will shrink next year and Hong Kong may see “a couple of quarters of bad times” as Europe’s debt crisis roiled markets.

While the development of offshore yuan business is “positive” for the city, growing deposits in the Chinese currency may intensify competition for deposits in other currencies that result in higher funding costs, the IMF said.

China needs to raise the convertibility of its capital account to encourage yuan repatriation as the offshore market continues to grow, it said.

Raising Rates

As Hong Kong-dollar loans rose with contracted deposits, the loan-to-deposit ratio in the local currency increased to 87 percent by the end of September from 78 percent a year earlier, Hong Kong Monetary Authority data released on Oct. 31 showed.

There is scope for the city’s banks to further raise interest rates on demand for loans, Norman Chan, head of the HKMA said Nov. 4.

The city’s de facto central bank asked lenders in April to reassess their funding plans amid concerns that “unsustainable” credit growth will curb liquidity and cut loan quality.

The rising liquidity strain may hurt bank asset quality and limit earnings growth, China International Capital Corporation Ltd. said in a report this month.

The IMF expects Hong Kong’s economy will slow to 4 percent in 2012, down from 5.75 percent this year, on weaker export demand.

Should the European crisis worsen and bring a “sudden downside shock” that cuts global growth by 3 percentage points, the city will fall into recession and the city government should prepare to adopt immediate fiscal stimulus such as tax reductions, the fund said.

Cash Handouts

Hong Kong will take “appropriate measures” to stabilize its monetary and banking systems if necessary, HKMA’s Chan said today in a statement in response to the IMF’s report. Financial Secretary John Tsang said the city will act “against any possible adverse events.”

Hong Kong skirted a recession in the third quarter, when the economy expanded 0.1 percent from the previous three months, government data last week showed. Low unemployment and increasing numbers of Chinese tourists boosted consumption even as Europe’s crisis crimped exports.

“Domestic growth is quite strong, the economy appears to be operating above potential,” Nigel Chalk, the IMF’s Washington-based China mission chief, said today via a video teleconference.

“From a macro-economic perspective, you don’t see the need for universal transfers” to households via one-off measures including cash handouts and such temporary policies could be discontinued in the upcoming budget, he said.

Inflation Eases

The city will address the needs of the middle class in the budget in February, Donald Tsang said last month after announcing relief measures for low-income families. The government doled out HK$6,000 ($771) in cash to each permanent resident in a budget U-turn in March this year.

Besides weakness in global trade, Hong Kong is grappling with elevated inflation and the risk of a slumping housing market. Consumer-price growth will ease to a range of 4 percent to 5 percent next year on slowdown in global economy and food price gains imported from China, the IMF said.

Residential property prices slid to the lowest in more than six months last week as the threat of recession continues to dent buyer sentiment, after home prices surged to about 70 percent since the start of 2009 on low mortgage rates and an influx of Chinese buyers.

The financial secretary Tsang said Oct. 27 he sees “downside” risk in the home market on the chance of a global economic slowdown.

Social Burden

There are signs that the city’s property market may cool, while it’s still early to determine if such a slowdown will persist, the IMF said.

The government’s reintroduction of a government-subsidized home plan is appropriate to lessen the social burden on renters and new households that do not yet own a home, according to the report.

Rising property and inflation have led to criticism of the city’s linked exchange rate system, which Hong Kong has maintained since 1983.

Proposals to change the peg are “ill- conceived” as that would sacrifice the city’s monetary and financial stability, the IMF said.

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