Montana's State-Run Free Clinic Sees Early Success

Montana opened the first government-run medical clinic for state employees last fall. A year later, the state says the clinic is already saving money.

Dan Boyce for NPR Montana opened the first government-run medical clinic for state employees last fall. A year later, the state says the clinic is already saving money.

Dan Boyce for NPR

A year ago, Montana opened the nation's first clinic for free primary healthcare services to its state government employees. The Helena, Mont., clinic was pitched as a way to improve overall employee health, but the idea has faced its fair share of political opposition.

A year later, the state says the clinic is already saving money.

Pamela Weitz, a 61-year-old state library technician, was skeptical about the place at first.

"I thought it was just the goofiest idea, but you know, it's really good," she says. In the last year, she's been there for checkups, blood tests and flu shots. She doesn't have to go; she still has her normal health insurance provided by the state. But at the clinic, she has no co-pays, no deductibles. It's free.

That's the case for the Helena area's 11,000 state workers and their dependents. With an appointment, patients wait just a couple minutes to see a doctor. Visitation is more than 75 percent higher than initial estimates.

"For goodness sakes, of course the employees and the retirees like it, it's free," says Republican State Sen. Dave Lewis.

He wonders what that free price tag is actually costing the state government as well as the wider Helena community.

"If they're taking money out of the hospital's pocket, the hospital's raising the price on other things to offset that," Lewis says.

He and others faulted then-Gov. Brian Schweitzer for moving ahead with the clinic last year without approval of the state legislature, although it was not needed.

Now, Lewis is a retired state employee himself. He says, personally, he does like going there, too.

"They're wonderful people, they do a great job, but as a legislator, I wonder how in the heck we can pay for it very long," Lewis says.

Lower Costs For Employees And Montana

The state contracts with a private company to run the facility and pays for everything — wages of the staff, total costs of all the visits. Those are all new expenses, and they all come from the budget for state employee healthcare.

Even so, division manager Russ Hill says it's actually costing the state $1,500,000 less for healthcare than before the clinic opened.

"Because there's no markup, our cost per visit is lower than in a private fee-for-service environment," Hill says.

Physicians are paid by the hour, not by the number of procedures they prescribe like many in the private sector. The state is able to buy supplies at lower prices.

“ Because there's no markup, our cost per visit is lower than in a private fee-for-service environment.

- Russ Hill of the Montana Health Center

Bottom line: a patient's visit to the employee health clinic costs the state about half what it would cost if that patient went to a private doctor. And because it's free to patients, hundreds of people have come in who had not seen a doctor for at least two years.

Hill says the facility is catching a lot, including 600 people who have diabetes, 1,300 people with high cholesterol, 1,600 people with high blood pressure and 2,600 patients diagnosed as obese. Treating these conditions early could avoid heart attacks, amputations, or other expensive hospital visits down the line, saving the state more money.

Clinic operations director and physician's assistant Jimmie Barnwell says this model feels more rewarding to him.

"Having those barriers of time and money taken out of the way are a big part [of what gets] people to come into the clinic. But then, when they come into the clinic, they get a lot of face time with the nurses and the doctors," Barnwell says.

That personal attention has proved valuable for library technician Pamela Weitz. A mammogram late last year found a lump.

"That doctor called me like three or four times, and I had like three letters from the clinic reminding me, 'You can't let this go, you've got to follow up on it,' " she says.

Two more mammograms and an ultrasound later, doctors think it's just a calcium deposit, but they want her to keep watching it and come in for another mammogram in October.

Weitz says they've had that same persistence with her other health issues like her high blood pressure. She feels the clinic really cares about her.

"Yeah, they've been very good, very good," she says.

Montana recently opened a second state employee health clinic in Billings, the state's largest city. Others are in the works.

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Is The Way To Tech Workers' Loyalty Through Their Stomachs?

Ari Dvorin was hired in May as the first corporate chef at SpareFoot, a startup in Austin, Texas. Here, Dvorin cuts suckling pig for a mockumentary SpareFoot made.

Jenny Zhang/Courtesy of SpareFoot Ari Dvorin was hired in May as the first corporate chef at SpareFoot, a startup in Austin, Texas. Here, Dvorin cuts suckling pig for a mockumentary SpareFoot made.

Jenny Zhang/Courtesy of SpareFoot

The dazzling array of food options at the Googleplex campus in Mountain View, Calif. — 25 cafes at last count — is the much-cited example of tech world food perks. And you can peruse the menus at Airbnb and Facebook to get a taste of an equally high bar for not just free food, but worldly food that is designed to delight and fuel employees to work better and harder.

The envy-inducing dishes Facebook's culinary team recently served up include hazelnut peach cheesecake and house-smoked buffalo quail with buttermilk blue cheese. Over at Zynga, employees are spoiled with pickles, yogurt, beef jerky, beer, kombucha and bread — all house made. That's just the tip of the spread prepared by executive chef Matthew DuTrumble and team.

J Sider, founder and CEO of BandPage, a music platform startup in San Francisco, says that when people come for an interview he shows them the BandPage food program and introduces them to corporate chef Callie Waldman. "They walk in the office, which is pretty open, and they can see and smell her foods being made," Sider tells The Salt. "Sometimes she'll put out fresh cookies or granola bars."

The corporate chef trend may have started in California, but it's now spreading to other cities with startups that are competing with each other for engineers, product developers and sales mavens. They're going way beyond fresh doughnuts, as Grub Street's recent list of the best food and drink perks at New York startups shows.

Take SpareFoot, a fast-growing company in Austin, Texas, that's an online marketplace for consumers to find and reserve self-storage units.

"I had heard about Silicon Valley companies having chefs, yes, but more recently many Austin tech startups were doing it, too," Chuck Gordon, founder and CEO of SpareFoot, tells The Salt in an email. "I got a chance to check some of those out and figured we could probably pull off something pretty great at SpareFoot."

In May, after several months of searching, SpareFoot hired Ari Dvorin, who had been the head chef at Facebook's Austin office and also ran his own catering company. Before Dvorin came on board, SpareFoot's 90 employees could count on the company to buy tacos on Mondays and keep a snack shelf fully stocked. But otherwise, it was basically "fend for yourself," says Dvorin.

Rachel Greenfield, a marketing manager who's been with SpareFoot for 2 1/2 years, says she used to go out for lunch, but got burned out on the nearby options. Now that Dvorin cooks lunch every day for her and her colleagues, Greenfield says, "lunch has become a fun social moment, a gathering space with a lot of intermingling. It reminds me of school lunch, except that we're all beyond the clique part. People don't linger too long — they want to get back to work, so it's very time-efficient for us."

One of Dvorin's salads, which he prepares daily for SpareFoot's 90 employees.

Jenny Zhang/Courtesy of SpareFoot One of Dvorin's salads, which he prepares daily for SpareFoot's 90 employees.

Jenny Zhang/Courtesy of SpareFoot

When SpareFoot moved into its current space, it had no need for a chef or a kitchen. So Dvorin has to cook the lunch early in the morning at a kitchen he rents across town and transports it to the office, where he has a small space with an oven to finish cooking.

It's tough work to get the timing right, especially since the menu changes every day for two months, he says. But he far prefers it to working in a restaurant, where "the menu was the same and you are stuck working in a 4-by-4 foot area."

Like a lot of tech startup chefs, Dvorin is big on themes. On Monday, he serves comfort food, then it's Taco Tuesday and International Wednesday. And every day there are fresh salads and vegetarian options. "Everyone is so appreciative of the food and dining experience," he says.

That's exactly what the CEOs hope to get out of investing in a chef who caters directly to employees. According to Sider of BandPage, food programs drive a lot of value to tech companies.

"What we've seen is that it's certainly worth the cost; the chef and the food program yield productivity, stronger culture, stronger community," he says. "We can really see the benefits." Eating together every day, he says, is a team building exercise: "Instead of doing trust falls we have a chef."

Young chefs coming out of the top culinary schools also seem to be drawn to these new opportunities, according to Jan Smith, spokeswoman for the Culinary Institute of America. "We have had a steady flow of externs at Google, and ... at least one grad who worked at Facebook," she says.

Waldman, the chef at BandPage, says working for a competitive tech company creates unique challenges.

"It's really important to me that I'm able to cook a variety of meals so that the employees don't feel as if they're eating at the same restaurant every day," she says. "The challenge ... of constant innovation feeds my creative side and keeps things interesting for everyone, myself included." Recently, that meant playing around with variations on Taco Tuesday: Japanese sushi tacos and Indian-style tikka masala tacos.

And, Waldman adds, it's a lot more rewarding to cook for colleagues whom you know and respect.

"I couldn't imagine switching to the restaurant industry, cooking from the same menu every day where meals go through the double doors having no idea who's on the other side."

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Regulators Near Settlement With JPMorgan Chase

Federal regulators are close to announcing a settlement with JPMorgan Chase. The bank was accused of manipulating prices in the U.S. energy market. It's not yet clear whether JPMorgan will be forced to admit wrongdoing.

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RENEE MONTAGNE, HOST:

Now this morning, the Federal Energy Regulatory Commission announced a historic settlement with JPMorgan Chase. The government says a subsidiary of the bank manipulated energy markets in California and the Midwest. As a result, the government says JPMorgan made sizable profits that were improper. The company neither admits nor denies the alleged violations but has agreed to pay more than 400 million dollars.

NPR's Wendy Kaufman has more.

WENDY KAUFMAN, BYLINE: Federal regulators say JPMorgan used 12 different manipulative bidding strategies to unfairly inflate the price the company received for electricity from its power plants.

