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Britain’s economy shrank more than initially estimated in the fourth quarter, complicating the task of the Bank of England as a split deepens among policy makers on whether to withdraw stimulus.

Gross domestic product fell 0.6 percent from the previous three months, compared with an initial estimate for a 0.5 percent drop, the Office for National Statistics said today in London. The statistics office said its “best estimate” for the impact of cold weather on the data remains 0.5 percent. The slump was led by construction and investment.

The coldest December in a century hampered the recovery, dragging the economy to its worst performance in more than a year. The Bank of England kept its key interest rate on hold this month as inflation at twice the 2 percent target led to a four-way split among officials. Recent surveys suggest the contraction may have been a temporary setback, with services resuming growth in January and manufacturing strengthening.

“There has been a significant slowdown in the economy, even outside of weather effects at end of last year,” said James Shugg, the Westpac Banking Corp. economist who was the only economist in the Bloomberg News survey to correctly predict the a downward revision. “I’m still pretty cautious about the U.K.” and “at the margin this adds to the case for a bit of caution on the rate side.”

Pound Drops

The pound fell as much as 0.4 percent to $1.6069 today. It remained lower against the dollar after data showed the U.S. economy grew slower than previously calculated in the fourth quarter. It traded at $1.6090 as of 1:53 p.m. The yield on the 10-year government bond was up 1 basis point at 3.63 percent.

Figures from the Commerce Department in Washington showed that the world’s largest economy grew at a 2.8 percent annual rate in the fourth quarter, compared with a 3.2 percent estimate issued last month. The euro-area economy expanded 0.3 percent in the period, a report earlier this month showed, less than the 0.4 percent pace forecast by economists.

In the U.K., consumer-spending growth fell 0.1 percent in the fourth quarter from the previous three months, its first decline since the second quarter of 2009. Government spending rose 0.7 percent on the quarter, the statistics office said.

Investment dropped 2.5 percent, while construction output also fell by that amount. Exports rose 2.3 percent and imports increased 3 percent.

‘Disappointing’

Chancellor of the Exchequer George Osborne said the U.K. data were “disappointing and today’s revision doesn’t change that fact,” the U.K. Treasury said in an e-mailed statement. “It also doesn’t change the need to deal with the nation’s credit card — the country is borrowing more this year than is spent on the entire National Health Service.”

The statistics office said the downward revision to quarterly GDP was due to data on industrial production, services and retail sales. The annual GDP deflator was 2.8 percent. From a year earlier, the economy grew 1.5 percent.

Dechra Pharmaceuticals Plc, a U.K. veterinary drugs and services company, said on Feb. 22 that first-half profit fell after taking a charge for two acquisitions and adverse weather in the U.K.

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Millions of jobless Americans are no doubt cheering the tax cut deal that President Obama signed into law Friday.

The legislation provides for 13 more months to apply for extended jobless benefits, but not everyone who’s unemployed will be eligible for these extended benefits.

In fact, residents in at least five states won’t have access to the same level of unemployment benefits as their peers nationwide.

That’s because the unemployment rate in those states is improving, so, according to federal law, the jobless there can’t receive checks for as long as those in harder-hit states.

Take Vermont. Only a few months ago, unemployed Vermont residents could collect up to 86 weeks of jobless benefits.

Now, they are eligible for only up to 60 weeks.

The reason is that Vermont’s unemployment rate has dropped below 6%. Good news for those lucky enough to find work, but small consolation to the jobless still looking for a position.

Here’s how the system works: The jobless collect up to 26 weeks of state benefits before shifting to the extended federal program. Federal benefits consist of up to 53 weeks of emergency compensation, which is divided into four tiers, and up to another 20 weeks of extended benefits. The maximum is 99 weeks.

But not everyone can collect benefits for that long. Extended benefits, as well as the last two tiers of emergency compensation, are tied to state unemployment rates. So as their state job picture brightens, the jobless stop qualifying for long-term benefits.

