Mervyn King, governor of the Bank of England (BOE) has taken an about turn on his previous forecasts for economic growth in the UK in the coming two years, He tampers his newly found optimism with forecasts that any recovery in the UK economy will be both slow and unstable, largely because of the slow rate of industrial output which has been endemic since early 2008. King was quoted as saying that "Britain was facing a prolonged period of balance sheet adjustment” as households, businesses and government understandably rein in spending to levels they can afford. The BOE in its most recent quarterly inflation report has forecast growth rates of 2.1 per cent for 2010 and 4 per cent for 2011, making for a major upward revision from their own forecasts in August, of 1.9 per cent and 3 per cent for 2010 and 2011 respectively. The bank’s forecasts are also much higher than the outlook of private sector economists and even the UK Treasury’s predictions. Mervyn King.

Presenting the Bank’s latest quarterly inflation report, King predicted that the UK economy has "only just started" along its road to economic recovery, and lending by commercial banks would "probably remain weak over the next three years". The governor also predicted during his speech that inflation may "rise sharply over the next few months", triggered by VAT returning to 17.5% on 1 January 2010 as well as the effects of ever increasing fuel costs.

According to data from the Office for National Statistics, unemployment in the UK rose at its slowest rate for 18 months. Yet another signal that the UK economy may finally be on the verge of returning to growth in the fourth quarter of 2009. The level of employment in the UK is recorded through a complicated series of measures. Figures from the ILO (International Labour Organisation) showed that the number of people without a job, rose by 30,000 in the three months to September, bringing the total unemployed to 2.461 million, which was the smallest rise recorded since the second quarter of 2008. Unemployment levels in the UK now stand at 7.8%, which is 0.2% lower than most economic forecasts.

Lloyds Banking Group has announced that they plan increase the amount of fresh capital that they intend to raise by £1.5 billion, from £21 billion to £22.5 billion. The increase came in response to demands by the bank’s bondholders for a larger allocation of the contingent convertible instruments (CoCos). The news of the interested in CoCos was especially encouraging for the US Federal Reserve who is reportedly in talks with Wall Street executives over whether US financial groups should also use this method to raise capital. In the case of the Lloyds CoCos, they would be convertible if their equity strength falls from its current level of 8.6 per cent to below 5 per cent.

British Airways (BA) has announced that they are in advanced talks with and Spanish airline Iberia over some form of merger. Both companies are expected to hold separate board meetings at the earliest opportunity to discuss final details of the merger

In an official statement, representatives of BA hastened to point out that the meetings would consider the potential transaction, and that firm decisions had yet to been taken, and there were no guarantees that a deal would take place. Iberia has leaked that the deal under discussion would give it 45% and BA 55% of a new merged company. The firms have considered a tie-up for a number of years, and held talks on the issue in July 2008. BA chief executive Willie Walsh has previously said that a merger would help both firms in the current economic climate. Reports of the imminent merger sent British Airways shares higher, climbing 7.5 percent to 215 pence.

Share in telecoms operator BT Group, rose 3.7 per cent to 147 pence after they announced that they will be raising their full-year revenue outlook and dividend forecast for 2009. Thanks to a series of cost cutting measures including cutting back on 15,000 jobs, BT increased their second-quarter earnings to more than £900 million. The positive outlook for BT came as they announced along with their second quarter results that they are to raise their total cost-savings target for 2009/2010 from £1 billion to £1.5 billion.

The world’s largest owner of shopping malls Westfield Group have announced that retail sales in October at their UK centres in the U.K. have risen at the fastest pace in seven years, amounting to 3.7 percent in the three months. The company also reported that the number of stores closing in their centers has also fallen since steadily since the second quarter.

According to a recent statement, Westfield’s London shopping complex, which opened at the height of the global financial crisis last year, has attracted some 20 million visitors and has signed more than 15 new tenants.

Sterling continued to lose ground on Thursday trading falling against all the major currencies, with the notable exception of the Japanese yen.

