Chancellor Alistair Darling will say in his pre-Budget report that the economy performed worse in 2009 than he first predicted, Treasury sources have said.

Darling is expected to say that the UK economy shrank by 4.75% this year – more than the 3.5% originally forecast in the Budget in March.

The adjustment follows the economy’s unexpectedly poor performance in the first three months of the year. The chancellor looks likely to stick to 2010 forecasts of growth between 1-1.5%, despite the emergence of Dubai’s financial problems which now raises fresh fears that UK banks could face more write-downs on bad debts, and chimes with warnings earlier this week from the International Monetary Fund, who said that global banks had only worked through half their toxic assets since the banking crisis broke two years ago. Investors had been hoping the British financial sector had worked through much its toxic debt, which included exposure to America’s sub-prime mortgage market.

Despite this week’s setbacks, economic analysts continue to predict that the UK economy should emerge from recession by the end of the year, with the Northern Ireland and Scotland facing a more challenging recovery. The prediction came as revised gross domestic product (GDP) figures showed the UK recession was shallower than previously thought between July and September. Revised estimates from the Office for National Statistics (ONS) showed a 0.3% fall in UK output in the third quarter, compared with the 0.4% slide originally stated. While UK business confidence surveys on the "mainland" bear out signs of recovery, Northern Ireland business activity continued to fall in October, albeit at the slowest rate since the start of 2008. The reasons apparently are local margins remaining under pressure, is that the manufacturing sector in the province is still reporting a lack of demand and heavy competition in difficult markets. The combination of these factors looks like meaning Northern Ireland will likely lag the UK recovery. Scotland’s growth will continue to lag behind the rest of the UK’s, according to a leading economic think tank. Similar sources also announced that they had observed some "disturbing weaknesses" in the Scottish economy and predicted growth of -4.9% this year and 0.7% in 2010. Job cuts are expected to continue, with the unemployment rate reaching as high as 8% in 2010. The only prescription for growth for both Northern Ireland and Scotland would be to switch to a more export-led economy, exploiting global markets

Jaguar Land Rover had seen its sales rise 23% in the second quarter after its new models were well-received.

Owner Tata Motors said new products such as the upgraded Range Rover, Range Rover Sport and Discovery 4 had had successful launches.

Although Jaguar Land Rover made a net loss of £60 million in the July-September quarter, it was much less than the £240 million loss it made a year earlier.

India’s Tata Motors made a net profit of £2.8 million in the third quarter of, 2008, compared with a loss of £127,000 for the same period last year.

Borders U.K., the bookstore chain once owned by U.S.- based Borders Group Inc., has called in administrators after failing to find a buyer for its stores. A total of 1,150 employees are affected, according to the statement.

“All stores currently remain open for business as normal whilst the administrators undertake a review of the company’s affairs and seek a purchaser for all or some of the company’s stores in which there has already been interest,” Philip Duffy, principal administrator announced in a statement.

U.K. media have reported that HMV Group Plc’s Waterstone’s books chain is considering buying some of the stores. A spokesman for HMV declined to comment on this when contacted by Bloomberg News earlier.

The steep advertising downturn pushed U.K. publisher Daily Mail & General Trust PLC’s into a net loss for its full fiscal year, as management focused on cutting costs and its £1.05 billion ($1.76 billion) debt pile, but the company said there are signs that trading conditions are improving.

Daily Mail, which publishes the Daily Mail and its sister Sunday paper and the Metro free-sheet, posted a net loss of £303.4 million for the 12 months ended Oct. 4, compared to zero net profit a year earlier.

According to brokers, Thursday’s activity on the FTSE was very similar to when Lehman Brothers collapsed, warning that Dubai’s problems could be the catalyst for the market to fall further. RBS, which is 70 per owned by the UK taxpayer, fell 7.8 per cent, wiping off £1.73 billion of its market value. Barclays lost 8 per cent, cutting its capitalisation by £2.65 billion. HSBC fell 4.8 per cent losing £6.2 billion of its value and Lloyds Banking Group lost 5.6 per cent, wiping off £1.5 billion.

All in all around £44 billion was wiped off London’s biggest companies amid growing fears the UK financial sector could be heavily exposed to Dubai World, the state-owned conglomerate which yesterday asked for a standstill on its £36 billion debt pile. The FTSE 100 tumbled 170.68 points or more than 3 per cent to 5194.1 in its biggest one-day percentage fall since the market plunged to six-year lows in March. Encouragingly enough, the exchange recovered well on Friday, closing on 5245.73.

The pound declined against the dollar after a drop in stocks across the world prompted investors to sell U.K. assets and on speculation the government will downgrade its forecast for the economy. Sterling slipped to the weakest level since Nov. 3 against the U.S. currency as the MSCI World Index declined for a second day after Dubai’s attempt to reschedule its debt continued to rattle investors.

• Pound/US dollar 1.6553
• Pound/Euro 1.10996
• Pound/Japanese Yen 142.7188
• Pound/Swiss Franc 1.6565

US shares have fallen on worries about Dubai’s debt problems, with the Dow Jones ending down 154 points, or 1.5%, at 10,309.92, in a shorter trading day.

