Economist doesn’t often agree with U.K. Prime Minister Gordon Brown’s every decision, but on Friday there was a consensus that to keep Chancellor of the Exchequer Alistair Darling at the treasury was a wise one.

As part of a sweeping cabinet reshuffle brought about by revelations of expenses system abuse by those who are supposed to be leading the country out of recession, there had been strong speculation that Brown would replace Darling who has held down the post for two years, during which time the recession really took hold.
While changes at the treasury team still look likely, it seems that Darling is unlikely to be shuffled, as there may be no one else willing to take the job!

Another example of the “let them eat cake” theory adapted by big business in the UK is the disclosure that annual salaries of the country’s top executives rose by seven percent in 2008 last year to reach an average of £2.6 million. To the average British citizen, whose salary at best stayed the same, and whose cost of living rose as fast as his savings dissolved, this news will be especially galling.

Iceland agreed to take a $5.44 billion loan from the U.K. and the Netherlands to repay Icesave claims, bringing to a close a seven-month dispute and helping the island draw the next tranche of an international bailout.
The Atlantic island must pay back the loan over 15 years, according to a joint government statement sent by e-mail today. The U.K. will lend 2.35 billion pounds ($3.76 billion), the Treasury said, and the Dutch 1.2 billion euros (1.68 billion). It will be interest-only for the first seven years.

Thousands of U.K. and Dutch depositors risked losing their life savings after Landsbanki Islands hf, which offered the high-interest Icesave online accounts, collapsed with the rest of Iceland’s debt-reliant banking system in October, dragging the island’s currency down with it. The island is now relying on its IMF-led bailout to avert bankruptcy.

The FTSE 100 added 1.18 percent to 4,438.56 while the FTSE 250 gained 1.14 percent to 7,747.33.
Miner Rio Tinto added 10.33 percent to make it the session’s best performer on the 100, while Vedanta Resources (LSE: VED) was up 9.31 percent, Eurasian Natural Resources (LSE: ENRC) gained 7.31 percent and BHP was 6.8 percent higher.

ANOTHER DAY of political uncertainty helped to push sterling to a one-week low against the dollar, a two-week low against the euro and the yield on 10-year gilts 8 basis points up to 3.92 per cent – the highest since February.

The high drama in Westminster again left sterling gyrating as wildly as some ministerial careers. Sterling fell to $1.5959, compared with a seven-month high of $1.67 seen as recently as Wednesday. The pound was also hit later in the day by a sharp surge in the dollar in the wake of better-than-expected US jobs data

New York markets were slightly higher in early afternoon trade as the Dow Jones Industrial Average added 0.47 percent to 8,791.13 while at the same time, the Nasdaq Composite was up 0.09 percent to 1,851.66

Crude oil, grains, and most metals prices were all lower, but only after the price of crude oil went above $70 for the first time this year.

While markets in the Asia-Pacific region were mixed, more saw gains than suffered declines.
In Tokyo, the Nikkei 225 was up 1.02 percent to 9,768.01 while the Topix index added 0.61 percent to 916.56 and the Mothers market was 0.11 percent higher to 398.65.

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Tags: Alastair Darling, British Economy, Gordon Brown, Recession, Stocks and shares

Harrogate in the North of England is almost a nice place to spend a few days. Their stay  might be slightly less than pleasant for  the chief executives of the UK’s building society sector who are due to gather there for their annual industry conference in Harrogate. 2008 was, to say the least, a difficult year for UK building societies, and 2009 liiks already that it will be just as challenging. Cracks are beginning to show at the West Bromwich Building Society amid speculation that the finacilly challenged society are on the lookout for a buyer.  Its an open secret that many building societies have found themselves on shaky ground having diversified into issuing commercial property and subprime mortgages.

U.K.’s recession is beginning to make its mark on the online clothing market, where it was reported that sales are down for the first time in nearly a decade.