• Pound/US dollar 1.6553
• Pound/Euro 1.1136
• Pound/Japanese Yen 150.0166
• Pound/Swiss Franc 1.6842

The FTSE 100 continues to gain strength, up 46 points to 5,276.55. The FTSE 250 also rose, up 175 points to 9,295.92.

In the US, fears continued to be voiced that, "the ‘real’ economy, as opposed to the financial one is still struggling to recover" and that if the government withdrew its stimulus spending measures, the economy could take some major steps backwards. The Dow Jones indexes erratic behaviour over the last few weeks as well as an already depressed job market seems to indicate the fact.

Meanwhile US Treasury secretary Tim Geithner, continue to voice his belief in the importance of a strong dollar, His statement came as the dollar dropped to its 15-month low. The continuing weakness of the World’s staple currency has led to some concern over the future of the dollar in its traditional role in the global economy. According to Geithner, the United States bears a special responsibility for trying to make sure that their global policies will sustain investors in the currency.

His words of comfort helped Wall Street very little, as the Dow Jones lost some of its earlier gains of this week, down 19 points to 10227.92. The NASDAQ made a minor increase, up six points 2157.17.

Warnings continue to come from the International Energy Agency (IEA) that the recent rises in oil prices "risks derailing the recovery" if they continue, whilst. Pointing out that demand for the "black gold" itself would slow down if price rises continue in 2010. The price of oil is now around $79 dollars a barrel, representing a rise of 77% so far this year. The IEA "in their monthly report, pointed their finger at China who they say are driving up demand, causing them to revised upwardly revise their forecasts. Overall the organisation predicts a 1.6% increase in demand for oil, up to 86.2 million barrels a day.

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Tags: BA, Bank, Bank of England, Banking, BOE, British airways, British Economy, BT Group, CoCos, Credit Crunch, Currency, Dow Jones, Economy, Employment, Financial News, FTSE, Iberia, IEA, International Energy Agency, International Labour Organisation, Lloyds, Lloyds Banking Group, Lloyds CoCos, Mervyn King, Money, Money Markets, NASDAQ, Office for National Statistics, Recession, Retail, UK Banks, UK Economy, UK government, UK Recession, Unemployment, US Federal Reserve, US Treasury, Wall Street, Westfield Group, Willie Walsh

Last week’s announcement of Lloyds Banking Group’s intentions mount a rights issue planned to raise up to £20 billion in a rights issue has caused no uncertain amount to Chancellor Alasdair Darling and his team as well as those private sector investors who have seen fit to buy some of the bank’s shares. .

In an understandable nut possibly ill timed attempt to reduce the reliance on the UK government, Lloyds’ management began to test the water on the concept that the terms of its participation in the government’s asset protection scheme (APS) might be open to re-negotiation after their second-quarter results were much more positive than analysts anticipated.

However it does appear that the bank will not be met with too many friendly faces when they set about convincing Darling to take a second look at the basic terms of the scheme after several months of highly complex negotiations have been put to bed. ..

Chancellor Darling’s long held standpoint on the APS as the international model for cleaning up toxic assets is believed to be untouchable. In addition, government officials are reported to be of the opinion that raising Lloyd’s ability to raise sufficient capital is questionable, and any attempts to sidestep the scheme would be not only be unwise, infeasible or sufficient to satisfy regulators.

The financial implications of Lloyds opting out of the APS could be fundamental, with the bank having to rise between £30 billion and £40 billion in capital to satisfy the regulator’s stress test. In addition, the UK government could be entitled to demand compensation for carrying £575 billion of the banks liabilities since March of this year.

The Financial Services Authority reported yesterday that the number of new financial companies seeking UK regulatory authorisation have risen by ten per cent during the second quarter, making for the first increase since early 2008.

Independent financial advisers, including those who offer life assurance and other retail ¬products were reported to comprise the single largest group.