Nancy Saracino is general counsel for the California Independent System Operator which runs California's energy grid. She says in one scheme JPMorgan would offer very cheap prices for its energy during late night hours.

NANCY SARACINO: So our market would say, great, let's use those units to generate electricity. And then after midnight, the price would all of a sudden skyrocket up 1,000 times the price and so our market would say, hey, wait, we no longer want your units, please stop generating, but because these are old power plants that take a long time to slow down and we would be stuck paying them for that time.

KAUFMAN: As a result of today's settlement, $124 million will be returned to California rate payers. Saracino calls it a vindication for them and for market participants who play by the rules. A million dollars will be returned to Midwestern rate payers and the penalty, $285 million will go to the U.S. Treasury.

Wendy Kaufman, NPR News.

Copyright © 2013 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

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White House Proposes Major Changes To Corporate Tax Code

President Obama traveled to Tennessee on Tuesday, another event in his recent push to emphasize jobs and the economy.

Copyright © 2013 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

AUDIE CORNISH, HOST:

President Obama's economic road trip took him to Chattanooga, Tennessee, today. He visited an Amazon warehouse just after the Internet retailing giant announced that it's adding more than 5,000 jobs. The president spoke of employment as a source of pride and dignity.

PRESIDENT BARACK OBAMA: It's proof that you're doing the right things and meeting your responsibilities and contributing to the fabric of your community and helping to build the country. That's what a job is all about.

CORNISH: The White House also used today's event to roll out a proposal to change the corporate tax code. President Obama said it will help create middle-class jobs. NPR's Ari Shapiro was traveling with the president and joins us now. And, Ari, what exactly is being proposed here? And is there anything in it to attract Republicans?

ARI SHAPIRO, BYLINE: The president says the fact that he wants to lower corporate tax rate should attract Republican interest. Right now, the standard rate is 35 percent. He wants to bring it down to 28 percent with an even lower tax rate for manufacturers of 25 percent. Right now, some companies use loopholes to pay almost no taxes. And the president wants to eliminate some of those loopholes so there would be more tax revenue even with the lower rates.

Republicans are not crazy about the revenue part of this plan. They like the lower rates. But they also don't want other family-owned businesses that pay taxes as individuals to pay a higher tax rate.

CORNISH: And what about his own party? What's in this for Democrats?

SHAPIRO: Well, President Obama wants to impose fees on overseas profits. He says that'll encourage U.S. companies to create jobs here at home. And then the president wants to use the new revenue from closing loopholes and those fees to repair roads and bridges, to improve community colleges and fund other kinds of spending that he says will help build a strong economic foundation for the country. Here's how he put it in Chattanooga.

OBAMA: I'm willing to work with Republicans on reforming our corporate tax code as long as we use the money from transitioning to a simpler tax system for a significant investment in creating middle-class jobs. That's the deal.

(APPLAUSE)

CORNISH: That's the deal, the president says.

(LAUGHTER)

CORNISH: What's the reaction so far from the Republican side?

SHAPIRO: The reaction from Republicans is no deal. A spokesman for House Speaker John Boehner said that the so-called grand bargain is neither grand nor a bargain. Republicans...

CORNISH: And I believe we just lost Ari. Oh, Ari, are you there?

SHAPIRO: I'm here on the phone. The Republicans say...

CORNISH: OK.

SHAPIRO: ...it's a mistake to change the corporate tax code without lowering individual tax rate at the same time. They also opposed government spending or stimulus to boost the economy.

And then finally, this morning, Speaker John Boehner's office said the fact that President Obama began by leaking the details of his plan to the media shows that he's not serious about negotiating. But then on Air Force One, Press Secretary Jay Carney told us that the White House legislative director actually called Boehner's office yesterday, but Boehner's chief of staff did not return the call.

CORNISH: Finally, Ari, this is President Obama's fourth economic speech in less than a week. You've heard them all. What you hear, you know, judge how it's going so far.

SHAPIRO: You know, we keep asking the White House how they'll judge success. And the answer is a little bit murky. Aides say they want to re-center the debate in Washington on helping the middle class and boosting the economy.

And strictly speaking, it's true that every time President Obama gives one of these speeches, Republicans engage in the debate. But so far, that debate doesn't seem to be very productive. The president makes suggestions, Republicans dismiss them as old news or unhelpful. That said, this is just the first week of this approach and a lot of this may be a buildup to a series of fiscal showdowns in the fall. It could be that the real test of whether these speeches work is whether those showdowns go the way the White House wants or whether Republicans are able to get some significant concessions from the White House on spending and deficits.

CORNISH: That's NPR's Ari Shapiro. He is traveling with President Obama. Ari, thanks for getting on the line with us.

(LAUGHTER)

SHAPIRO: No problem, Audie.

(SOUNDBITE OF MUSIC)

CORNISH: You're listening to ALL THINGS CONSIDERED from NPR News.

Copyright © 2013 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

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Legal Battles Over Land Rights, Pipelines Are On The Rise

The Crosstex NGL Pipeline is just one such project in the country that has forced long, unwanted legal battles between oil companies and landowners.

Mose Buchele/KUT The Crosstex NGL Pipeline is just one such project in the country that has forced long, unwanted legal battles between oil companies and landowners.

Mose Buchele/KUT

At Margaret O'Keefe's farm in East Texas, they grow high-quality Bermuda grass. The fields are flat and vibrant green, surrounded by woods of a darker, richer green. The family loves this land. O'Keefe inherited it from her mother, who divided it among eight children.

"She used to call it 'enchanted valley,' " O'Keefe says.

But her "enchanted valley" also lies in the path of the Crosstex NGL Pipeline.

That's a 130-mile underground pipeline to funnel natural gas liquids from Texas to processing plants in Louisiana. There, the component gasses like ethane and propane will be separated out and sold. The project is well underway. Crews are preparing to bore under her neighbor's field to bury the pipe underground.

Laying pipeline is a scene that's playing out all over the country. As the drilling method known as "fracking" unleashes vast amounts of fossil fuel, pipeline companies are scrambling to bring it to refineries. The industry estimates that the United States will need to add 2,000 miles of pipeline per year — and that's just natural gas. Oil will need its own infrastructure. That means there will be a lot of pipeline going through a lot of private land.

Usually the companies cut a deal with landowners, but in a growing number of cases, the decisions are being made in a courtroom, not around the kitchen table.

Back at O'Keefe's kitchen table, Margaret's brother Dick explains that the family didn't like how they were being treated by representatives from the pipeline.

"We, as small landowners, we can't afford to fight this pipeline company," he says.

So they said no deal to selling their land. And the company's response?

"They turned it over to the lawyers," Dick says. "Got a nice, fat packet in the mail. It said, 'We'll see you in court.' "

Crosstex didn't respond to an interview request. But court records confirm the company did start legal proceedings against the O'Keefes. In many states, companies have the right to use eminent domain. That refers to the power to have private land "condemned," forcing the owners to sell it.

The process involves sometimes drawn-out court battles across the country. And the legal profession loves it, says William Christian, an Austin-based lawyer who represents landowners.

"Pipelines are going up everywhere, and that leads to a lot of condemnation cases," he says.

But Don Santa, head of the Interstate Natural Gas Association of America, says he thinks that isn't great news for the industry.

"It takes resources," Santa says. "It is time-consuming, but again it has always been part of the process."

So if landowners don't want lawsuits, and companies aren't crazy about them, why do they happen? For one thing, environmentalists who oppose fossil fuels fight the pipelines carrying them. And second, Christian says, the industry is changing, too.

"It seems to be a trend that a lot of landowners who've owned land for a long time and negotiated these easements over a long period of time in recent years have felt like the pipeline companies have gotten more aggressive in the way they've negotiated these easements," Christian says.

U.S. oil production has increased 30 percent in the past five years, and natural gas is booming. As long as that trend continues, Christian sees no end to these disputes.

And this litigation — or at least the threat of it — was enough to convince the O'Keefe's to settle, Dick O'Keefe says

"But it was with the threat of going to court," he says. "They beat us over the head with the threat, to get us to settle up."

He says the family simply didn't want the long legal headache.

Mose Buchele is a reporter for StateImpact Texas. StateImpact is a collaboration between NPR member stations examining the effect of state policy on people's lives.

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China banks could see bad loans rise in 2013-industry body

BEIJING (Reuters): Bad loans at Chinese banks could rise by between 70 billion yuan and 100 billion yuan ($11 billion and $16 billion) in 2013 due in part to delinquency risks from industries plagued by overcapacity, the China Banking Association said in an annual report on the industry.

The report comes several days after Beijing began a new campaign to reduce overcapacity in several industries, a step seen as key to eventually rebalancing China's economic structure. It warned that steel, photovoltaic and shipping sectors may be at the forefront of a new crop of bad loans.

"Such industries facing excessive capacity could lift non-performing loans and require highest attention from banks in their short-term risk control," the industry body said in the report, published on its website late on Tuesday.

Remedying overcapacity could bring some pain to banks, who have historically focused their lending on such sectors.

Total bad loans stood at 526.5 billion yuan at the end of Q1, slightly up from the 492.9 billion yuan at the end of 2012, according to separate figures from the banking regulator.

Earlier this month China's central bank removed controls on bank lending rates, giving banks the freedom to compete for borrowers. Many economists say this will help banks to learn to better price risk and force them to allocate capital more efficiently.

Bank lending is a focal point in China's monetary policy as it is controlled by the ruling Communist Party as a way to manage economic growth and inflation. The government tells banks how much to lend, to who and when.

The association's report said the ratio of non-performing loans to total lending will largely remain at the similar level with 2012, due to a rise in overall lending.