Web-based clothing sales dropped by two percent compared with the previous month, recent reports have it. Possibly distractions might have been Easter shopping, as well as mother’s day. Overall online retail sales in the UK were still on the rise in April, up 14 per cent from March, with online beer, wine and spirit purchases being the pacemakers, up by ten percent as warmer weather and Darling’s unwelcome two percent tax pushing sales figures upwards.,

The world of banking was shaken but not stirred by the news that the chairman of Lloyds Banking Group (LBG), Sir Victor Blank is to call it a day in June 2010.  Sir Victor announced to the LBG board that he felt it was “the right time for the Group to appoint a new chairman”.
 
Sir Victor had faced considerable shareholder  criticism for their decision last year to buy HBOS, the troubled owner of Halifax. These day. the UK Treasury is the principal shareholder holding a  43% in LBG.

On the news of  chairman Blank ’s intended step down  shares  in LBG  rose 1.6 percent    (1.4 pence to 89.2)

The Competition Commission and the Financial Services Authority have apparently begun a crackdown on a controversial form of insurance , that has been  costing banks and insurance companies  hundreds of millions of pounds. Among those affected are Lloyds Banking Group, Royal Bank of Scotland by concerted efforts to reform payment protection insurance.

High street retail giant, Marks and Spencer  are reported to be on the verge of announcing a dividend cut this week, with some analysts saying that it could be  by as much as half. Expectation are that the full year payout per share will be 11.3 pence down from 22.5 in 2008.  M&S are expected to announce their results on Tuesday.

On the FTSE ON Friday, property companies were again under the sword. The U.K.’s second-largest real estate investment British Land Plc trust declined 1.3 percent (5.25 pence to 391.75)  Eurasian Natural Resources Corp.  also followed suit , down  1.8 percent  (10.5 pence to 592.5) while Carnival Plc  on news that they are likely to cut dividends fell 2.4 percent  (42 pence to 1702) .

The world’s largest mobile- phone company Vodafone Group Plc (are expected to announce any day now their eagerly awaited plan  to speed up their one billion pound cost-cutting program. Shares  fell 2.3 percent  (2.9 pence to 123.2)
 
U.K. yellow pages provider , the Yell Group Plc are expected to announce a  one billion pounds write-down on its Spanish subsidiary, which has been severely affected  by the country’s severe economic  Yell shares dropped by 6.9 percent (3 pence to 40.5)

U.K. stocks fell backwards slightly on close of business on Friday. The FTSE 100 Index fell 14.47 to close on 4,348.11.37, while the FTSE 250 settled down for the weekend on 7427.87.

The pound receded slightly against the dollar and rose strongly against the Euro on currency markets yesterday.
· Pound/US dollar 1.5144
· Pound/Euro 1.259
· Pound/Japanese Yen 143.767
· Pound/Swiss Franc 1.703
On Wall Street, the Dow Jones closed on Friday down 62.68 points to 8268.64, while the Nasdaq held its ground more or less, down 9.07 points to 1680.14.

The US Treasury Department  announced that  they will make federal bailout funds available to a number of companies in the life insurance sector, after impassioned pleas  to receive much needed government help.

The Treasury plan  to inject up to $22 under last Autumn’s  Troubled Asset Relief Program.  On the news, shares of U.S. life insurers rose sharply on Friday.  The  life insurance companies who are eligible to receive aid  have been on hold  for weeks with some applications going back as far as November 2008.