To be eligible for the fourth tier of emergency benefits, which last up to six weeks, the average state’s unemployment rate must be above 8.5% for three months. Similarly, states lose their eligibility for the third tier of benefits, which last up to 13 weeks, if their rate falls below 6%. Extended benefits have a more complicated formula tied to different gauges of unemployment.

There’s a logic to the system: "If the unemployment rate in a state is 6% versus 10%, one can argue you’ll have a better time finding a job," said Richard Hobbie, executive director for the National Association of State Workforce Agencies.

In recent months, those out of work in New Hampshire and Vermont have lost both Tier 3 and extended benefits because the state unemployment rates have fallen to 5.4% and 5.7%, respectively.

Meanwhile, residents of Alaska, Delaware and Massachusetts can no longer receive Tier 4 benefits since their rates are all below 8.5%.

Those in the midst of a tier can continue to collect benefits until they exhaust that tier, but they cannot advance to the next level. This does not sit well with those who cannot find a job.

"It can feel rather arbitrary to certain people," said Andrew Stettner, deputy director of the law project.

Just how long federal jobless benefits should continue was the subject of much debate when Congress was considering the 13-month extension contained in the tax-cut deal. The federal government has already paid out $109 billion in unemployment insurance during this recession.

Those that had opposed continuing benefits say another extension would be too expensive and would dissuade people from finding jobs.

Advocates argue that the safety net has always existed during periods of high national unemployment. The Obama administration echoes their position, saying that people will naturally fall off the rolls as state unemployment rates improve.

"As your unemployment rate goes below various thresholds, the extension itself phases down and the weeks shorten," said Austan Goolsbee, chairman of the president’s Council of Economic Advisers. It "should be determined at the state level, not at the national level." 

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Representative Ron Paul, Texas Republican and author of “End the Fed,” will take control of the House subcommittee that oversees the Federal Reserve.

House Financial Services chairman-elect Spencer Bachus, an Alabama Republican, selected Paul, 75, to lead the panel’s domestic monetary policy subcommittee when their party takes the House majority next month, the committee chairman said today.

“This is the leadership team that crafted the first comprehensive financial reform bill to put an end to the bailouts, wind down the taxpayer funding of Fannie Mae and Freddie Mac, and enforce a strong audit of the Federal Reserve,” Bachus said in a statement.

Paul, in an interview last week, said he plans a slate of hearings on U.S. monetary policy and will restart his push for a full audit of the Fed’s functions.

“We are ready to hit the ground running, and I look forward to continuing our work in the next Congress,” Bachus said.

Paul, who has introduced legislation to abolish the Fed, became nationally known during his 2008 presidential campaign. His campaign to audit the Fed picked up steam as the central bank deployed trillions of dollars in emergency loans in the midst of the worst financial crisis since the Great Depression. Paul’s bill gained the support of 320 of 435 members of the House and a portion of the measure ended up in the Dodd-Frank financial regulatory overhaul enacted this year.

Attacks on Bernanke

Paul’s assignment comes as the Republican Party has stepped up attacks on Fed Chairman Ben S. Bernanke and the central bank in the wake of the Nov. 3 announcement that it would buy bonds in an attempt to bring down unemployment and prevent inflation.

“Congress must act to rein in Chairman Bernanke and the Fed before they destroy our currency and permanently damage our economy and financial system,” Senator Jim Bunning, a Kentucky Republican, said in his farewell speech on the Senate floor today. “Public awareness of what the Fed is doing is increasing while public opinion of the Fed is falling faxless cash advances.”

Bunning’s views are reflected throughout the country, according to a Bloomberg National Poll that reveals deep skepticism about the Fed.

Americans across the political spectrum say the central bank shouldn’t retain its current structure of independence, according to the poll. Asked if the central bank should be more accountable to Congress, left independent or abolished entirely, 39 percent said it should be held more accountable and 16 percent that it should be abolished. Thirty-seven percent favor the status quo.