The average bad loan ratio in China's banking system was 0.96 percent at the end of the first quarter of 2013, up slightly from 0.95 percent at the end of 2012.

The report also said that what happens to lending to the property sector and local government financing vehicles will be key to determining the banking sector's long-term asset quality, though it did not elaborate.

Concerns have been raised about the potential for systemic risk from piles of debts collected by local governments and from a possible property bubble, prompting the central government to order a nationwide audit of local debt.

The report also said that shrinking net interest margins and a slowing development of fee-based businesses will dampen profit growth for banks in 2013, but also flagged optimistic signs, noting that China's urbanisation drive and efforts to expand domestic consumption will mean business opportunities.

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Accenture, Which Employs 266,000 People, In Talks To Acquire Rival Booz & Co

Published: Wednesday July 31, 2013 MYT 2:08:00 PM
Updated: Wednesday July 31, 2013 MYT 2:12:51 PM

NEW YORK: Management consulting firm Accenture Plc is in talks to acquire rival Booz & Co, a deal that would beef up its strategy and operations consulting services, the Wall Street Journal reported on Tuesday, citing people familiar with the matter.

Acquisition-hungry Accenture has this year announced it would be acquiring London-based global service design consultancy Fjord and digital marketing company Acquity Group as well as Mortgage Cadence, a loan origination software company.

Representatives for Accenture were not available for comment after normal business hours. A spokeswoman for Booz & Co said the firm does not address market or media speculation pertaining to it.

Accenture has about 266,000 employees worldwide and net revenues of $27.9 billion for the fiscal year ended August 31, 2012, the company's website said.

Booz & Co has over 3,000 employees globally, according to information on the company's website. It ended discussions of a possible merger with A.T. Kearney, another management consulting firm, in July 2010.

Accenture cut its full-year outlook last month, citing a pullback in spending by its consulting business clients, after reporting third-quarter revenue below analysts' estimates.- Reuters

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Abe likely to proceed with tax hike

TOKYO: Japanese Prime Minister Shinzo Abe will likely proceed with raising the national sales tax hike as planned, despite calls within his government to delay or water down the increase, a senior official in Abe's ruling party told Reuters on Wednesday.

Abe has shown no signs that he would change the tax hike plans to accommodate advisers who are urging him to go slow, as that could wreck confidence in the country and push up long-term interest rates, Takeshi Noda, head of the Liberal Democratic Party's tax commission, told Reuters.

The planned sales tax hike is Tokyo's most significant fiscal reform in decades, but the recent debate over alternatives has raised the possibility that Abe might postpone the tightening or ease the tempo of the two-stage plan to double the tax to 10% in two years.

Concerned that the tax hike could derail Japan's nascent economic recovery, Abe has ordered a study of alternatives for implementing the tax increases, including introducing them more gradually, government sources have told Reuters.

But Noda in an interview dismissed the alternatives – championed by academic advisers to the premier – as "armchair theory".

Asked if the sales tax would be raised as planned, he said in an interview: "Of course."

Noda, who recently met with the premier, said Abe gave no impression that he was wavering on the tax plan.

"Confidence in Japan would fall, and government bond yields would be affected" if Tokyo gives the impression that it is faltering on the tax issue, Noda said. "That could be fatal."

"The biggest risk to Abenomics is a spike in interest rates," Noda said.

Abe returned to power in December pledging to revive the world's third-largest economy with his policy mix of aggressive fiscal and monetary stimulus and promises of pro-growth reforms.

With Japan's public debt topping 240% of its GDP, the worst in the industrial world, the prime minister is struggling to balance reviving economic growth against bringing public finances under control.

Under an agreement last year between the LDP, its coalition partner and the previous ruling party, Japan enacted a law calling for the sales tax to be raised to 8% next April and to 10% in October 2015.

But the law requires the government to confirm that the economy is strong enough to withstand the tax increase. Government officials say Abe will look at economic data, especially GDP figures due on Sept 9, and decide on the tax by early October.

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Global Carriers seeks new shareholders, fund injection

Published: Wednesday July 31, 2013 MYT 3:36:00 PM
Updated: Wednesday July 31, 2013 MYT 3:40:21 PM

KUALA LUMPUR: Shipping company, Global Carriers Bhd, is looking for new shareholders and fund injection to strengthen it by revamping its services before next February.

Executive Chairman, Nora Azrina Azlan, said the company faced challenging and difficult times throughout the year as the clean petroleum products market segment, in which the group's vessels were employed, continued to be depressed.

"Shipping is a cyclical business and its performance depends on the economy.

"In addition, the business operations of the company have significantly been affected by the present slump in the global shipping industry," she told a media briefing after presenting the financial year report here today.

She said the harsh market environment continued to squeeze the company's cashflow and profit margins, including its ship asset values which subsequently had to be subjected to accounting impairments.

Nora said the company was currently in the midst of preparing a regularisation plan with a view to reaching an agreement with its lenders to restructure its debts.

"We are also in discussions with our lenders to regularise our financial condition and business operations," she said.

For the first quarter ended March 31, 2013, Global Carriers reduced its net loss to RM4mil from RM4.8mil in the previous corresponding quarter.

Its revenue dropped to RM6.2mil from the RM13.1mil previously.

The company fell into Practice Note 17 (PN17) status on March 1 on the decline in its shareholding equity to RM40mil, which is less than 25% of its issued and paid-up capital.

Global Carriers is also PN1 company due to its default in the repayment of bank borrowings and its inability to provide a solvency declaration to Bursa Securities. - Bernama

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Fitch Ratings revises Petronas outlook to Negative from Stable

Published: Wednesday July 31, 2013 MYT 3:40:00 PM
Updated: Wednesday July 31, 2013 MYT 3:42:24 PM

KUALA LUMPUR: Fitch Ratings has revised the Outlook on Petroliam Nasional Bhd's (Petronas) long-term local currency issuer default rating (IDR) to Negative from Stable, just a day after revising Malaysia's Outlook to Negative.

The ratings agency said on Wednesday that Malaysia's foreign- and local currency IDRs were affirmed at 'A' and its short-term foreign-currency IDR at 'F1'. The Outlook on the long-term foreign currency IDR remains Negative.

Fitch affirmed Petronas' foreign currency senior unsecured rating at 'A', including debt issued by Petronas Capital Ltd and guaranteed by Petronas. Petronas Global Sukuk Ltd's US dollar trust certificates have also been affirmed at 'A'.

Fitch said the latest action followed the revision of Malaysia's Outlook to Negative and the affirmation of its IDRs at 'A-'/'A''.

It said the ratings were constrained by sovereign where Petronas is 100% owned by the Malaysian government (A-/A/Negative). Its current Foreign and Local Currency IDRs were constrained by Malaysia's 'A' Country Ceiling and Local Currency IDR, respectively.

Fitch revised the Outlook on Petronas' Foreign Currency IDR to Negative from Stable in September 2012 due to the sovereign's growing influence over the company's free cash generation.

"This reflects the likelihood that Fitch may cap this rating at Malaysia's Foreign Currency IDR of 'A-', rather than at the Country Ceiling of 'A'. The sovereign has significant influence over the company's financial policies and strategies, and Petronas' dividends continue to be important to government funding," it said.

Fitch said despite the heavy financial commitments imposed by the state, Petronas continued to maintain a strong standalone credit profile.

Its leverage as measured by funds from operations (FFO) adjusted net leverage and FFO interest coverage were negative at 0.7 times and 36.7 times, respectively, for 2012.

Fitch said it continued to believe Petronas was Malaysia's strongest foreign currency debtor.

Tags / Keywords: Business News

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Dialog shares fall on Petronas project delay

Published: Wednesday July 31, 2013 MYT 3:29:00 PM
Updated: Wednesday July 31, 2013 MYT 4:32:29 PM

By Nadya Ngui

KUALA LUMPUR: Shares of Dialog Group Bhd fell to a low of 2.79 on Wednesday on news that Petroliam Nasional Bhd (Petronas) would delay its multi billion ringgit Pengerang refinery project in Johor to late 2017.

The project was set to be the Malaysia’s largest-ever infrastructure project, spanning across 2,000ha and costing RM62.13bil.

At 3.13pm, it was down 18 sen to RM2.82 with 22.76 million shares done between RM2.79 and RM3.

The FBM KLCI fell 18.31 points to 1,776.77. Turnover was 1.3 billion valued at RM1.8bil. There were 727 losers, 91 gainers and 291 counters unchanged.

HwangDBS Vickers Research said the delay would likely have a negative impact on the local oil and gas players.

“Dialog is currently the existing player with exposure to Pengerang by virtue of its deepwater independent terminal.

“The first phase is set to be operational by first quarter 2014 but we believe that the second phase may be delayed as well as the tank capacity was dedicated for the Refinery and Petrochemical Integrated Development (Rapid) project,” it said.

Reuters said Petronas had already put back the project from late 2016 to early 2017 in June and revised the final investment decision (FID) to the first quarter next year, citing state government problems in relocating villages and graves from the 2,000ha site, five times the size of New York’s Central Park.

“As a result of the revised FID date, the Rapid refinery is scheduled to be ready for start-up in the fourth quarter of 2017 and the remaining plants within the complex is scheduled to be commissioned in 2018,” it said.

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Public Mutual declares distributions for 10 funds

Published: Wednesday July 31, 2013 MYT 3:55:00 PM
Updated: Wednesday July 31, 2013 MYT 3:57:44 PM

KUALA LUMPUR: Public Mutual declared distributions ranging from one sen to 5.25 sen for 10 of its funds for the financial year ending Wednesday, July 31, 2013.