The economies of the 16  Eurozone countries  have declined by 2.5% in the first three months of 2009,  according to a recent report. Forecast were for a drop of only 2%, with the sharp fall in German exports acting as a key factor in the decline.
GDP in the Eurozone has fallen by  fell 4.6% annually up to the end of March 2009/

Commodity prices were huffing and puffing over the weekend, Crude oil was up 5 cents a barrel at an average of $56.15, Gold dropped by 7 cents an ounce to $930.60. Copper continued its recent steady decline finishing at $200. 25 down $2.55

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Tags: Building Society, Financial News, Lloyds TSB, Retail, Sir Victor Blank

To be fair to UK Chancellor Alistair Darling it was fairly obvious that he was uncomfortable imposing a top tax rate of 50% on the country’s top earners, With a national net debt close to three quarters of a trillion pounds and not getting any smaller, Darling was hopeful that the successful and the famous would play their part in reducing the deficit. With all the fuss that Darling’s tax band increase has caused, it is worth taking into account that if everyone who is still earning lots of cash and pays up willingly, all that will trickle into the Government’s fast depleting coffers will be around two billion pounds annually. Just about enough to pay two weeks interest on the national debt!

And that is on the assumption that everyone pays up, or is around to do so. So far indications that the new tax band will succeed in driving some of the UK’s finest entrepreneurial talents to other shares, where the tax rates may be kinder. The UK treasury might have been labouring under the misconception that loyalty to the flag would entice some of the UK’s wealthy to set their personal welfare and desire to get even richer aside, if just for a while, and remain in the rain soaked, recession haunted British Isles and repay some of the country’s debts that they might even have been part of incurring. But that doesn’t appear to be the nature of the beast, and in today’s world of mobility and split second communication technology , it is possible to run a business in the UK from anywhere in the World.

Is yet to be seen that some of the threats issued will actually take place, but if they do some of the best-known figures in commerce and industry will be taking leave of the British Isles till this unpopular taxation rate becomes history. It is possible to argue the moral applications of their, what can be seen as, desertion in times when the country needs them, or at least their tax income. However as long as Greta Britain remains great, there is nothing that anyone, even Alistair Darling, can do to stop them.

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Tags: Alastair Darling, British Economy, Credit Crunch, Financial News, Tax

Has the 50% tax band provided the Labour Government the rope with which they will hang?

In a move reminiscent of the that famous British World War Two classic ” A Bridge too Far” will the imposition of a 50% tax band on salaries of £150,000 and over prove to be the last straw for an already disillusioned British public signalling the end of their eleven plus years stay in power at the earliest possible opportunity. Whilst the opposition parties continue to make a lot of noise, as any financial analyst will tell you, Chancellor Darling had absolutely no alternative but to apparently “soak the wealthy” in his desperate need to earn tax income.

Rumours are rife in fact that the 50% tax band is just the beginning, and as long as the Labour Government remains in control of the tax strings, they will continue to pull them even tighter around the throats of these who are in the upper income bracket, despite that fact that Alasdair Darling has insisted that 50% is as high as he will go.

According to Treasury estimates, a mere 300,000 people will become liable to pay a large percentage of their income at the 50% tax band from next year onwards. However, continuing to display their perennial yet apparently unfounded optimism, Darling’s crew estimate that more than three quarters of a million UK citizens could find themselves in the comfortable situation over the next ten years. Immediately although accountants believe the figure will rise to around 750,000 people over the next decade. There is a kind of perverse argument around that as more people find themselves in this upper income bracket, they will leave the country to settle in places where the tax system is more compassionate. Whilst this is possible in today’s global economic climate, the chances are that the majority will have created a situation for themselves where their UK business is immovable and they will have no option but to pay the higher taxes.

There is little doubt that the introduction of the 50% income tax band has become a bit of a hot potato not only among the rich and famous, but within the party itself. The comparatively unsubstantial income that the tax increases will bring may not for the serious backfire at the next general election.

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Tags: Alastair Darling, Economics, Financial News, Tax

There are times when words are superfluous, and stating what is apparently obvious becomes the norm. And the latest set of statistics released in the aftermath of Chancellor Darling’s budget statements on Wednesday will hardly have anyone fall off their overstuffed armchair in surprise. The UK economy is shrinking! Shrinking we already know, how fast or slow might be too much information for the recession weary UK citizen.