It was the first chance for markets in the US to react to news that state-owned Dubai World had asked for more time to repay its debts.

US markets were closed for a holiday on Thursday when other world markets suffered steep losses.

The Dow Jones average dropped 154.58 points on Friday’s trading to close on 10309.92 The NASDAQ lost 37.61 points to close on 2138.44

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Tags: Alastair Darling, Bank, Banking, Barclays, Borders Group Inc, British Economy, British Pound, Daily Mail, Discovery 4, Dow Jones, Dubai World, Economy, Financial News, FTSE, General Trust PLC, HMV Group Plc, International Monetary Fund, Jaguar Land Rover, Lehman Brothers, Lloyds Banking Group, Money, MSCI World Index, NASDAQ, Office for National Statistics, Philip Duffy, pre-Budget report, Range Rover, Range Rover Sport, RBS, Recession, Royal Bank of Scotland, Stock Markets, Stocks and shares, Tata Motors, UK Banks, UK Economy, UK government, UK Recession, Waterstone's

The Organisation for Economic Co-operation and Development (OECD) has predicted that the recovery and growth seen in the second half of 2009 is expected to continue in 2010. Their recent figures show that its 30 member countries, including the US and UK have more than doubled its growth projections for next year. However a spokesman from the OECD warned the developed nations not to expect a smooth ride and that "growth was being held back by still substantial headwinds" and would be restrained for some time in the near future. They went on to explain that some of the very measures that were being used to help the richer nation’s economies to recover might return like a boomerang upon them. The feeling was at the OECD was that the UK, needed to come up with a concrete plan to ease concerns about the stability of their public finances, and that the results that could be achieved through continuing the country’s quantitative easing programme remained uncertain. The UK, which now has overall debt of £825 billion, is set to borrow a record £175 billion over the next two years with further details of how and why due to be set out in Chancellor Darling’s pre-Budget report on 9 December.

US investment bank JP Morgan have announced that they are to complete their take-over of UK stockbroker Cazenove. Morgan are reported to be paying a further £1 billion ($1.67 billion) for the remaining 50% of Cazenove that is not in their hands. JP Morgan and Cazenove reached a joint venture agreement in 2004, where they merged their investment banking operations.

The news that Marks and Spencer have chosen Marc Bolland, current head of Wm Morrison, as its new chief executive, saw a dramatic and immediate shift in fortunes for both companies, at least in stock market terms. Shares in M&S rose 6 per cent to close on 390 pence while Morrisons’ fell by 5 per cent to 281 pence, making for a combined £600 million swing”.

Dutch born Bolland’s appointment puts a long awaited end to the speculation of who will replace incumbent chairman, Sir Stuart Rose, who will remain with the company as part-time chairman until mid-2011.

ITN were expected to reveal the first trading first-ever loss on Thursday as the company launched a set of austerity measures which will be required to put the company back on track. ITN, who produce news bulletins for ITV, as well as for Channel 4, is owned by four media companies, ITV Daily Mail & General Trust, United Business Media and Thomson Reuters, each of whom hold a 20 percent share, except ITV who hold 40 percent. Reasons given for the drop in sales and profit were mainly the recession, which has affected advertising revenues on all commercial broadcasters, and the closure of Setanta Sports News, the news channel operated by the Ireland-based sports channel network that went into administration this year. Revenue from Setanta made up approximately 5 per cent of ITN’s sales in 2008. ITN made a profit of £4.1 million on turnover of £105 million.

Postal and parcel delivery company UK Mail, who only this moth adopted their new trading title from Business Post, have announced a rise in their interim profits, despite of a fall in revenues caused by a recession driven fall in demand. A spokesman for the company pointed out that their parcel business, which holds around a 7 per cent share of the UK market, has witnessed an upturn is sales during the period of postal strikes, as the public began to seek alternatives to Royal Mail’s service. However the company, which also handles around 17 million items of mail a day, said the strikes affected the volumes of mail handled by the company much less significantly than they had hoped for. UK Mail, who relies on the Royal Mail for “last mile” delivery of its sorted post, pointed out that the impact the strikes had been less severe than anticipated.

Sterling lost some of its gains against the major currencies in midweek trading.

• Pound/US dollar 1.6636
• Pound/Euro 1.1163
• Pound/Japanese Yen 148.0862
• Pound/Swiss Franc 1.6881

The UK’s benchmark FTSE 100 index lost the bulk of its early gains for the week, down 78 points to 5,267.70. The FTSE 250 took its usual midweek tumble down 165 points to 9,237.

New home construction in the US have taken a surprise drop fall in October, down 10.6% to an annual rate of 529,000 homes, making for the lowest level in housing starts since April of this year, Reasons for the decrease in demand was put down to .a fall in demand for both single and family housing.

On the news, the Dow Jones average slumped 105 points to close on 10332.42. The NASDAQ also took a tumble, but for reasons of its own and finished the day on Thursday on 2156.92.

Internet giant America on Line (AOL) have announced that they are to lay off more than 2,000 of their staff , representing one third of their entire work forces when it completes its spinoff from Time Warner, with whom they have been in partnership since 2001. Representatives from Time Warner have stated that the separation will be completed by the end of 2009.