It said on Wednesday that for the Public Australia Equity Fund, the gross distribution per unit was 1.0 sen and Public Far-East Property & Resorts Fund  2.0 sen.

For the Public Islamic Select Enterprises Fund, the dividend was 2.25 sen per unit; Public Islamic Opportunities Fund (2.50 sen) and Public Optimal Growth Fund (2.50 sen).

Public Growth Fund (3.0 sen); Public Islamic Select Bond Fund (3.5 sen); Public Islamic Income Fund (3.75 sen); PBB MTN Fund 1 (4.0 sen); Public Bond Fund (5.25 sen).

Public Mutual, which is a unit of Public Bank, is Malaysia's largest private unit trust company with more than 90 unit trust funds under management. As at end June 2013, the total net asset value of the funds managed was RM58.9bil.

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Ex-Workers Sue Apple, Seek Overtime For Daily Bag Searches

SAN FRANCISCO: Two former Apple Inc employees have accused the iPhone maker in a lawsuit of subjecting hourly store workers to daily searches while they were off-the-clock, arguing they should be compensated.

The "screenings" or bag searches, designed to discourage theft, are conducted every time sales reps leave the store, including for meal breaks, the plaintiffs alleged in a lawsuit filed July 25 in a San Francisco federal court.

They are seeking unpaid wages, overtime compensation and other penalties related to what they say is a customary practice across Apple's U.S. showrooms. The two plaintiffs said they worked for Apple over a number of years, from California to Georgia and Florida.

Lawsuits from within Apple's ranks are rare, in part because the company is known to command loyalty amongst its workers. In 2011 however, a part-time employee at an Apple store in San Franciscosought to form a union to fight for better wages and benefits and to address what he called unfair practices within the company's showrooms.

Both plaintiffs, who are seeking class-action status on behalf of every current and former Apple hourly employee, estimated in their lawsuit that they often waited in line for roughly 5 to 10 minutes or more before undergoing each check.

It's unclear whether the policy extends beyond Apple's home shores. The company has more 400 stores around the world.

"This work, done primarily for the employer's benefit, is time which Apple hourly employees should be, but are not compensated for, both straight hours and overtime hours worked in excess of 40 hours a week," the lawsuit read.

Apple did not respond to requests for comment.

The case in U.S. Northern District Court is Amanda Frlekin and Dean Pelle et al v Apple Inc, 3:13-cv-03451-EDL- Reuters

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MBSB Q2 earnings up 76.3% to RM165m

KUALA LUMPUR: Malaysian Building Society Bhd's (MBSB) earnings rose 76.3% to RM165.15mil in the second quarter ended June 30, 2013 from RM93.65mil a year ago, mainly due to the increase in net income from Islamic banking operations.

It said on Wednesday the strong results also saw the group's net return on equity improve to 38.0% as at June 30, 2013 from 37.6% as at March 31, 2013 respectively.

MBSB's revenue increased by 38.2% to RM614.29mil from RM444.47mil a year ago. Earnings per share were 9.78 sen from 7.70 sen.

For the six months period ended June 30, MBSB group achieved a pre-tax profit of RM484.7mil, up 107.9% or RM251.6mil from RM233.1mil in the previous corresponding period.

Its earnings rose 91.4% to RM331.29mil from RM173.07mil. Revenue rose to RM1.176bil from RM823.35mil.

"On a quarterly basis, the group's pre-tax profit is recorded at RM247.6mil which is an increase of 4.4% and 101.9% from the first quarter 2013 and second quarter 2012 respectively. The improved financial results were mainly due to the increase in net income from Islamic banking operations," it said.

MBSB president and CEO Datuk Ahmad Zaini Othman said: "The improved financial results were contributed by retail business. Nevertheless, our corporate business lending activities have also shown marked improvements with disbursements for the first six months of this year increased by 42.1% as compared to the same period in 2012".

 "We continue to improve on collections and recovery for both retail and corporate loans and have recently revised our strategies to target specific groups of assets."

 The group's net NPL ratio stood at 3.2% as at 30 June 2013 from 4.5% as at Dec 31,  2012.

 As at June 30, 2013, net loan, advances and financing stood at RM29.2bil, an increase  of 20.2% as compared to RM24.3bil as at Dec 31, 2012.

 On deposits from customers, Zaini said the deposits were RM26.6bil as at June 30, 2013 expanding by 23.8% from end-2012 of RM21.5bil.

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Mdec says Malaysia to move up outsourcing ladder

KUALA LUMPUR: To help Malaysia down the road to becoming a high income nation, the Multimedia Development Corporation wants to push the country's outsourcing sector up the value chain towards knowledge-based services.

"We are not neglecting the other segments in the shared services and outsourcing sector (SSO), but right now the high-value knowledge process outsourcing (KPO) services would be our main strategic focus," said MDec's vice president for outsourcing, Michael Warren.

"According to Gartner Research, knowledge-based outsourcing is projected to have a compounded annual growth rate of 24% from 2010 to 2014, reaching a market size of US$17bil (RM54.99bil) globally," he explained.

"There is huge potential in this segment," said Warren who pointed out that the knowledge-based segment contributed less than 10% of the total outsourcing services revenue of RM10.4bil last year - mostly in banking, financial services and insurance, oil and gas, and ICT.

He said up to June 30 this year, 16 companies with RM117.33mil's worth of investments wanted to invest in outsourcing services, three of which were knowledge-based companies.

Warren said Malaysia has ranked as the world's third outsourcing destination behind India and China by management consulting firm AT Kearney since 2004.

The outsourcing sector contributed RM5.8bil to the nation's GDP last year, up 32% from 2011. But total new investments fell 59% to just RM500mil.

"This is because the US-based companies were pulling out their investments and pumping them in their own country last year. But we see that the trend is reversing this year. Hence, we would see a more solid new investment growth," Warren said.

"As we continue to move away from the generic call centre business, we are looking to upgrade the skill of the workforce, particularly in finance and information technology industries, to reach a higher level of knowledge and experience required to carry out knowledge-based outsourcing services," he said.

Warren maintained Malaysia was well positioned to move up the ladder.

"We have skilled and multilingual talent, infrastructure, competitive costs of business operations and a safe haven with low occurrence of natural disasters. Malaysia also is one of the few countries in the world that has government support to drive the industry," he pointed out.

He added that MDec had several programmes in the pipeline to drive knowledge-based outsourcing growth, including the MSC Malaysia MyProCert-Strategic Reform Initiatives for talent development programme and the Score+ Acceleration programme, which provides funding assistance.

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Brazil's real economic crisis lies in its overvalued currency

Pope Francis gets a Flamengo football shirt from the former Brazilian international Zico during a visit to Rio de Janerio. Photograph: Luca Zennaro/EPA

As Pope Francis pushed his way through the crowds in Rio de Janeiro's shantytowns on Thursday, his message that next year's World Cup and the 2016 Olympics would provide jobs and alleviate poverty was greeted with some scepticism.

Brazil is facing hard times. While major sporting events hold out the prospect of a short-term boost to growth and prosperity, they can only disguise a problem that has loomed for some time: that a high currency kills the trade in price-sensitive goods.

The soaring value of Brazil's currency, the real, has badly hurt exports. Last year, the UK sent $3.5bn (£2.28bn) of goods and services to south America's largest economy – up 3.8% on the previous 12 months – while Brazil's exports to the UK were down 13%.

Manufacturing, already inefficient and overpriced after years of protectionist policies, has suffered. Exports of gold and other metals, alongside soya beans and sugar, have also declined. Commodities are the bedrock of Brazil's economy and the combination of a high currency and decline in demand from China, it's biggest customer, was always going to stymie growth.

Bert Colijn, a labour market economist at the Conference Board, said signs unemployment was rising were cause for concern – especially after the riots, which started earlier this month and were still going as the pope began his week-long visit. The unemployment rate is still low at 6%, but is up from 5.8% in May.

In 2010, the country appeared to shrug off a brief recession. GDP growth reached 7.5% – the highest rate for 25 years. But rising inflation forced the government to cool the economy just as the eurozone crisis unsettled international markets. The economy slowed, growing just 2.7% in 2011, and 1.3% in 2012.

Cooling the economy meant shoving up interest rates. However, this tactic made Brazil a more attractive place for international investors in search of high returns on their money. To buy Brazilian assets, investors need to buy the local currency. Increasing demand for the real increased the price, and hence the exchange rate.

With inflation still at 6.7%, the government has little room to stimulate the economy. It is a common problem among emerging economies as China slows to a crawl. Turkey is struggling. So is South Africa. All of them are trying to avoid the vortex of pain when social problems triggered by their stuttering economies only goes to make the situation worse.

Turkey's problem is a persistent trade deficit funded by investment inflows. GDP growth is strong by western standards (the economy raced to 1.6% in the first three months of the year), but the need for foreign investment has kept the currency inflated hampering domestic exporters. Recently, the opposite has been true. Investment has slowed and the currency fallen. The central bank has intervened in the markets to defend the lira, which hit an all-time low against the US dollar earlier this month, but Turkey's international liquidity ratio is weak and it does not have a sufficient stock of foreign exchange reserves to maintain this strategy for long.

Each country is dodging and weaving to overcome its special mix of problems, but in essence they need the world economy to grow at a time when the IMF says in its latest report that the trend is for growth to slow. What happens in China over the next year could prove crucial for their economies and their ability to maintain some semblance of social cohesion.

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Banks sense an end to worst of austerity, but it is too early to rejoice

Lending to small- and medium-sized businesses is on the rise. It's something we've all been waiting for, and it should be the subject of rejoicing.

