In one of the classic understatements of the year so far, new finance minister George Osborne has just announced his findings that the British economy is in a dire state and there will be difficult times ahead. Osborne’s revelation came as the government sat down to take action on tackling the record budget deficit. Osborne took up the role of Chancellor after the center-right Conservatives joined with the center-left Liberal Democrats to form the country’s first coalition government for more than half a century, as the Labour Government wound up 13 years rule.

Britain has barely limped out of the worst recession since World War Two, and the new government is under pressure to show their pre-election promises to reduce spending and raise taxes to cut a budget deficit running at more than 11 percent of GDP were not hollow. The coalition already pledged to significantly accelerate the reduction of the deficit in the next five years, cutting £6 billion pounds ($8.75 billion) from non-frontline public services during the current financial year. George Osborne is expected to unveil his emergency Budget on June 22 as the new coalition Government attempts to overcome the appalling state of the economy inherited from Labour.

Meanwhile on the home front, news from the Council of Mortgage Lenders (CML) is that mortgage borrowing by house buyers is on the increase, with the number of loans made to home buyers rising by 25% between February and March, to reach 45,000. First-time buyer borrowing rebounded faster than that by existing home owners, according to CML who also went on to warn that mortgage rationing might continue indefinitely unless the new government helped lenders raise finance.

The latest news on the small business front has shown decrease in UK business insolvencies last month. On a year to year basis, it was shown that

the total number of insolvencies fell by 15.1% in April compared with the same month last year, 2,274 in April 2009 down to 1,818 in April 2010.

Businesses that fell into the medium sized category were found to have suffered the most in April. Companies employing between fifty to hundred workers being the most vulnerable.

In a move that may indicate a thawing of hostilities between internet giant Google and the printed media – particularly Rupert Murdoch’s News Corp, Eric Schmidt, chief executive of Google, announced that Google were holding talks with Murdoch and other newspaper proprietors regarding running subscription services for their online sites. Murdoch has repeatedly criticized Google for undermining newspapers by allowing internet users too much access to their valuable news content. Late last year Murdoch went far as threatening to sue Google for including headlines from News International in its search results. Staring from June, the Times and Sunday Times are set to erect a pay wall limiting access to their online news sites to paying customers. The papers will also withdraw their articles from Google’s search engine

With annual results due to be issued before the weekend, mobile phone company Vodafone are expected to announce a 150 percent increase in profits, with analysts expecting pre-tax profits of around £10.4 billion for the year to the end of March. Vodafone’s profits for 2009 were just £4.1 billion, largely due to one of impairment of £5.9 billion pounds of impairment charges.

Reports are that the Spanish bank Santander are believed to have emerged as likely winners of the tender to take over the 318 Williams & Glyn-branded Royal Bank of Scotland (RBS) branches across England and Wales. Santander has apparently outbid Virgin, Spanish rival BBVA and Blackstone, with only National Australian Bank’s Clydesdale Bank arm still in the running. RBS is expected to make around £2 billion pounds from the successful completion of the sale.

Meanwhile credit card firm American Express has reportedly become the latest contender to enter into bidding for the payment processing arm of Royal Bank of Scotland. The partially state owned bank has been forced to sell of this division under European Commission rules governing state aid. The move by American Express, which has joined forces with private equity house Permira to table a bid in the £2.5 billion pound auction for RBS’s Global Merchant Services division, has been welcomed by RBS. Previously the bank had stated concerns over stand alone private equity buyers having sufficient experience to manage the business. With experience of processing payments of millions of customers in 130 countries, American Express could fit the bill and help RBS in their drive to expand in emerging markets,

Property development and investment giant, British Land, appears likely to take over the mantle as being the largest company in the field in the UK, leaving their bigger rival, Land Securities in their wake, when both companies announce full year results this week. British Land is expected to reveal that its net value of assets has increased by more than 20 percent over the past year to 490 pence a share, while Land Securities will announce that their shares have risen 16 percent increase in its net asset value over 690 pence a share.

