Knees knocking in the UK as budget day approaches

April 20th, 2009 by admin | Filed under Daily News, Recession, Retail, VAT.

You may love him or you may hate him, but one thing is for sure, not many UK citizens would like to be in Alistair Darling’s shoes on Wednesday when he makes his eagerly awaited budget speech.

Chancellor Darling is expected to announce spending cuts of around some £15billion of over the next few years, hopefully while making the entire financial apparatus based around Whitehall much slimmer and even meaner.

Financial analysts are predicting that the Darling’s budget statement will reveal the full extent of public borrowing this year, with has a potential of reaching more than £160billion. In honest truth, there will be very few pleasant surprises around this year’s UK budget for the man in the street. Alistair Darling’s statement is expected to announce that the fiscal deficit for 2008/09 has reached the £90billion mark, which is more than six percent of the Gross Domestic Production (GDP). If that wasn’t bad enough, experts predict that the figure will have reached about £174bn by this time next year, equivalent to a staggering 12.4pc of GDP.

Needless to say, the UK public are howling for blood, with the opposition Conservative party stating that Darling’s Budget is the equivalent of a “day of reckoning” with the Labour Party having led the UK into the worst economic crisis that it has known for decades.

Yet despite the constant flow of depressing predictions that are expected to reach fever pitch by Wednesday, there are those that continue to announce that the UK economy is no longer in free fall and that the beginning of a recovery should be felt by the spring of 2010. Hiding behind that well know cliché” it has to get better worse before it can get better, the same financial analysts are more certain in their predictions that the UK economy will contract by as much as by 3.5% this year and by an encouraging 0.1% in 2010.

In his Budget statement, Alistair Darling is expected to at least agree with the more unpleasant side of the prediction, that the UK economy will contract by around about 3% this year, a rapid turnaround from his November 2008 forecast in which he announced that the economy will “only” fall between 0.75% to 1.25%.

In fact, it seems that just about every set of statistics released these days in the UK provides an opportunity for interpretation, depending on whether you are an optimist or a pessimist. The news that UK retail sales fell in March 2009 compared with figures issued by the British Retail Consortium (BRC) a year earlier, seems like a very obvious victory for the pessimist.

Like-for-like sales fell 1.2%, making for the ninth fall in sales in the past 10 months, with the explanation that due to continued economic uncertainty. Leading consumers had no option to tighten their belts. For the optimists, there was some light in the fact that fall was made worse due to the fact that Easter fell in April this year but during March in 2009, meaning that, March’s figures did not include the traditional boost from Easter sales. If they had, the figures would have been much higher, resulting in a victory for the optimist, at least until this time next month.

Another reason for optimism came with the news that UK local councils who rather unwisely invested hundreds of millions of taxpayer’ money in Icelandic banks have been given some cautious indications that they may succeed in recovering a healthy percentage of the money. The reasons being that banks in Iceland, who were taken over by the authorities when the country’s financial system collapsed in October 2008, have appointed administrators to sort out the bank’s muddled affairs. It now transpires that the administrators have indicated its creditors could get up to 80% of funds invested back with initial

payments expected towards the end of July and August.

London-listed Chesnara Plc announced on Friday that has acquired the life insurance operations of Swedish financial services company Modern Finance AB.

Chesnara, owner of Countrywide Assured Plc, paid out twenty million pounds cash in cash for Moderna Life, a sum that represents a 63% discount from the book value of the unit as calculated at the end of 2008

Moderna Finance has been under the control of Icelandic bank Islandsbanki, who were recently nationalised, following the collapsed of Icelandic investment company Milestone.

Chesnara announced that Moderna Life’s activities will complement its UK business, as well as being an opportunity to grow a new division within the group.

Equities markets saw gains Friday, helped by gains in the banking sector after US bank Citigroup (NYSE: C) said that it only lost 18 cents per share in the first quarter, a better performance than analysts had anticipated.

In London on Friday the FTSE continued its steady climb with Lloyds Banking Group and RBS both doing well

British investor in leveraged buyouts, Candover Investments were said to be discussing bids received for the group, which put itself up for sale last year. The news saw their shares rising by 5.3 percent (11.75 pence to 234.25)

The world’s second-biggest drug maker GlaxoSmithKline appeared to be drawing nearer an agreement to acquire Stiefel Laboratories Inc. for about $3 billion. The shares rose by 0.3 percent (3 pence to 1,038)

Showing that progress nearly always pays dividends was the news that the London Stock Exchange Group Plc, who operate of the London and Milan bourses may announce who will be the technology providers for its Baikal pan-European trading system sometime this week, The shares rose 1.8 percent ( 12 pence to 689) in anticipation.

The FTSE 250 closed up 65 points at 7307.63 while the FTSE 100 finished the session 3.9 per cent, or 156.5 points, higher at 4,209.

Sterling fell slightly against the dollar and the Euro and rose slightly against the Japanese Yen and the Swiss Franc:

Pound/US dollar 1.4716

Pound/Euro 1.1333

Pound/Japanese Yen 127.58

Pound/Swiss Franc 1.6425

Wall Street shares had another steady day on trading before closing down for the weekend. The Dow Jones Industrial Average added 5.9 points to close at 8,133.33 while the NASDAQ crept up 2.63 points to 1,673.07

The continued optimism was largely down to Citigroup, who reported their first quarterly net profit in nearly two years, becoming the latest US bank to see an improvement in its performance.

Citigroup made a profit of £1.1billion ($1.6bn) compared with a loss of $5.1bn a year earlier. Revenues rose a commendable 99% to $24.8bn.

Shares in the bank initially rose, before falling backwards, closing 9% lower at $3.65 in New York.

Better than expected results also came from conglomerate General Electric, who reported a 40 per cent drop in first quarter earnings, beating analysts’ expectations of an even steeper decline?

Markets in the Asia-Pacific region were mixed.

In Tokyo, the Nikkei 225 added 1.74 percent to 8,907.58 while the Topix index was 1.63 percent higher to 845.57 and the Mothers market gained 1.44 percent to 319.63.

In Australia, the S&P/ASX200 was up 0.03 percent to 3,776.7 and the Sydney Ordinaries added 0.07 percent to 3,728.1, while the Hang Seng was 0.12 percent.

Crude oil prices were a bit higher but precious metals and grains declined on the session.