Tuesday evening business bulletin

Jun 10 2008 By Andrew Mernin

Bank of England Governor Mervyn King today warned that "innocent bystanders" could be put at risk if banks failed to curb excessive risk-taking.

Mr King - addressing the British Bankers’ Association’s annual conference - said banks had been encouraged into reckless activities in the knowledge that central banks would step in as a last resort.

"If banks feel they must keep on dancing while the music is playing and that at the end of the party the central bank will make sure everyone gets home safely, then over time, the parties will become wilder and wilder," Mr King said.

"That might not matter were the consequences limited to the party-goers. But they are not. When the party ends, some innocent bystanders may lose their homes altogether."

Following the Northern Rock crisis, policymakers are grappling with the problem of how to allow a badly-run bank to fail without undermining the stability of the wider financial system.

British Airways’ under-fire chief executive Willie Walsh is to get a £35,000 pay rise and has seen his bonus target changed to focus more on customer service, it emerged today.

Mr Walsh announced last month that he would forgo his 2007/08 bonus after the airline’s Terminal 5 fiasco, despite unveiling record full-year profits.

However, the airline’s annual report today shows that Mr Walsh will see his £700,000 basic salary increased to £735,000 next month, while he could also pick up a bigger bonus in this financial year worth up to 150% of salary.

But the bonus targets will be more dependent on customer service and satisfaction as it seeks to rebuild its reputation in the wake of the disastrous T5 opening.

Dozens of flights were delayed and cancelled and thousands of passengers separated from their bags in the troubled move to the new building in March.

The reputational woes overshadowed record pre-tax profits when the group unveiled figures last month.

The UK’s biggest supermarket sounded a cautious note on consumer spending prospects today despite reporting ``solid" first-quarter sales.

Tesco saw healthy food sales in the three months to May 24 but the pace of sales growth among non-food goods slackened as shoppers cut back on ``big-ticket" items such as electrical products.

Chief executive Sir Terry Leahy said: ``Although food category performance has been good, our rate of growth in non-food has eased as consumers have become more cautious with their spending during recent months."

Excluding petrol, like-for-like sales grew 3.5% - in line with management hopes and just within the 3.5%-4% range looked for by City analysts. Food sales also grew more quickly than non-food goods, the retailer added.

At the time of the retailer’s April annual results, same-store sales were running above 4%, although this eased back as the firm also faced fiercer competition from the likes of Asda, Sainsbury’s and Morrisons.

The pound at 4:30pm was US$1.9537 compared to US$1.9746 at the previous close while the euro at 4:30pm was £0.7918 compared to £0.7961 at the previous close.