Well the good news is that the UK economy did indeed shrank in the first three months of 2009, but at about the same pace as it did in the final quarter of 2008. The question is that is this bad news or less bad news? Figures to be released are expected to show that UK gross domestic product (GDP) will have retarded by 1.5% from January to March, from 1.6% in the last quarter of 2008.

This encouraging news follows a statement issued after the Budget on Wednesday by the Institute for Fiscal Studies (IFS) warning that

Every UK family would be paying an additional £2,840 per year by 2017-18 through paying higher taxes or subsidising public spending.

The cheery trend continued with the Lloyds Banking Group confirming that they are to cut close to 1,000 jobs over the next two years, particularly in their auto finance unit, which under the current credit crunch regime is “no longer financially viable”. The bank has a current total workforce of 140,000.

Following the merger of Lloyds TSB and HBOS, the group momentarily became the largest provider of car finance in the UK.

Analysts predict that Lloyds Banking Group, in which the Government holds a 43% stake will be not only be making further job cuts but will also close a large number of branches in an effort to increase efficiency and cut costs.

John Varley, chief executive of Barclays Bank announced yesterday that despite his belief that the recession will be longer and deeper than Treasury predictions, the bank will be increasing their lending in 2009 by £11billion. The money to be lent will be allocated evenly, with £5.5billion to be set aside for consumers and £5.5bn for the commercial sector.

On the stock exchange , the retail sector was the driving force with Debenhams leading the FTSE 250 with gains of 21.65 percent on the back of news that its pre-tax profits and sales were much higher than predicted in the first half of the company’ fiscal year. Doing well, but not nearly as well as Debenhams was the 100 clothing retailer Next whose shares rose by 6.55 percent.

The U.K.’s second largest software producer, Autonomy Corp announced an increase in first quarter revenue rose of $25 million driving their shares forward by 2.6 percent (32 pence to 1,289)

London’s largest bus operator, the Go-Ahead Group Plc have announced that fiscal third-quarter trading matched their forecasts and that they are confident of achieving their targets for the full year ending in June. On the news their shares 0.3 percent (3 pence to 1,200).

The largest U.K. sporting-goods retailer Sports Direct International Plc announced that their recent sales had posted “higher than expected” gains, meaning that the company’s annual profit will meet forecast. On the day, SDI shares jumped by 13 percent (7.75 pence to 69).

Not doing so well amid “very difficult” market conditions are Smiths News Plc, the U.K. magazine and newspaper wholesaler, on the announcement that their first-half profit had fallen by 13 percent. Despite the gloom, their shares gained 3.2 percent (2.75 pence to 89.75)

U.K.’s largest magazine retailer WH Smith Plc announced that their first-half profit had dropped by two percent. This news might have been construed as positive as their shares rose by 5.1 percent, (20 pence to 410).

In London, the FTSE 100 dropped a mere 12 points to close at 4,018.23 while the FTSE 250 managed to gain 21 points to close at 7,181.53 on the day.

Sterling continued to fall, albeit slightly against the dollar and the Euro and rose slightly against the Japanese Yen and the Swiss Franc:

Pound/US dollar 1.4654

Pound/Euro 1.1149

Pound/Japanese Yen 142.09

Pound/Swiss Franc 1.6825

Wall Street shares enjoyed a fair day on trading

The Dow Jones Average added 70.48 to close at 7957.06 NASDAQ tottered forward a mere 6.09 points to finish the day on 1652.21

There might not have been tears in too many eyes with the news that software giant Microsoft have announced – its first quarterly drop in profit and revenue for 23 years. The company announced that sales in the first three months of 2009 have fallen by 6% to $13.65billion from the corresponding period in 2008. Profit has dropped by 32% to $2.98billion for the quarter. The obvious explanation was that demand for Microsoft products have been hit by falling sales of personal computers.