Coming back down to earth with a thump will be British Airways who are widely expected to report losses of more than £600 million pounds when they reports their results on Friday. It is expected that results for the 12 months to the end of March will mark the airline’s worst ever financial performance, over a period in which it suffered from the effects of recession, strikes and bad weather. There are suggestions from senior staff that the company will not be able to survive any further blows. Analysts attending the shareholder’s conference will be keen to hear how chief executive Willie Walsh intends to explain the losses as well as the company’s ongoing dispute with cabin crews.

Pharmaceutical retailer and wholesaler Alliance Boots are expected to join the one billion pounds club on Monday. Alliance Boots, who returned to private ownership in 2007, are expected to announce a trading profit over the one billion pound by exceeding the 11.6 percent growth in 2009, when their profit was £953 million. By passing the one billion pound profit barrier Alliance Boots will become only the third retailer to do so in the history of UK retailing.

The euro has plummeted against the US dollar, falling below $1.22 for the first time since April 2006. The eurozone’s single currency fell more than 1.7% in afternoon trading in New York, to $1.216, before rallying.

The decline came after Germany announced plans to ban naked short-selling of shares from midnight local time on Tuesday. The single currency dropped by more than 2% against the yen on the news. Forex traders fear that the austerity measures being put in place in many eurozone countries will hit growth.

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According to a recent report by the Centre for Economics and Business Research (CEBR) UK house prices are liable to rise by about a fifth in the next four years. The forces that will push property prices up are increased lending levels by the banks and interest rates remaining at a low level.

Home values will rise 6.5 percent in 2010 and will have gained around 20 percent by the end of 2013, according to CEBR radically altering their forecast of October 2009, which house prices would increase by only 2.6 percent this year.

CEBR’s announcement strengthens reports from the Nationwide Building Society that showed house prices have begun rising again after the economy returned to growth. However their optimism was dashed by news that potential UK house buyers could soon face a chronic shortage of credit that will see mortgages ‘rationed’.

According to the Council of Mortgage Lenders (COML) as government schemes to keep mortgage lending afloat are due to dry up in 2014, their fears that a funding gap to the tune of £300 billion will open up. COML predicted in their recent report that the UK is at risk of a chronic under-supply of credit, bringing with it the rationing of mortgages for customers that will continue for many years. Before the financial crisis, the funding gap, meaning the difference between what banks took in savers’ deposits and what they lent out, was always covered by the wholesale market in mortgage debt.

As a result of lower oil and gas prices, oil giant BP have reported a 45% drop in annual profit Its replacement cost profit for 2009 was £8.75 billion, compared with £15.39 billion in 2008. The company said that its oil and gas production increased more than 4% in 2009 and its reserves had grown for the 17th year in a row. Profits during the final three months of 2009 were up 33% from the same period a year ago.

However, the fourth quarter results fell short of analysts’ expectations, causing BP shares to fall more than 4% in early trading.

Shares in Northumbrian Water surged 12 percent after press reports that the Ontario Teachers’ Pension Plan may bid £1.7 billion ($2.7 billion) for the company. The water utilities market in the UK is liable to benefit if the speculation on Northumbrian Water is confirmed as it will establish a higher trading range for the other water stocks. On the news, Northumbrian Water rose by 12 percent to close on 289 pence. The Ontario pension fund already owns 27 percent of the U.K. water company and wants to buy the remaining stake.

Severn Trent caught the wave and added 4 percent to 1,170 pence while United Utilities gained 2.8 percent to 551.5 pence.

South Korea’s National Pension Service, the world’s fifth biggest pension fund, will next week take a 12 per cent stake in Gatwick airport, stressing that investment in Britain will play a significant role in quadrupling its international exposure. The NPS, which is aiming to expand its overall portfolio, came to the attention of Britain’s financial community last year when it bought the headquarters of HSBC in Canary Wharf for £773 million. Gatwick airport was sold late last year to Global Infrastructure Partners, an infrastructure fund backed by Credit Suisse and General Electric, for £1.51 billion.

The longest running saga in recent UK takeover history drew to a happy close as US firm Kraft Foods sealed their takeover of Cadbury after shareholders in the UK chocolate maker voted in favour of the deal.

