Just when things were starting to look too good to be true, S&P came along to burst the UK recovery bubble

UK stock markets, riding a wave of increasing euphoria that has gone on for weeks took a nasty tumble yesterday after ratings agency Standard & Poor’s (S&P) changed the UK’s outlook to negative. In the wake of this bombshell, global stock markets also fell after a warning that the UK’s top credit rating could be at risk.

The UK’s FTSE 100 fell 2.8%, the Dow Jones index ended the day down 1.5%, while the French and German stock exchanges dropped by 2.7% on the day.
In the event that a credit rating downgrade was passed, the implications for the UK economy would be harsh, making it more expensive for the UK to borrow on international markets, consequently jeopardising recovery and spending plans. It is a now syndrome that governments worldwide are borrowing more than might be considered prudent as they attempt to shore up their ailing economies.

U.K. consumers continued to display the right shop in the face of deepening recession, spending more than expected in April, according to information released by the Office for National Statistics on Thursday. Retail sales rose by 0.9% on a month-to-month basis in April following a 1.1% increase in March, making for an annual increase of 2.6%.

British pub chain Mitchells & Butler will be looking for a new chief executive, following the resignation yesterday of their current CEO, Tim Clarke. Clarke resigned after taking responsibility for a major loss incurred by the company due to an interest-rate swap deal that went very badly wrong. Despite the interest-rate fiasco, Mitchells & Butler’s figures for the half year were encouraging, reversing an 87 million pounds loss to only six million.

Its adjusted pretax profit dropped 48% to 44 million pounds. The company reported a rise in revenue of three % to just over one billion pounds, and a pre-tax profit of 44 million. Shares of Mitchells & Butlers declined 9%.

The black day on the FTSE particularly affected the banks and oil producers, who were rated as most likely to benefit from the continued improvement in economic activity Shares of HBSC Holdings dropped by 3.7% and oil company Total were down 3.4%.

Shares of Cable & Wireless plummeted by 9.6% on reports of discouraging annual figures, brought about by increases in restructuring costs. British Land suffered a similar fate as their shares fell by 8.2% as the company’s fiscal-year net loss increased due to decreases in property values. U.K. stocks experienced a major setback yesterday after the S&P announcement. The FTSE 100 crashed by 122.94 points to finish on 4,345.47, while the FTSE 250 index did little better dropping 222 points to close at. 7,512.37

Despite the setbacks sterling continued to rise against the dollar while falling back against the Euro.
· Pound/US dollar 1.5882
· Pound/Euro 1.1376
· Pound/Japanese Yen 149.4126
· Pound/Swiss Franc 1.7317

Wall Street stocks had for a third straight day of losses after falling on Thursday morning as investors digested the Federal Reserve’s lower growth predictions coupled with worries of how the possible downgrade UK’s debt ratings would affect the US economy. Share prices took a minor fall yesterday on Wall Street, with the Dow Jones index dropped a further 129.91 points to 8292.13 while the Nasdaq did slightly better, falling only by 32.6 points to close on 1695.29.

Like a domino effect, Asian stock markets came under pressure on Thursday as exporters were undermined by falls in the UK and US exchanges which weren’t helped by fresh gains for the yen against the dollar.

According to a leading international ratings agency, Chinese banks’ dramatic increase in lending could be leading to excessive risk taking. In an attempt to support the government’s stimulus package, Chinese banks have lent £489 billion (5.2 trillion Yuan) in the first four months of 2009, largely for government sponsored infrastructure projects.
Last year, the Chinese government announced a massive stimulus package, designed to boost economic activity during the downturn.

US crude oil prices extended their push beyond the $60-a-barrel level on Wednesday, after US inventories data released on Wednesday showed larger-than-expected falls in crude and petrol stocks ahead of the start of the US summer driving season on Monday.

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Tags: Cable & Wireless, Financial News, FTSE, Mitchells & Butler, Retail sales, Standard & Poor's