Feeling the pinch also are United Parcel Service (UPS), the world’s largest package delivery company. The company announced a severe fall in profits for the first quarter as fewer parcels (possibly containing Microsoft Windows of Office software) are in circulation during the global economic downturn.

In the Asia-Pacific region markets were higher, although Taiwan’s Taiex was 0.18 percent lower to 5,875.24 on the session.

In Tokyo, the Nikkei 225 was up 1.37 percent to 8,847.01 while the Topix index added 1.15 percent to 839.5, while the Hang Seng was 2.26 percent higher to 15,214.46 in Hong Kong

Oil prices were up slightly in New York, as were precious metals prices, but copper saw declines and grains prices were mixed

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Tags: Alastair Darling, Bank, British Economy, Financial News, Recession

Yesterday’s budget was probably the most anticipated, the most forecasted and the most feared for at least two decades in the UK.

It was obvious that UK chancellor Alistair Darling was pinning a lot of his hopes as well as his already tarnished reputation on painting a scenario where rapid economic recovery could only follow some necessary spending cuts that would allow the Treasury to regain control of public finances. In what can only be described as a budget that will continue to lead Britain into a period of long term austerity, Darling announced to parliament that he did not expect public finances to recover to pre-credit crunch levels until 2017-18. As expected, Darling revised his prediction to keep in line with the general consensus that the UK economy would contract by 3.5% in 2009 after borrowing surges to £175bn this year

He did stand firm in his conviction that the economy would begin to recover by the spring of next year.

Under a constant backdrop of dissent from the opposition parties, Chancellor Darling reeled off a series of measures covering the usual round of direct and indirect tax increases and spending cuts.

Smokers and drinkers are usually at the top of the list and 2009 was certainly no exception. Alcohol duties will increase by 2% from midnight, and tobacco duty was already up by the same figure by 18.00. These figures, expected to raise around £6billion by 2012, will mean an increase of 7p on a packet of cigarettes and 6p on a pint of beer.

Car owners and drivers also failed to escape some tax increases, Fuel duty will raise by 2p per litre in September with this increase by followed by a series of 1p a litre each year for the next four years.

January 2010 will see a return of VAT from 15% to 17.5%.

As expected, those who still find themselves in more than £150,000 a year will be asked to pay a price for their success. While this increase in income tax was expected, very few people could have seen the initiation of a top level tax rate of 50% coming, as well as a cut back on tax relief on their pension contributions.

Summing up his speech, an understandably subdued Alastair Darling, again reiterated his promise that UK finances would return to a form of balance by 2016, with net debt peaking at 79 per cent of gross domestic product in 2014.

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Tags: Alastair Darling, Economics, Economy, Financial News, UK Banks, UK Credit Cards

Most people who had the courage to listen to Chancellor Alasdair Darling’s budget speech yesterday were left shocked but not particularly surprised by its content. One group who were left speechless however was the Federation of Small Businesses (FSB) who complained that the budget had largely ignored the small businesses. Businesses that are predicted to be the driving force behind the nation’s economic recovery as well as being one of its principal forces in creates new jobs.

Whilst the FSB expressed their appreciation of the Treasury’s focus on saving as well creating new jobs in the Budget, they also pointed out that small business enterprise must be encouraged in order to present a framework for job creation.

The majority of small to medium sized business in the UK are suffering from short and long term cash flow problems, with the Government’s proposed trade credit insurance scheme being seen as a lifeline for many. However ,

the FSB announced their disappointment that the Government had failed to announce automatic rate relief for small firms in the budget, and expressed their fears that the Chancellor missed the opportunity to give those firms the immediate financial boost they need at this time. This announcement came in the wake of U.K. Business Secretary Peter Mandelson plans released on Wednesday that the government to actively intervene in the trade credit insurance market with a temporary scheme designed to five billion pounds of Treasury guarantees. The feelings from the FSB is that the sum is insufficient and without a specific time frame.