Other Subcommittees

Paul, who has been passed up twice before for the subcommittee chairmanship, may cause a problem for Republicans who have traditionally defended the central bank, Representative Barney Frank, the outgoing chairman of the Financial Services Committee, said today in a Bloomberg Television interview.

“I think you’re going to see a significant dispute within the Republican Party,” said Frank, who was re-appointed by his party as the senior Democrat on the committee. “I do not believe that Ron Paul’s views on the Fed represent the views of most Republicans.”

Bachus will keep the senior Republicans on the panel in leadership positions. Representative Jeb Hensarling of Texas will take over as the panel’s vice chairman, replacing fellow Texas Republican Randy Neugebauer, who moves over to lead the oversight and investigations subcommittee.

Representative Scott Garrett of New Jersey will become chairman of the capital markets panel, which would oversee any work done on government-owned mortgage companies Fannie Mae and Freddie Mac. Representatives Shelley Moore Capito of West Virginia and Judy Biggert of Illinois will take over the financial institutions and housing subcommittees, respectively. Representative Gary Miller of California will take over as chairman of the international monetary policy panel.

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Australia’s four biggest banks, led by Commonwealth Bank of Australia and Westpac Banking Corp., face mounting competition after Treasurer Wayne Swan urged customers to turn to credit unions and building societies.

“Competition from smaller lenders in the banking sector has to be activated by empowering consumers to shop around,” Swan said yesterday in a statement. “I’d encourage every Australian family to check out the range of products on offer.”

Swan has said he’ll issue proposals this month to reduce the dominance of the four lenders, which also include National Australia Bank Ltd. and Australia & New Zealand Banking Group Ltd. Calls from politicians to rein in the quartet have mounted after some posted record profits and they boosted mortgage rates faster than the central bank raised borrowing costs last month.

“It seems that a left-leaning Federal government is determined to see major banks become less profitable and dominant,” Craig Williams, a Melbourne-based analyst at Citigroup Inc., said in a report today. “It’s hard to get too positive about the outlook for the banking sector in Australia.”

National Australia Bank fell 0.8 percent today in Sydney, while Commonwealth Bank declined 0.5 percent. Westpac slid 0.2 percent and ANZ Bank was little changed.

Many Australians don’t know they can buy financial services from 60 credit unions and building societies, which are institutions owned by their customers, at post offices, according to Swan. He will probably present his proposals, including ways to help them issue more loans, to the Cabinet today and an announcement is likely Dec. 9 or Dec. 10, according to the Melbourne-based Age newspaper.

Cost of Funding

Public debate on competition in financial-services is intensifying as banks and officials contribute to a Senate inquiry. Central Bank Governor Glenn Stevens is due to appear before the committee on Dec. 13.

Westpac, Australia’s second-largest lender, last week published its submission, saying there are currently 179 entities competing to sell banking services.

Chief Executive Officer Gail Kelly called on the government to introduce measures that reduce major banks’ reliance on offshore funds, which has become more expensive following the global financial crisis. The biggest banks have blamed those costs for driving up mortgage prices. Kelly also said a “wide- ranging” inquiry should wait as long as four years, until the effect of new worldwide liquidity and capital rules become clearer.

Tighter Grip

In an interview published Dec. 4 in the Australian Financial Review, Kelly said the only way to reduce mortgage prices is to help banks obtain cheaper sources of funding.

Australia’s four largest banks used the global financial crisis to tighten their grip on the home-loan market as smaller bank struggled to access credit. The major banks, dubbed the “Four Pillars” after a law preventing takeovers among them, account for about 88 percent of the residential home lending market, according to data from the Australian Prudential Regulatory Authority.

Credit unions and building societies argue that the country needs more competition and have asked the government to introduce policies to help them access funding.