The £238m increase in lending to small and medium sized enterprises, or SMEs, in June is a sharp turnaround on declines of £476m in May and £641m in April.

In fact, June saw only the third rise in bank lending to SMEs since the data started in May 2011, according to the British Bankers' Association survey. Could it be that after several false starts, the government's funding for lending scheme is influencing bank behaviour?

More likely, a sense that the worst of the government's austerity measures and the eurozone crisis are behind us has made bank managers relax a little when requests for credit cross their mahogany desks.

Credit and confidence are the lifeblood of business investment and can evaporate just as quickly as they come together. George Osborne may not be planning extra taxes or local authority cuts, but the chancellor is almost freezing benefit payments, which will depress household incomes this year compared with last. Employers are also playing their part. Income Data Services says most pay rises are hitting 2.5%, which is still below the rate of inflation at 2.9%.

Only a rejuvenated eurozone can turn one month's figures into a sustainable upward trend, and that looks like an unrealistic prospect.

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Bank of England gets Sir Jon Cunliffe as deputy governor

Sir Jon Cunliffe has been appointed Bank of England deputy governor as part of Mark Carney's new recruitment drive. Photograph: Jose Giribas/Bloomberg News

The Bank of England has recruited one of the most influential figures who grappled with the 2008 banking crash to succeed Paul Tucker as head of the central bank's financial stability arm.

Sir Jon Cunliffe, a career civil servant who worked closely with former chancellor Gordon Brown at the height of the financial crisis, will succeed Tucker as deputy governor.

The 60-year-old is Britain's most senior diplomat in Brussels and well known to the Bank's new governor Mark Carney, who said Cunliffe's experience during negotiations at G8 and G20 summits will prove invaluable as Threadneedle Street seeks to influence implementation of European and international financial rules.

Cunliffe will also find himself at the centre of the highly charged debate over the regulation of Britain's high street banks and the City, where Brussels is having a growing influence. He will have a place on the committees dealing with monetary and financial policy and is being appointed at a time when the Bank is being criticised for demanding banks hold more capital.

Carney, who replaced Lord King at the start of last month, said: "I have been fortunate to have worked with Jon for over a decade on a wide variety of international issues at the G7, G20 and Financial Stability Board. He brings an important European and international perspective that will be vital in ensuring that the Bank of England can shape both the UK and international financial systems so that they effectively serve the needs of the real economy."

Technically Cunliffe is appointed by the Queen in a process overseen by the Treasury. His appointment is regarded as an effort by Carney to bring in new faces to Threadneedle Street. The new governor will have another such opportunity next year when another deputy governor, Charlie Bean, will step down.

James Barty, head of financial policy at the Policy Exchange thinktank, was critical of the appointment of a senior civil servant rather than an expert in markets. "After the imaginative appointment of Mark Carney it is disappointing that the government has appointed a career civil servant as deputy governor for financial stability. The financial crisis demonstrated that knowledge of financial markets is vital for any central banker. This is a missed opportunity," he said.

Cunliffe, who will take up his post in October when Tucker leaves to lecture at Harvard University, was not among the runners and riders that speculation had focused on once Tucker quit and his appointment prompted speculation about the future of Andy Haldane, the outspoken and highly regarded executive director for financial stability – a role regarded as the deputy to Tucker. An advocate of the leverage ratio to rein in the risks of banks – a gauge which is unpopular with the industry – Haldane has expressed different views in public from those of the new governor Carney.

Carney is known to have an input into the selection process – led by Treasury officials John Kingman, Tom Scholar, and Sir Nick Macpherson as well as Sir David Lees, director of the bank's governing body – and choosing Cunliffe is regarded as significant. Not only is he an outsider to the Bank – which has been criticised for lacking an external perspective and being too academic – but also has hands-on experience of Brussels, which is having considerable influence over banking regulation.

Cunliffe is thought to have been one of two external candidates – the other being Morgan Stanley banking analyst Huw van Steenis – as well as the internal candidates Haldane and director of markets Paul Fisher. There is no official confirmation that these were the candidates.

More outsiders are now expected to be appointed to senior roles inside the Bank as Carney attempts to freshen up its image and approach to the industry.

Cunliffe sat at Gordon Brown's right hand during tense negotiations in 2008 following the collapse of Lehman Brothers and the decisions to nationalise Royal Bank of Scotland and Lloyds. He is credited with playing a key role in securing an internationally co-ordinated response in the weeks and months that followed.

George Osborne, keen to use his negotiating skills, sent him to Brussels to fend off attempts by the European parliament and senior EU officials to smother the City of London in regulation.

Cunliffe said: "The Bank is of critical importance to the UK's prosperity and stability. It is both an honour and an exciting challenge to be joining the Bank now, as it takes on formally its new role and responsibilities for financial stability.

Tucker is to take a post for the academic year 2013-14 at the Harvard Business School in Boston and the Harvard Kennedy School in Cambridge. He had hoped to replace King on his retirement last month but was overlooked for Carney, who said he was "very grateful to Paul for the extremely valuable support he has already provided".

Tucker, who has spent his career at the Bank of England, said he regarded the move to academia as a "wonderful opportunity".

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China to audit local authorities and state enterprises over debt fears

It is suspected that Chinese state enterprises have used cheap loans to increase production. Photograph: Zhang Haiyan/Xinhua Press/Corbis

China's local authorities and state enterprises will come under scrutiny in the coming months after the government said it planned to audit their debts.

In a one sentence announcement on its website, the National Audit Office (NAO) said it planned to embark on a nationwide assessment of borrowing by public bodies, underlining fears that thousands of local councils and state-owned businesses in the world's second biggest economy have over-stretched themselves and are close to collapse.

The NAO said other audit projects would be frozen to complete the task, but failed to give a publication date.

Some analysts believe China's myriad local and state enterprises, many of which have borrowed heavily to invest in property, new factories and machinery over two decades of rapid economic expansion, have racked up debts of about $3tn (£2tn).

There is a suspicion that companies, especially in the heavy industrial sector and commercial property industry, have used cheap loans to increase production and pay higher wages rather than assess the long-term viability of their businesses.

Local governments, which are prevented from taking on debt directly, but have borrowed heavily through special-purpose vehicles, have frequently borrowed from companies in private arrangements at high cost, with the money often used in speculative real-estate projects.

Much of the lending is also believed to be directed to businesses that pay the highest bribes, undermining standard credit controls.

Last year a new communist party leadership took control in Beijing promising to crackdown on corruption and graft.

A slowdown in output over the past six months has been blamed on tackling corruption alongside a greater emphasis away from investment towards domestic consumption.

A local government buckling under the weight of its own debt is a troubling scenario for the leadership, and one that Deutsche Bank has said could potentially pose a systemic and macroeconomic risk to the country.

Standard Chartered, Fitch and Credit Suisse have estimated local government debt in China at the equivalent of anywhere between 15% and 36% of the country's output, or as much as $3tn based on World Bank GDP figures for 2012.

Chinese economists point out that the state has access to $3.5tn of foreign reserves built up in the boom times, which can be used to bail out failing enterprises or for investment in areas that ministers believe will create economic benefit.

Justin Lin, a former World Bank chief economist and senior adviser to the Chinese government, said at a conference in London last month that, while it was possible for Beijing to push through structural reforms too quickly and stymie growth, it was an unlikely outcome.

He predicted the economy would grow between 7.5% 8% for the next 20 years at least as domestic consumption on areas like health increase dramatically.

"China is a developing country and there is still so much scope for investment," he said.

Lin, a professor at Peking University, said China would cope with a rapidly ageing population and higher wage costs by turning to neighbouring countries, which act like subsidiaries with large pools of young labour.

"As long as it is made politically palatable in these countries for them to behave almost as client states, they can all benefit. Then there is the ability to increase the retirement age from the current 60 for men and 55 for women. Also the quality of the labour force can increase to offset the relative decline in the number of young people coming into it."

Vice-finance minister Zhu Guangyao said earlier this month that the government did not know precisely how much debt local governments had built up.

The audit office warned in a June report that debt levels among local governments are rising and the financial burdens and risks are not being properly managed. It put total debt of a sample of 36 local governments at 3.85tn yuan (£409bn) at the end of 2012.

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Dominique Strauss-Kahn to stand trial for pimping, French prosecutors say

Former IMF chief Dominique Strauss-Kahn will face trial on pimping charges. Photograph: Kenzo Tribouillard/AFP/Getty Images

Dominique Strauss-Kahn, the former head of the International Monetary Fund, is to go on trial on charges of pimping in connection with an alleged prostitution ring at a luxury hotel in the northern French city of Lille

Magistrates in France decided on Fridayto press ahead with charging the former Socialist minister in spite of calls by the state prosecutor for the case to be dropped.

Strauss-Kahn, 64, a former French presidential candidate, has admitted attending the "libertine" parties and having sex with a number of women. However, he has always insisted he did not know that some of them were prostitutes.

The case, known as the Carlton affair after the luxury hotel where the orgies were said to have taken place, centres around allegations that businessmen and police officials in Lille operated a vice ring supplying women for sex parties.

This affair, which came to light in late 2011, is the last of a series of inquiries into Strauss-Kahn since his arrest in New York in May 2011 where he was accused of trying to rape a hotel maid.

The charges in the US were eventually dropped because of doubts over maid Nafissatou Diallo's credibility after she was found to have lied on her immigration claim, but Strauss-Kahn was later forced to pay her substantial damages reported to be in the region of $6m(£3.9m).