Cadbury said it had received valid acceptances of the offer from investors representing 71.7% of the firm. Kraft chief executive Irene Rosenfeld celebrated the takeover by announcing: "I warmly welcome Cadbury employees into the Kraft Foods family." Despite the warm welcome, Cadbury employees staged protests in London calling for government support to guarantee jobs

Budget airline Ryanair has raised its full-year profit forecast as passenger numbers continue to rise. The company announced that it said it expects full-year net profits of about 275 million Euros, whilst reporting a 10.9 million Euro; (£9.5 million) loss in fourth quarter of 2009, a considerable improvement on the 101.5 million Euro losses for the same period in 2008.

Ryanair said the result had been helped by a 37% fall in fuel costs and passenger numbers increased by 14%, which had offset a 12% drop in fares.

Europe’s second- largest tobacco company Imperial Tobacco Group Plc have announced a “good start” to the year with business “in line” with company expectations, despite the weak economic climate. Despite the news, their shares declined 1.2 percent, to 2,002 pence. The Royal Bank of Scotland Group Plc are to allow its top performing employees to convert a large portion of bonuses given in shares into cash within 12 weeks of receiving them, according to a letter sent to investors yesterday. On the day RBS shares rose 7.9 percent, to 34.86 pence.

The pound closed down at 1.5977 against the dollar, while the Euro traded at 1.1438

The FTSE 100 dropped 4.1 percent in January as the U.S. government called for limits on risk-taking by banks and China moved to restrict lending and cool economic growth. The gauge is still 49 percent higher than in March after governments and central banks around the world sought to encourage growth by maintaining low interest rates and committing more than $12 trillion to stimulate the economy.

The benchmark FTSE 100 Index added 35.9 points to reach 5,283.31 at the close of trading in London.

US President Barack Obama has announced a $3.8 trillion (£2.4 trillion) budget plan for 2011, which includes increased spending for job creation, but cuts in other areas.

He also forecast the US deficit would rise to a record $1.56 trillion this year.

He scrapped plans to send astronauts back to the Moon and will seek to save $250 billion by capping a range of domestic spending programmes for three years.

Congress must approve the budget for the financial year starting on 1 October for it to take effect.

Mr Obama blamed the huge deficit on the decisions of President George W Bush, previous Congresses and his administration’s moves to prevent an economic collapse.

Stocks continued to extend gains after reports showing the U.S. manufacturing sector expanded more than forecast. The Institute for Supply Management’s factory index showed U.S. manufacturing expanded in January at the fastest pace since August 2004, spearheading the recovery from the worst recession since the nineteen-thirties.

On the news, the Dow Jones rose sharply, to close on 10284.91, while the NASDAQ rose 38 points, to finish on 2185.32

Gold lost some of the previous day’s sharp gains, dropping 0.1 per cent to $1,105. Oil rose 0.5 per cent to $74.81 a barrel.

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Alistair Darling increased the levels of his undoubted popularity with the UK public by announcing some interesting cuts and about turns in his pre-budget cuts. The first was that VAT cut to 15% as recently as March in the Budget, is to be reversed as of 1 January 2010. Income tax bands are to be tampered with, meaning that people who earn £43,000 or more will feel the pain that little bit earlier. On the plus side national insurance bands are to be reduced downwards by a further 0.5% from April 2011, meaning that those earning less than £20,000 will no longer need to pay any contributions. State pensions and child benefits are also set to rise in April of next year.

Meanwhile it has been reported that U.K. consumer confidence stayed close to the highest level in the past eighteen months in November as shoppers have become more hopeful for the economy’s prospects in the coming year. 2010. The proportion of shoppers expecting the economy to worsen in the next six months fell to its lowest level since the survey began in 2004.

As expected, the Bank of England has held UK interest rates at the record low of 0.5%, whilst announcing that there are to be no changes to its programme of pumping newly-created money into the economy – so-called quantitative easing (QE). The Bank cut interest rates to 0.5% in March of this year in an attempt to boost the recession-hit economy while in November; they announced that another £25 billion would be injected into it, taking the total planned under QE to £200 billion. The bank is expected to wait until the current QE programme runs out in January before considering whether it should be expanded. As Chancellor of the Exchequer Alistair Darling announced earlier this week that he would rather suffer criticism for removing economic support too late than too early, Bank of England policy makers are waiting for the final quarter results to see if Britain has finally escaped the recession, and if the £200 billion spent to aid growth has finally brought some results..