In a Nov. 30 submission to the senate inquiry, the Association of Building Societies and Credit Unions asked for the introduction of a flat-fee guarantee of wholesale debt funding for smaller lenders.

The government has invested A$16 billion ($15.7 billion) in Triple-A rated residential mortgage-backed securities to support smaller lenders and lower the cost of funds, Swan said yesterday.

Australia’s largest banks are already poised to face greater competition in other areas.

AMP Ltd., which is buying the Australian and New Zealand units of Axa Asia Pacific Holdings Ltd., plans to use the deal to compete with the wealth-management businesses of the largest banks, AMP Chief Executive Officer Craig Dunn told yesterday’s Inside Business program on the Australian Broadcasting Corp.

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BOSTON

Core U.S. producer prices recorded their largest fall in more than four years in October and industrial output was flat, underlining concerns at the Federal Reserve about low inflation amid moderate growth.

Economists said the data supported the U.S. central bank’s November 3 decision to ease monetary policy further even though the 0.6 percent drop in the core Producer Price Index largely reflected the annual introduction of new motor vehicle models.

Stripping out the sharp declines in vehicle prices, core producer prices — which exclude volatile food and energy costs — would have risen by 0.2 percent, the Labor Department said on Tuesday, a modest gain consistent with the economy’s sluggish growth trend and tepid domestic demand.

“Today’s PPI data shows you that beneath the surface there is not a whole lot of inflation and tomorrow’s (consumer price) data is likely to show the same thing,” said John Canally, a economist at LPL Financial in Boston.

“The Fed is not going to be proven right with one month of inflation data, but you just need to look around where wage costs are. The PPI data supports what the Fed is doing cash until payday.”

The overall decline in the core index was the biggest since July 2006 and followed a 0.1 percent gain in September. A similar increased had been expected in October.

The weak inflation report ignited a rally on the U.S. government debt market, where the 30-year bond posted its biggest one-day gain. Ongoing concerns over Ireland’s debt crisis and tight credit in China eroded risk appetite.

U.S. stock indices ended down more than 1.5 percent, while the dollar scaled a seven-week high against the euro.

Concerns that low inflation could spiral into a damaging phase of deflation prompted the U.S. central bank this month to ease monetary policy further, a step that will see it buy $600 billion worth of government bonds through the middle of 2011.

That measure has been criticized by some economists, amid signs that the recovery from the worst economic downturn since the 1930s is regaining some strength after losing momentum in the summer.

Despite brighter signs, soft demand is forcing retailers to continue with price discounting to lure customers.

Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), the world’s largest retailer, said on Tuesday there were indications consumers were still shopping paycheck-to-paycheck. Still, cost cutting helped it to a higher quarterly profit.

Home improvement chain Home Depot Inc (HD.N: Quote, Profile, Research, Stock Buzz) also reported earnings that beat expectations, but it softened its full-year sales forecast [ID:nN1627318].

A separate report from the Fed showed industrial production was flat last month, short of economists’ expectations for a rise of 0.3 percent, largely because of weak utility output that reflected unusually warm weather. But manufacturing production rose 0.5 percent, its biggest gain since July.

“The rise in manufacturing is consistent with other reports out there showing the economy picked up strength at the start of the fourth quarter,” said Jim O’Sullivan, chief economist at MF Global in New York.

Economists do not expect the distortions from the annual introduction of new vehicle models to spill over into data on consumer inflation, which is due on Wednesday California payday loan lenders. Core consumer prices are expected to have edged up 0.1 percent after being flat in September.

The core PPI was depressed by a 4.3 percent drop in the price of light motor trucks and a 3 percent drop in prices for passenger cars. In the 12 months to October, core prices have risen just 1.5 percent.

While core prices fell sharply, overall prices received by U.S. farms, factories and refineries rose 0.4 percent, but that was well below economists’ expectations for a 0.8 percent gain. Wholesale prices increased 0.4 percent in September.