Two subsequent cases against the former French finance minister have also been dropped. An allegation of sexual assault against writer Tristane Banon in Paris in 2003 did not result in criminal charges because it had passed the legal time limit. In October last year, French prosecutors decided to drop an inquiry into allegations of gang rape at a hotel in Washington after one of the women involved who had made the claim retracted her evidence.

The state prosecutor had recommended that the Carlton affair charges against Strauss-Kahn be dropped on the grounds of a lack of evidence.

Magistrates decided otherwise; they put aside a charge of "aggravated pimping as part of an organised gang", but maintained the lesser charge of "aggravated pimping as part of a group". He is facing trial along with 12 other defendants.

In France pimping can cover a wide range of crimes including aiding or encouraging prostitution. A trial is expected to take place next year. If convicted, Strauss-Kahn could face up to 10 years in prison and a €1.5m (£860,000) fine.

The former IMF chief has vehemently denied all allegations against him and described them as "dangerous and malicious insinuations and extrapolations".

"It will all come out publicly before the tribunal and everyone will realise that there is nothing in this case," Henri Leclerc, one of Strauss Kahn's lawyers said on Friday.

Leclerc said the legal team was "under no illusions" about the "relentlessness shown by the investigating magistrates" and claimed Strauss-Kahn was being targeted because of his high profile.

"This decision is based on an ideological and moral analysis, but certainly not on any legal grounds. We're sending someone to court for nothing," said the lawyer.

After an earlier hearing into the Carlton affair, Leclerc told the French radio station Europe 1 that Strauss-Kahn could not have known whether the women at the parties were prostitutes.

"As you can imagine, at these kinds of parties you're not always dressed, and I challenge you to distinguish a naked prostitute from any other naked woman," Leclerc said.

Strauss-Kahn had been a frontrunner as the Socialist party's candidate to become French president in last year's election before his arrest in New York. He was forced to resign from his job as IMF chief and his third wife Anne Sinclair, a wealthy heiress and former television presenter, divorced him.

At the Cannes film festival in May, Strauss-Kahn was pictured with a new girlfriend, Moroccan-born Myriam L'Aouffir, 45, who works in the internet and social media department at France Television.

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George Osborne recovers his swagger with economy on the mend

Link to video: George Osborne hails UK growth figures

Michael Heseltine had a very simple rule. Give me economic growth, the former deputy prime minister used to say, and I will deliver you political success.

The truth of the Heseltine rule has been on display in recent weeks. As the political world counted down to confirmation on Thursday of improved economic growth – the first consecutive quarters of growth since 2011 – the fortunes of George Osborne and David Cameron improved immeasurably.

Cameron has had a strong run at prime minister's questions over the past month and heads off on holiday as the pre-eminent figure on the political stage because his MPs believe the chancellor is at last delivering the private-sector recovery he promised in his emergency budget in June 2010.

Cameron and Osborne may have had something of a swagger about them in recent weeks as they watched Labour embark on a difficult – and not wholly successful – change of tack on fiscal policy. But their confidence is in sharp contrast to Osborne's dark mood in private last year and into the early part of this year.

The chancellor was genuinely worried that the apparent failure of his plan to trim back the public sector and to preside over a private-sector recovery was weakening him and hobbling the government. He often appeared nervous and ill at ease in public and, strangely for such a confident figure, would ask how he was doing.

Osborne's personal uncertainty has evaporated, for the moment at least, and the Osborne operation is sharpening up, helped by the arrival of the former BBC producer Thea Rogers who has a beady eye for pictures that tell a positive story.

Overnight the chancellor made visits to teams working on M6 improvements and to a 24/7 Tesco depot, tweeting updates with the hashtag #hardworking. Rogers hasn't left anything to chance: visiting nightshift workers at the Warburtons bakery, Osborne sported a baseball cap to avoid pictures of him in a hairnet.

This highlights the care with which the Osborne team has prepared for this moment. Wary of the experience of Norman Lamont, who was lampooned for talking about the "green shoots of economic spring", Osborne initially said the economy was simply healing. He now says it is "on the mend".

But it will not be plain sailing for Osborne between now and the general election in 2015. If growth stumbles, his nerves will return.

Ed Balls, who is visiting Washington to launch a transatlantic growth commission with the former US treasury secretary Larry Summers, is still on Osborne's case. Balls welcomed the growth but said it appeared to be benefiting only higher-income groups and was overdue.

Osborne will also have to answer a question raised even by some of his closest allies: why did he outline a deficit reduction plan in his emergency budget of 2010 that appeared to fit a political rather than economic timetable?

Osborne said in 2010 that he hoped to eliminate the structural budget deficit by 2015. One ally said the plan was flawed from the start because Britain was recovering from a once-in-a-half-century financial crash rather than a typical recession. It usually takes eight to 10 years to recover from a crash, meaning 2018 was a more realistic goal. This is now Osborne's target date.

No doubt Osborne will have a handy answer to criticisms that his political double is Gordon Brown, the last chancellor for whom politics trumped everything else.

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George Osborne's description of the economy is near-Orwellian | Ha-Joon Chang

George Osborne this week. 'The UK's economic performance since the start of the coalition government … has been so poor that Thursday's announcement of 0.6% growth … was greeted with a collective sigh of relief.' Photograph: Christopher Thomond

If all else fails, they say, you can always lower your standards. This is what we have become used to doing in relation to the UK economy. The UK's economic performance since the start of the coalition government in May 2010 has been so poor that Thursday's announcement of 0.6% growth in the second quarter of 2013 was greeted with a collective sigh of relief.

Having declared the UK economy to be "on the mend" on the strength of this growth figure, George Osborne is said to have regained his swagger. Even the opposition grudgingly acknowledged that the latest figures were good enough news, although it was quick to add that the benefits of the recovery have been almost exclusively concentrated at the top.

But even the opposition's interpretation may be too charitable. Including the last quarter, the UK economy has grown by just 2.1% during the 12 quarters since the current government came to power. This compares very poorly with the 2% growth that the economy had managed in just four quarters between the third quarter of 2009 and the second quarter of 2010. The coalition blames this poor performance on the eurozone crisis. But this argument is not very persuasive when output has more than recovered to pre-crisis level in many eurozone countries, including France and Germany, while UK output is still 3.3% less than what it was at the beginning of 2008.

It gets worse. During the past five years, the UK's population has grown by 3%. This means that, on a per capita basis, the country's income is 6.3%, not just 3.3%, less today than it was five years go. This performance is far worse than what Japan managed during its infamous "lost decade" of the 90s. At the end of that period, Japan had a per capita income 10% higher than at the start.

If the UK is to match this performance during what looks certain to be its own "lost decade", it will have to grow at the rate of 3.9% every year for the next five years (or 3.3% in per capita terms, assuming that the past five years' population growth rate of 0.6% per year continues). Even the most optimistic cheerleaders for the coalition government are not talking such numbers.

Thus seen, describing the UK economy as being "on the mend" is a near-Orwellian redefinition of economic recovery. The fact that most people accept that description, even if with reservations about the uneven distribution of its benefits, shows how low the standard of performance we expect of the UK economy has become.

But even applying this low standard, it is not clear whether we can expect a sustained recovery in the coming years. There are at least two factors that can derail the recovery process, especially given that it is so feeble. The first is the likely evolution of the global economy. The eurozone may be dragging itself out of a recession, but things can turn for the worse at any moment. Especially given the severity of austerity in countries such as Greece, Spain and Portugal, the policy's continuation may result in another bout of political unrest, negatively affecting the economy.

Thanks to its avoidance of the worst form of austerity policy, the US economy has recovered from the 2008 crisis more strongly than the European countries. But with another federal debt ceiling negotiation looming later in the year, it is possible that the US recovery will be set back by another round of budget cuts. The Chinese economy has visibly slowed down. And the Chinese government seems determined to keep it that way for a while. Concerned with financial stability, it has clamped down on credit expansion. Worried about seething public anger against government corruption and extravagance, it has imposed a ban on "wasteful" government spending (lavish buildings, banquets, and foreign trips). These are all good policies in the long run, but they will dampen Chinese demand in the immediate future.

The other two biggest "emerging" economies, Brazil (second largest) and India (third), have both seriously slowed down in the last couple of years. India's growth rate fell from 10.5% in 2010 to 6.3% in 2011, and then to 3.2% in 2012. The equivalent figures for Brazil were 7.5%, 2.7%, and 0.9%. Both these economies suffer from high inequality and social tensions, as shown by the recent protests in Brazil and the resurgence of Maoist guerillas called the Naxalites in the eastern part of India. Therefore there is always a possibility that political unrest may dampen these economies even further.

These global factors are, of course, beyond the UK's control, but there is another factor at least partially within its control that may derail the recovery. It is the asset bubbles that have developed in the stock market and the property market, fuelled by cheap credit (sounds familiar?).

Share prices have reached levels that simply cannot be justified by the state of the economy. In May 2013, the FTSE 100 share price index surpassed the pre-crisis peak of June 2007, although it has come down a bit since then. Given that the pre-crisis peak was supported by a buoyant (albeit unsustainable) economy, current share prices, which have no such support, can only be described as an even bigger asset bubble.

Although the rest of the country is still experiencing a stagnant housing market, property markets in London and the south-east are beginning to look inflated, given the state of the economy. And the government is stoking this property bubble with the Help to Buy scheme.

These asset bubbles have provided important sources of demand in the UK economy in the past few years. But the trouble is that they are quite shaky even for asset bubbles, for they are only sustained by historically low interest rates and the massive indirect subsidies given to banks through the so-called quantitative easing scheme.