Meanwhile in his pre-budget cuts speech, Darling appeared to back away from the bank bonuses issue, by announcing that there will be no windfall tax on banks, but they will pay a one-off levy of 50% on any bonus above £25,000

The number of loans approved for house purchase rose to 55,300 in October, up 9 percent from September and 43 percent higher on a year ago, the Council of Mortgage Lenders said on Thursday. According to an industry body, the amount of buyers has risen from its lowest point in January 2009 when only 23,000 loans were advanced. The number of loans for remortgaging remained weak, however, unchanged from September’s level of 33,000, one of the lowest levels since the series began in 2002.

Nokia have announced that they are to close their flagship store on London’s Regent Street, as a result of slow sales and poor customer traffic. The remainder of the company’s UK stores are to remain open. Nokia were reported to have spent £4 million creating the Regent Street store that was launched in February 2008, and will close in the first quarter of 2010, Seven other of Nokia’s UK stores, including its Heathrow Terminal 5 outpost, are set to receive a revamp.

Shares in Barclays Plc fell 3.2 percent, to 287.5 pence after allegations that they were withholding a “secret” $5 billion windfall profit from its purchase of Lehman Brothers Holdings Inc.’s North American brokerage, despite the fact that the gain was publicly disclosed before the sale closed 15 months ago.

Sterling continued to lose ground against the dollar on Thursday whilst rising slightly against the Euro, as implications of the UK government’s pre-Budget report weighed on the currency,

• Pound/US dollar 1.6278
• Pound/Euro 1.1058

After the UK finance minister forecast that the UK economy will shrink by 4.75 percent this year, rather than the earlier prediction of a 3.25 percent to 3.75 percent decline, the FTSE 100 fell by 0.37 percent to 5,203.89, while the FTSE 250 dropped by 1.24 percent to 8,919.49.

The US trade deficit unexpectedly narrowed in October as exports rose to their highest level in almost a year, official figures have shown.

The deficit fell to £20.2 billion ($32.9 billion), 7.6% lower than September’s downwardly revised $35.7 billion figure.

Helped by the weaker value of the dollar, US exports increased by 2.6% to $136.8 billion, led by civilian aircraft, cars and computer chips.

Imports rose 0.4% to $169.8 billion. Analysts had predicted the deficit to expand to $36.8 billion.

The value of US exports was the highest since November 2008, the figures from the Commerce Department showed.

The trade deficit is now expected to widen again in 2010 as the US economy continues to recover and consumers buy more imported goods.

On close of trading, the Dow Jones Industrial Average was up 120 points to 10,405.83 and the NASDAQ also rose 21 points to close on 2,190.86.

According to the latest figures from the Australian Bureau of Statistics, Australia’s unemployment rate fell in November to 5.7% from 5.8% in November, The figures came as a surprise to many analysts who had expected an increase to 5.9%. Australia is one of the few developed economies not to have fallen into recession like its counterparts throughout the world. The Australian economy has benefited from an increase in commodity prices, while exports have received a boost due to demand from China for its iron ore and other raw materials.

Official figures have revealed that orders for Japanese machinery orders fell by 4.5% in October compared with the previous month, with analysts expecting a fall of just 4.3%. The figures come just a day after the Cabinet Office revealed that the Japanese economy grew at a far slower rate in the third quarter than previous estimates showed.

Meanwhile, the price of crude oil dropped on new data from the US Energy Information Administration showing that gasoline stockpiles grew last week while demand declined. The price of oil dipped below $70 a barrel, falling to a two-month low, amid continuing concerns over demand.

US crude for January delivery fell 84 cents to $69.81 a barrel, before settling at $70.13 as it lost ground for the seventh consecutive day.

London Brent crude fell 81 cents to $71.58 a barrel.

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