Though upward pressure from rising commodity prices is starting to show, economists said it was unlikely to feed through to consumer prices in a meaningful way.

“It is not true to say that no cost increases are filtering through, but there’s still so much excess capacity in the economy that core inflation will remain quiet despite higher costs,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

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Existing home sales climbed for the second month in a row in September, fueling some hope that a housing recovery is underway.

Sales of previously owned homes rose 10% to a seasonally adjusted annual rate of 4.53 million units last month, the National Association of Realtors reported Monday. That was up from a 4.12 million rate in August.

The report came in much stronger than expectations. Economists had forecast sales to edge up to an annual rate of 4.25 million units, according to consensus estimates from Briefing. com.

The gains of the past two months were welcome news, after home sales sank 27% to their lowest level in 15 years in July. While some economists say a housing recovery is underway, a foreclosure moratorium in October may have a negative impact on next month’s report.

"A housing recovery is taking place but will be choppy at times depending on the duration and impact of a foreclosure moratorium," Lawrence Yun, NAR chief economist, said in a release. "But the overall direction should be a gradual rising trend in home sales, with buyers responding to historically low mortgage interest rates and very favorable affordability conditions."

While Tuesday’s report offered a glimmer of hope for housing, home sales remained 22% below this year’s peak in April, and 19% from a year earlier. The housing market peaked thanks to an $8,000 tax credit for first-time buyers, which has since expired.

But now, amid high unemployment and uncertainty about the economy, consumers just aren’t ready to take the plunge into home ownership, like they were a year ago, said Leif Thomson, chief executive of Mortgage Master Inc., a privately owned lending firm.

"Despite having unbelievably great interest rates and low housing prices, the housing market is stuck in the mud right now," he said.

The inventory of homes on the market edged down 1.9% in September to 4.04 million units, but that number is still "unbelievably high," Thomson said.

About 35% of homes sold during the month were in foreclosure, the Realtors said.

The median price of homes sold in September was $171,700, down 2.4% from a year earlier, the report showed. 

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Local government in Wichita should establish a more stringent set of guidelines as it examines whether to support public-private development proposals in the city’s core, the city’s downtown development consultants said Monday.

As they laid out their draft master plan for downtown Wichita, Goody Clancy executives said the city should ensure that public dollars are spent on projects that have strong public-use components — such as parking garages and public parks. Government also should establish a point system to score potential projects and developers on whether their programs are viable and worth helping.

But the city should be ready with incentives to develop downtown sites, which often are plagues with land acquisition hurdles, environmental concerns and parking issues.

“If we don’t want to play that game, then we run the risk of stagnation and deterioration,” said Sarah Woodworth, a member of the Goody Clancy team.

The Boston-based consulting firm presented its draft plan on Monday during a public meeting at the Wichita Scottish Rite building. The meeting will be followed later this week with a series of public input sessions.

Goody Clancy executives said city capital should be used only for projects that have a strong public benefit so the money has a broader impact than just the private sector project itself.

The city also should establish a point system to rate projects, the consultants said. Criteria could be whether a developer has downtown development experience in the area, how financial solvent he is and whether his proposed development agreement would be fair to all parties.

On financing, Woodworth said, “We should not have any criteria that a bank would not have.”

The projects themselves would have to fit into the downtown master plan. The city should push for them to have a design and location that promotes downtown walkability — one of the key elements of Goody Clancy’s work. Projects also should include buildings at least two stories tall to fit with the character of downtown and shouldn’t come with surface parking lots.

“It doesn’t make for a very pleasant walking environment,” said Goody Clancy’s Ben Carlson.

Goody Clancy’s draft plan, which has been in the works for six months, also laid out a series of possibilities for different areas of town payday advance.

The consulting team laid out numerous potential development districts with their own identities, such as Old Town, Commerce Street Arts, Douglas-Delano, Douglas-Arkansas River, Century II-WaterWalk and the governmental center.