Another brainchild of Mandelson, appeared to be given the “green light” in the budget are plans to boost the struggling motor industry with the introduction of a “car scrappage” scheme The scheme will allow consumers a £2,000 subsidy against exchanging their car for one that is more environmentally friendly.

Apart from the glum budget, it was also revealed yesterday that unemployment in the UK continues to climb. It has now reached 2.1 million in the first quarter, with last month’s figures signalling the 13th consecutive monthly rise.

The latest figures showed that a further 177,000 jobs have been lost, marking a 6.7 percent increase in unemployment, up by 0.6 percent from the previous quarter, according to figures released by the Office for National Statistics

The figures also showed that the number of people who have been unemployed for more than a year increased by 49,000 in the first quarter and is now approaching half a million.

Despite the doom and gloom, things on the stock exchange were still positive

On the day, the FTSE 100 added 43 points to close at 4,030.66 in London, while the FTSE 250 rose around 180 points to 7,159.96.

Retailers were the sector who showed the highest gains, led by auto retailer Inchcape, followed by video games retailer Game Group. Also doing well were sporting goods retailer Sports Direct International

Sterling fell back on Wednesday after the budget speech revealed the unhealthy state of public finances and the UK borrowing requirements for the coming fiscal year

Pound/US dollar 1.4566

Pound/Euro 1.1173

Pound/Japanese Yen 143.19

Pound/Swiss Franc 1.6979

US equities fell on Wednesday as a late sell-off in the financial sector as investor’s comments from Tim Geithner, the Treasury secretary, that the government wanted to retreat from the banking sector as soon as possible.

The Dow Jones Average dropped 83 points to close at 7886.57. Nasdaq rose by 2 points to close at 1645.85

Markets in the Asia-Pacific region were mixed again.

In Tokyo, the Nikkei 225 added 0.18 percent to 8,727.3 but the Topix index was down 0.09 percent to 829.96 and the Mothers market dropped 0.26 percent to 321.84.

Crude oil prices were lower right after the US Energy Information Precious metals prices were up but copper declined, while grains prices were mixed on the Chicago Board of Trade.

The International Monetary Fund (IMF) announced that they had revised their predictions and that the global economy is set to decline by 1.3% in 2009, instead of their original prediction of half a percent.

They also narrowed down their predictions to announce that major economies such as Germany, Japan and Italy will shrink in 2009 by an average of five percent.

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Tags: Alastair Darling, Budget, Economics, Economy, Employment, Financial News, Small Businesses, UK Small Business

Unbelievable though it may sound, Chancellor of the Exchequer Alistair Darling is expected to announce a further set of bank guarantees, this time for mortgage backed bonds. The strategy behind Alisdair’s thinking appears to be that the guarantees will allow banks to sell their securities without the risk of making a loss, in the hope of reviving lending in the mortgage sector.

It is expected that Chancellor Darling will announce in his eagerly awaited budget speech today, that the treasury will be offering guarantees for up to 50 billion pounds of the bonds through a new mechanism, to be established.

Treasury officials expect that banks will be slow to take up the offer and instead prefer and instead to more make use of some of easier to operate lending options already available.

While as yet there is no official confirmation available that the plan will go ahead, it is anticipated that the Treasury intend to provide as many options to attract investors back to the property market, and Darling has chosen his budget speech to confirm this. In the recent past, investors have steered clear of mortgage backed bonds and other hard-to-value assets in the wake of bitter experience after the international money markets went belly up in 2007.

Currently sales of mortgage backed securities have hit rock bottom in 2009, where in 2007 they had reached around 80 billion pounds worldwide. The reason for Darling’s generous offer may well stem from the fact that investors are demanding rates as higher than three percent above bank rates to take on mortgage backed bonds, and hopefully the fact that the loans will be guaranteed will reduce these rates.

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Tags: Alastair Darling, Budget, Credit Crunch, Economics, Economy, Financial News, Gordon Brown, Recession, UK Recession