Next in line were financial advisory services, private equity shops and corporate finance boutiques. Cottage financial service industries that have been established by ex-city financiers who fled the mainstream banks during the recent turmoil in the financial sector.

The number of firms cancelling their authorisation with the FSA also slowed by 18 per cent in the three months to June, according to another recent study.

On the FTSE yesterday, shares in the BT Group were very much in demand after positive analyst reports.

The reports stated that BT’s broadband business looked set to benefit from Tiscali’s exit from the UK and Vodafone’s failure to capture a share of the market. Shares in BT rose 2 per cent to 134 pence.

Banks led the fallers amid the growing debate about whether Lloyds Banking Group should pursue their controversial rights issue scheme.

Lloyds fell 4 per cent to 98 pence, while shares in Royal Bank of Scotland dropped 3.6 per cent to 45 pence and Barclays also lost 1.8 per cent to close on 358½ pence,

Enterprise Inns slid 1.9 per cent to 172 pence after two of the company’s senior directors took advantage of their share’s rebound.

Ted Tuppen, group chief executive, raised more than £500,000 after selling 300,000 shares at 167 pence each, while CEO Simon Townsend cashed in 67,500 shares for 173 pence. Enterprise share values have jumped by more than three times since December, when both directors increased their shareholdings.

Shares in IT services group Logica were up 1.3 per cent to 113 pence after claims that the company was a potential bid target for BAE Systems.

BAE, 1.5 per cent higher at 325½ pence have been known to be actively on the lookout for acquisitions in an attempt to expand their security operations currently focused on the defence sector, making Logica’s public service operations a credible target..

There was unexplainably strong volume in instrument maker Spectris, whose shares closed 2 per cent higher at 576 pence.

The FTSE 100 drifted from its high of the year, losing 9.36 points, or 0.2 per cent, to 4,722.2.

Meanwhile the FTSE 250 closed just half a point down on 8,421.46

The pound stepped backwards against the other major currencies.

• Pound/US dollar 1.6483
• Pound/Euro 1.1654
• Pound/Japanese Yen 159.6125
• Pound/Swiss Franc 1.7853

The news that the US banks stand to collect a record $38.5 billion in overdraft fees this year has left a bitter taste in the mouths of many. Even more so when considering that the bulk of the revenue will come out of the pockets of already financially stretched consumers, struggling to keep their heads above water during the current financial downturn.

Overdraft fees have almost doubled during the last decade, and seem inappropriate when considering the political pressure applied to banks to ease the burden on after being bailed out by taxpayers.

The Federal Reserve is working on rules on overdraft fees, and rules on customer charges could be a priority of the Obama administration’s proposed Consumer Protection Agency if approved by Congress.

US stocks drifted from last week’s highs on Monday, with investors looking to bank profits even as several experts gave a relatively bullish analysis for equities.

However sellers far outnumbered buyers on Monday’s trading

On trading Monday, the Dow Jones index eroded a little down 32.12 points, to close on 9,337.95. The NASDAQ also dropped below the 2,000 mark again, down 8.01 points to close at 1992.24.

Latest reports prior to President Obama’s visit are that Mexico has moved into its deepest recession of modern times.

Figures to be announced on gross domestic product in the second quarter is expected to report a 10.4 per cent fall, following a first-quarter drop of 8.2 per cent, according to the finance ministry.

The International Monetary Fund predicts that, for the full year, the economy will fall by 7.3 per cent, the worst performance in Latin America.

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Tags: Alasdair Darling, BAE Systems, Bank, Banking, British Economy, British Pound, BT Group, Credit Crunch, Currency, Dow Jones, Economics, Economy, Federal Reserve, Financial News, Financial Services Authority, FTSE, International Monetary Fund, Lloyds, Lloyds Banking Group, Logica, Money, Money Markets, NASDAQ, Obama administration, Recession, Royal Bank of Scotland, Simon Townsend, Stocks and shares, Ted Tuppen, Tiscali, UK Banks, UK government, UK Recession, US Banks, Vodafone, Whitehall