The fragile nature of these bubbles is revealed by the nervousness with which financial market participants react to pronouncements by central bankers. They know that the current price levels are viable only with QE, so they are readying themselves to jump as soon as there is a sign that it may come to an end. When the asset bubbles deflate, there is likely to be a serious fall in demand that will derail the recovery.

In the past few years the UK should have found a way to stage a recovery without having to rely on state-sponsored asset bubbles. As it hasn't even tried, it is facing the prospect of having a "lost decade" that is even more "lost" than the original one in Japan.

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George Osborne hails UK growth figures - video

Growth boost puts Labour on back foot

PM and chancellor hail faster recovery as Ed Balls says life is getting harder for everyone except millionaires

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Economy case studies: the builder and the private eye

Builder David Melling: in the current economic climate, he says, 'more people are staying where they are and extending rather than trying to move.' Photograph: Christopher Thomond for the Guardian

Builders have generally had a torrid few years since the economic downturn. The austerity drive and recession meant some big construction projects being shelved, while in many regions housing market activity slumped.

David Melling has been in the trade since leaving school 35 years ago.

"Last year was probably about our toughest year," he says. This year is better and his family business, Mason Knight, has been buoyed by its relatively wealthy setting in south Cumbria, he says.

But for the sector as a whole, which expanded by a 0.9% in the second quarter, according to official figures , published Thursday, things remain challenging.

"It's been very, very, quiet. We have been busy enough, we have got enough work, but we have not been inundated. But we have an extension job at the minute and another in September that should keep us busy till Christmas."

While Melling thinks the trade is over the worst, he has noticed a change in the nature of building work. "More people are staying where they are and extending rather than trying to move."

Customers are more cautious as they grapple with meagre pay rises that fail to keep pace with rising food, fuel and utility costs.

"People are more careful now. Everything is down to price. Most people are getting three or four prices whereas they used to just say 'come and do this'. So people are a bit more careful with their money."

While construction only accounts for 6.8% of the UK economy it has still dragged down growth in recent quarters. It took a 0.1 percentage point off GDP growth in the first quarter of this year, having knocked a 0.6 percentage point off in 2012 as a whole.

The latest surveys of construction companies have been relatively upbeat, with signs the government's controversial plans to boost the housing market are reviving activity.

The reports echo the comments from housebuilders such as Barratt Developments and Bovis Homes that trading picked up after the government announced plans in the budget to help struggling house buyers.

For Matt Thomas, a private investigator, business is strong. "We have pretty much ridden the downturn. We do get ups and downs but you find if people have problems, whether personal or business problems, they want it sorted out sooner rather than later."

The London-based private detective agency North Court Investigations does jobs for a range of clients – from individuals tracking long-lost relatives to large companies checking up on staff, including those on long-term sick leave.

"We do surveillance and find they might be playing football at the weekend or something," explains Thomas. The agency, which has 300 investigators to call on rather than a big full-time team, also does hand-writing analysis, matrimonial investigations and computer forensics, which can determine if former employees are using previous contacts to set up rival businesses.

Prices start at £400 for a simple trace and can rise to £30,000 or more for big business investigations.

PIs stand alongside lawyers, recruitment firms and advertisers as part of a wider business-to-business subsector of the economy, which has generally had a pick-up in activity in recent months.

According to the data specialist Markit, which compiles the PMI surveys on economic activity, business-to-business was the fastest growing part of Britain's dominant service sector in the second quarter.

With disposable incomes squeezed, Thomas says, private clients are spending less but there is plenty of work from corporate clients, who use North Court as well as big international agencies like Kroll for extra checks ahead of deals.

"It is probably easier to get money out of bigger companies," says Thomas.

Beyond business clients, there has also been an improvement – in the south of the UK, he says. "People do have a little bit more disposable cash. We class ourselves as more of a luxury service. I do think people are more keen to put their hand in their pocket … London is doing best, Oxford is doing well, Cardiff not too badly – there has been a big decline in Leeds and Manchester."

While other UK businesses have been hit by the general economic slump over recent years, there has been one big cultural change that has buoyed private investigators, he adds. "In the last five years, since the start of the turn down in the economic crisis, more people are having online relationships." So say you meet a guy in the US … and after six months you want to meet, you ask us to check his background. One of the most popular things for us is to do background checks."

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GDP figures leave Labour in need of new plan of attack

Ed Balls, the shadow chancellor. Photograph: Stefan Rousseau/PA

Six months ago Ed Balls was basking in the political limelight. Labour's combative shadow chancellor had correctly predicted that the coalition's aggressive austerity policies would kibosh the economic recovery, with GDP contracting in two of the past four quarters. And George Osborne's cack-handed pasty tax budget had knocked some of the shine off the chancellor's reputation as a master strategist.

Yet after Thursday's news that the economy expanded by a relatively healthy 0.6% in the second quarter of this year, it became clearer than ever that barring an outright economic catastrophe, Balls's argument that spending cuts had choked off growth was never going to be an election-winning strategy in itself. He may be right that UK plc would be in a better state had the cuts been more gradual, but as one former Labour insider put it, "counterfactuals don't cut it in politics".

So with less than two years to go before the next election, Labour is in urgent need of a coherent political message for a time of growth. Balls's argument that the recovery has yet to be felt in most households will continue to resonate for some time, with wages still growing more slowly than inflation and the 1% cap on benefits set to eat into the living standards of some of the poorest over the next couple of years.

Yet voters need not be basking in the fruits of growth themselves to feel more positive about the state of the economy. They just need to feel that the future is likely to be better than the past. And the Tories are on a concerted charm offensive to show that we're all in it together. Osborne spent the wee hours of Thursday visiting night-shift workers in the Midlands, posing for awkward shots on forklift trucks and next to bread production lines.

Balls, meanwhile, was preparing for a love-in with Larry Summers, the Harvard intellectual and Clinton-era US treasury secretary closely associated in the American public's mind with the bonanza of banking deregulation that ultimately led to the sub-prime crisis, as damningly laid out in the film Inside Job.

Within moments of the GDP figures being published, the Treasury had fired off a statement in which Osborne said that "unlike the unbalanced economy before the crisis, we are going to make sure that everyone benefits from this recovery".

And that gets to the crux of Labour's problem: while many economists believe that the nascent recovery has the potential to be just as unbalanced, unsustainable and out-of-kilter as the pre-crash growth of 2000-07, it's hard for the opposition to say so openly when they oversaw the last boom.

Help to Buy, Osborne's attempt to reflate the housing market, announced in this year's budget, has been slammed by the International Monetary Fund, the OECD and the former governor of the Bank of England. But Labour's frontbench have been uncharacteristically silent.

Their reticence is hardly surprising. Corrosive and damaging as a new housing bubble may be to social cohesion and economic stability, more than 60% of households are owner-occupiers, and many will regard the reappearance of a forest of "Sold" boards in their neighbourhood as an unambiguously good thing.

Not only that, but both Balls and Ed Miliband were intimately involved with the Blair and Brown governments which, having subcontracted monetary policy to the Bank of England, were blind to the dangers of rocketing property prices and reckless lending.

"Labour's in a very difficult place to talk about what is obviously another asset bubble," said Neal Lawson, of the leftwing campaign group Compass. He said part of the party's problem in preparing its plan of attack for 2015 was that it never had the fundamental debate in the wake of its electoral defeat five years ago about what kind of Britain it wanted to create.

"We should be asking, 'is growth the only thing we care about?' That takes you into a conversation about inequality, about a different kind of political economy that isn't based on the City, that isn't based on assets, and that isn't just based in London."

Some of that thinking has been going on as part of Miliband's policy review, a smorgasbord of more than 20 separate research projects, run by shadow cabinet members, with titles as diverse as Empowering Communities to Improve Transport, and Children, Food and Obesity. Miliband has made a series of thoughtful speeches on subjects such as the future of capitalism.

But so far these musings have translated into few concrete policies, aside from a mansion tax on the most valuable homes and a promise of £10bn worth of extra infrastructure investment.

Meanwhile, Labour's rhetoric is shrewdly picked up and amplified by the coalition. Miliband talks of "predatory capitalism", then David Cameron warns Starbucks to "wake up and smell the coffee" and makes cracking down on tax avoidance the centrepiece of his G8 presidency. Labour calls for a British investment bank, then Vince Cable announces that he will set one up. It may be smaller and less powerful than the opposition's blueprint, but voters are hardly likely to notice the nuances.

Similarly, Miliband's notion of "pre-distribution" remains a vague and woolly aim, while David Cameron happily embraces the notion of a living wage and promises to "build a recovery for hard-working people".

Labour's recent decision to match the Tories' spending plans for the first year of the next parliament may have been a shrewd political tactic; but it makes the task of differentiating themselves from the government even tougher. They need to show how they will build a fairer tax system; a banking sector that serves society; enough homes to put the housing market on an even keel; and, most importantly, an economy that delivers more and better jobs.

Balls may have put himself on the right side of the intellectual argument, but in 2015 he will face the electorate, not an Oxbridge tutorial. Labour will need to do more than empathise with the families that cannot afford a home or are struggling to make ends meet as a result of the sickly recovery and the government's regressive policies. It will need concrete proposals of its own – and some solid reasons for voters to feel optimistic about the future.

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Growth of 0.6% may not look much, but it's a huge deal for George Osborne

George Osborne meeting Tesco distribution centre staff near Rugby the night before the release of GDP figures. Photograph: Stefan Rousseau/PA

When he was at the Treasury, Gordon Brown enjoyed waxing lyrical about Britain's growth record under Labour. The number of successive quarters of expansion had risen above 60 by the time Brown became prime minister, allowing him to trumpet the longest uninterrupted period of rising national output since the dawn of the industrial age.