The consultants also made several proposals within some of those districts, offering up sketches for the sites to help people visualize what could happen there.

At the Broadview Hotel near Century II, the consultants suggested the city extend Water Street south to WaterWalk and create a new development site at Douglas and Water that could hold retail and dining. They also said a hotel could be established near the site. All of that would serve Century II and warm up a streetscape that today is wide and relatively unfriendly to pedestrians.

At Broadway and William, Goody Clancy consultants said the former Allis Hotel site could be converted to a park with a parking garage. The former Henry’s store could be converted to 50,000 square feet of office, and the Douglas building just north of there could be rehabbed as an apartment building. A parking garage could serve both the Henry’s and Douglas street buildings.

At Douglas and St. Francis, the consultants urged an improvement of the connection between Old Town and Intrust Bank Arena with more unique pavement styles for pedestrians. They also said Naftzger Park at that intersection could be improved and a hotel could be built just east of it near the Central Rail Corridor. New housing also could be built into existing buildings near that corner.

Just to the east, near Union Station, the city should install a stop light to make that intersection more pedestrian friendly, the consultants said. A parking lot on the northwest side of that intersection could be home to a new residential, office and retail building. The parking that currently is on that site could be moved south to a newly built parking garage.

The consulting team also had renderings for the site of the new public library, the site of the old Coleman factory near Old Town and the site of the 1st Street Bridge over the Arkansas River.

In some cases, the city owns land in those areas and could steer development in the way it chooses, the consultants said.

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The American Board of Internal Medicine sanctioned 139 physicians for soliciting or sharing confidential examination questions used to certify doctors in internal medicine and its subspecialties.

Officials at ABIM, which is based in Philadelphia, also said the board initiated legal action in the U.S. District Court for the Eastern District of Pennsylvania last week against five physicians who were among the most egregious offenders.

The sanctioned physicians participated in Arora Board Review, an independent test-preparation course provider based in Livingston, N.J., that purported to help physicians prepare for board certification exams. Participants in the course were allegedly encouraged to relay questions from memory to the company immediately after they took an ABIM examination. They were also allegedly provided with questions obtained by other physicians who had completed ABIM examinations.

Through an extensive investigation, ABIM established that the physicians being sanctioned shared or solicited actual ABIM examination questions — which it called a significant breach in the professional standards ABIM requires of all of its board-certified physicians and any physician taking the exam for certification bad credit payday advance. Hundreds of questions were compromised and immediately removed from the ABIM exam question pool.

“Physicians are, and should be, held to an exceptionally high standard of clinical skill and ethical behavior,” said Dr. Christine K. Cassel, ABIM’s president and CEO. “Board certification provides patients with assurance that the physicians they choose are competent and knowledgeable in their chosen field of practice. Through the actions we are taking today, we are telling patients that they can trust this process; and we are sending a very clear message to physicians. Anyone who seeks to compromise the integrity of our examinations will face swift and serious consequences.”

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Severn Bancorp Inc. pared its loss in the first quarter, setting aside less money to cover potential losses in its loan portfolio.

The Annapolis-based parent of Severn Savings Bank (NASDAQ: SVBI) lost $528,000, or 10 cents a share, for the three months ended March 31. That was an improvement from the $1.3 million, or 18 cents a share, the company lost in the period a year earlier.

During first quarter 2010 Severn added $2.5 million to its loan-loss reserves, down from $4.5 million a year earlier and $5.5 million in fourth quarter 2009.

Severn’s capital levels exceed the requirements for federal banking regulators to consider the bank “well capitalized,” it said in a press release Thursday no faxing pay day loans.

“While we are not satisfied with the loss for the quarter, we are encouraged by the improvement in asset quality and the prospects for improved performance for the remainder of 2010,” Severn CEO Alan J. Hyatt said in a statement.

Severn Savings Bank has four branches in Annapolis, Edgewater and Glen Burnie.

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