Back then, news of a 0.6% quarterly increase in gross domestic product would have been neither here nor there. The economy grew by around 2.25%-2.5% on average for more than a century, or around 0.6% a quarter. In the City and at Westminster, Thursday's release from the Office for National Statistics would have been shrugged off as no big deal.

Times change, though. After the long expansion of 1992-2007, the economy plunged into recession in early 2008 and has yet fully to recover. Had it continued to grow at its average pace, national output would now be around 13% higher than it was before the downturn began; in fact it is still 3.3% lower even after the pick-up in the second quarter. In round numbers, the economy is £250bn smaller than it would have been had the recession never happened.

All of which makes Thursday's growth figure a very big deal indeed. George Osborne was in the Midlands on the night before the release of the GDP figures talking to workers in Britain's 24-hour economy because the chancellor knows that politics between now and the general election will be shaped by the argument over growth. Ed Balls knows that too, which is why the shadow chancellor was eager to point out that Britain's recovery was the slowest in a hundred years.

Osborne has not had an easy three years as chancellor. His plan for economic recovery is at least two years behind schedule and the idea of rebalancing growth towards exports and manufacturing has been quietly ditched in favour of the time-honoured remedy to weak activity: ramping up the housing market. Progress in reducing the budget deficit has stalled, and while unemployment has risen far less sharply than in the recessions of the 1980s and 1990s, workers have been forced to accept below-inflation pay increases or fewer hours to keep their jobs.

This matters politically. Governments that preside over periods when wages are growing more slowly than prices – Labour in the late 1970s for example – tend to lose elections. Those that are in power when living standards are rising – the Conservatives in the 1980s, Labour in the late 1990s and early 2000s – tend to get re-elected.

Even in times when growth has been strong and real incomes rising, no government since 1955 has been re-elected with an increased share of the vote, and David Cameron won only 36% in 2010. Little wonder then that the chancellor noted cautiously on Thursday that there was a long way to go.

But Osborne is not the only one with a headache. Labour has a far smaller lead in the opinion polls than it would need to feel comfortable about winning a general election in 2015, particularly in the context of a lost decade of living standards, austerity that will extend well into the next parliament and a recovery that is comfortably weaker than that which followed the Great Depression. Despite all that, voters have more faith in Osborne than Balls to run the economy, a testimony to the fragility of Labour's position.

When he became shadow chancellor, Balls faced three challenges: he had to make a convincing case that Labour was not single-handedly responsible for the slump of 2008-09 and the record peacetime deficit that resulted; he had to show that Osborne's austerity plan would hinder rather than hasten recovery; and he had to deliver an alternative to the coalition's strategy that would persuade voters it was worth giving Labour another try in 2015.

So far, his record is one out of three. Labour's warnings about the perils of austerity were borne out by two years in which the economy moved sideways. But the notion that Labour's profligacy in power threatened Britain with bankruptcy was well entrenched by the time Balls became shadow chancellor and has been hard to shift. Likewise, Labour's offer of austerity-lite after 2015 has not exactly caught the imagination of the public. There has been little to suggest so far that the opposition has the answers to Britain's long-term structural problems: the decline of manufacturing; the over-reliance on the City; the decades-long squeeze on wages that has encouraged debt-fuelled consumption.

Labour's position will be yet more difficult should the economic news remain even modestly good. Osborne wants to go into the next election with the following message: we inherited a right old mess from the last lot; that mess has taken us longer than we expected to clear up; we stuck to our plan when the opposition told us to change course; the benefits are now coming through; so don't hand power back to the people who screwed up in the first place. He doesn't need the economy to grow at 1% a quarter to construct this sort of political narrative: 0.6% or so a quarter will do fine.

The government's message will lack potency if the 2015 election approaches with real incomes still falling and fresh public spending cuts on the horizon. It will be blown out of the water if the economy stalls again between now and the election, something that currently looks unlikely but cannot be entirely ruled out. There will be a reckoning for the economy but that looks likely to be early in the next parliament when the Help to Buy support for the housing market is removed, interest rates start to rise and austerity continues for a sixth and seventh year rather than over the next 18 months.

In the meantime, Osborne, who looked like a dead man walking three months ago, is very much back in the game.

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Growth boost puts Labour on back foot

Link to video: George Osborne hails UK growth figures

David Cameron and George Osborne were handed a precious weapon against Labour's attacks on their economic policies on Thursday as it emerged that the recovery picked up pace between April and June.

Official figures showed the UK economy expanded by 0.6%, just months after some analysts predicted that the country was about to relapse into a new recession.

Mindful of the experience of the onetime Tory chancellor Norman Lamont, who spoke of the "green shoots of economic spring", Osborne used careful language about how the economy was now "on the mend".

But he was quick to claim the credit – and, in a direct challenge to his Labour shadow, Ed Balls, to insist that people up and down the country will soon share in the feelgood factor.

"Unlike the unbalanced economy before the crisis, we are going to make sure everyone benefits from this recovery," he said, after spending Wednesday night visiting shift workers in the Midlands. "Britain is holding its nerve, we are sticking to our plan, and the British economy is on the mend."

Balls, speaking from the United States, said stronger growth was "welcome and long overdue", but added that weak wage growth and above-target inflation meant living standards were still being squeezed. "While millionaires have been given a huge tax cut, for everyone else life is getting harder."

Ed Balls said stronger growth was 'welcome and long overdue', but added that living standards were still being squeezed. Photograph: Peter Macdiarmid/Getty Images

The 0.6% quarterly rate of growth in gross domestic product was twice the pace recorded in the first three months of 2013, and exactly as predicted by economists, after signs of a pickup in retail sales and upbeat readings in business surveys.

The chancellor's allies believe the first two consecutive quarters of growth since 2011 – across most economic sectors – will raise questions for Balls, who warned in 2010 that Osborne's deficit reduction plan was "the equivalent of ripping out the foundations of the house just as the hurricane is about to hit".

Matt Hancock, the chancellor's former chief of staff who is now a business minister, told the Guardian: "The biggest problem for Balls is he said we shouldn't stick to the course and we should borrow more and spend more. But that is exactly what got us into the mess in the first place."

Labour embarked on a change of tack in fiscal policy last month when Balls said he would have to accept the government's spending plans for 2015-16 outlined by Osborne on 26 June. But Hancock said: "Their fiscal policy is in a mess. They have lost the argument but kept the policy."

Balls made careful plans for the GDP announcement in the full knowledge that the chancellor would hail the figures. The shadow chancellor spent the day in Washington where he launched an inclusive growth commission with Larry Summers, the former US treasury secretary, which will look at how Britain can achieve US levels of growth at all levels of the economy.

The Office for National Statistics said that all sectors of the economy recorded growth in the second quarter of the year. Both industrial production and the key services sector expanded by 0.6%, the ONS said, with construction – which has been a heavy drag on the economy in recent quarters – picking up by a healthier than expected 0.9%.

Chris Williamson, chief economist at City data provider Markit, said: "Prospects look good for a continuation of the recovery in the third quarter, with consumers and businesses both helping drive the upturn. There are even signs that exporters will see improved sales, helping drive the long-awaited re-balancing of the economy."

John Longworth, director-general of the British Chambers of Commerce, said his members had become more optimistic in recent months. "Firms are feeling upbeat and are capable of expanding. More and more are adopting a 'have a go' attitude when it comes to exporting, which is really encouraging as this will go a long way to driving growth further still."

The Treasury hopes that with the eurozone crisis in remission, the economy is now poised for a more solid recovery, after almost three years of flatlining.

Analysts believe part of the explanation for the UK turnaround has been the chancellor's deliberate attempt to stimulate the housing market through the Funding for Lending scheme, which has brought down the cost of mortgages, and his controversial Help to Buy measures. Help to Buy is providing interest-free loans for buyers of newly built homes, and from January people buying properties worth up to £600,000 will be offered taxpayer-backed mortgage guarantees.

Alan Clarke, UK economist at Scotiabank, said: "Much of the turnaround in the growth outlook has coincided with signs of a marked improvement in the housing market, coupled with better than expected construction data. Both are thanks to the government's Help to Buy scheme." But many consumers were dipping into savings to fund their , and the recovery will only be sustained into 2014 if their renewed confidence feeds through to rising wagesThe early indications are that this is merely prompting consumption growth in excess of income growth. spending. "This can only persist for a finite period – we cannot borrow growth for ever."

Richard Lloyd, executive director of the consumer group Which?, said its surveys suggested many people were still struggling. "Today's confirmation of further growth is welcome but there is still a long way to go before this will be felt by consumers, whose confidence and spending power remains fragile," he said. "Households are increasingly using savings or credit to pay for essentials."

Despite the upturn, the economy has not recovered the output lost in the deep recession of 2008-09: the ONS said GDP was still 3.3% below its pre-crisis peak.

Thursday's relatively firm growth figure will guide the Bank of England's thinking, as it prepares to decide whether to deliver renewed stimulus to the economy in August.

The new governor, Mark Carney, favours giving growth an extra fillip through so-called "forward guidance", which reassures financial markets and consumers that interest rates will remain low for a prolonged period; but other members of the Bank's monetary policy committee are known to be more sceptical.

However, Simon Wells, chief UK economist at HSBC, said he believed the monetary policy committee would still want to give the recovery an extra nudge.

"Real wages are falling, firms aren't investing and non-oil exports aren't growing. So the BoE won't take any chances and we still expect more explicit forward guidance next month. Despite moving up a gear, we haven't yet reached escape velocity."

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