Also cutting jobs are Air France-KLM who plans to cut their work force by cut 1,700 during 2010. Their decision comes after the airline posted a worse than predicted third quarter loss of 147 million Euros (£131 million) the job losses are in addition to the 3,000 already cut in 2009.

Silver, platinum, palladium and copper have reached fresh highs for the year while gold continued to extend its record-breaking run breaching the $1,150 mark, seen as the next key milestone in the rally, to reach a record $1,152.74 an ounce, before easing back to $1,148.

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Tags: Air France-KLM, Alastair Darling, America on Line, AOL, Bolland, British Economy, British Pound, Business Post, Cazenove, copper, Credit Crunch, Currency, Daily Mail, Dow Jones, Economy, Financial News, FTSE, General Trust, Gold, ITN, JP Morgan, M&S, Marc Bolland, Marks and Spencer, Money, Money Markets, NASDAQ, OECD, Organisation for Economic Co-operation and Development, palladium, platinum, quantative easing, Recession, Retail, Royal Mail, Setanta, Silver, Stock Markets, Stocks and shares, Stuart Rose, Thomson Reuters, Time Warner, UK Banks, UK Economy, UK government, UK Mail, UK Recession, United Business Media, WM Morrison

UK Chancellor Alistair Darling in an interview released over the weekend announced that an entirely new banking system is needed for the UK, to prevent a recurrence of financial institutions behaving in a “kamikaze” manner.

He went on to add that the UK government needed to learn lessons from the financial crisis in which banks behaved in a kamikaze manner causing the regulatory system to fail
The interview came as proposals on financial reform are due to be published this week. The proposals will be designed to prevent a repeat of the crisis that plunged Britain into recession.

Meanwhile it has been announced that UK’s business secretary Peter Mandelson has apparently postponed the part-privatisation of Royal Mail, with little or no prospect of the privitisation going ahead for the time being.

The proposed Royal Mail privitisation bill was to allow the sale of 30 per cent of Royal Mail, The bill has already been approved by through the House of Lords, despite being opposed by over 140 Labour MPs. Lord Mandelson was reported to have conceded that that now is not the time for privitisation although it a vital step in the Royal Mail’s modernisation program.

London-based private equity firm CVC Capital Partners was in the lead to take the 30 per cent stake in Royal Mail.

Newspaper group Trinity Mirror, owners of the Daily Mirror among others, is to close nine local newspapers in the Midlands according to a recent report. The closure, which will result in job losses for up to 120 of the papers’ employees, comes amid a severe downturn in advertising revenue. During the past year Trinity have closed 27 units and sold of four major newspapers.

On the FTSE Friday, Barclays increased 2.8 percent to 297 pence as the cost of three-month loans in dollars between banks fell for a 10th day

Europe’s largest bank, HSBC climbed 1.7 percent to 509 pence, while Lloyds Banking Group Plc, Britain’s biggest mortgage lender, added 2.4 percent to 67.5 pence.

News was good for the media sector. Magazine publishers Reed Elsevier, whose covers include the Variety and New Scientist magazines, rose 3.9 percent to 457.25 pence? BSkyB, the U.K.’s biggest pay-television provider, advanced 2.1 percent to 464.5 pence.

Daily Mail and General Trust Plc, which publishes Britain’s Daily Mail newspaper, increased 1.4 percent to 294.25 pence.

Europe’s third-largest airline, British Airways Plc rallied 5.5 percent to 125.5 pence on the announcement of a reduction of proposed 2009/10 capital expenditure by 20 percent/

The FTSE 100 Index closed for the weekend little changed as a rally in banks and media companies offset a sell-off in raw material and energy producers.

The benchmark FTSE 100 Index added 2.01, to 4,236.28 in London, bringing a total decline for this week’s off 0.1 percent. The FTSE 250 closed on 7,285.83 down 91.15 to end a topsy turvey week.

Sterling had another bad day against the leading currencies, falling heavily on all four fronts.
Pound/US dollar 1.6121
Pound/Euro 1.1572
Pound/Japanese Yen 153.6112
Pound/Swiss Franc 1.7583

Wall Street is gearing itself up to buying up some of cash strapped California’s registered warrants. The state and its obviously financially challenged Governor, Arnold Schwarzenegger, declared a fiscal emergency after announcing that they were unable close their $24 billion budget shortfall. Hedge funds, municipal bond investors and other institutions reportedly interested in taking a piece of the action, as the warrants pay an annual rate of 3.75 per cent, a prime rate these days.

On Wall Street, the Dow Jones took a further tumble in the wake of Thursday’s announcement of higher than expected unemployment figure. The index closed for the weekend down 43 points to 8280.74, while the NASDAQ closed down six points on 1796.52

In order to reduce their $38 billion debt burden, mining giant Rio Tinto has agreed to sell its food distribution wing, Alcan Food Americas division for around 800 million pounds. The move comes after the Rio Tinto raised $15.2 billion in a rights issue, after falling into heavy debt on the buyout of Canadian aluminium group Alcan in 2007.

According to a recent study Europe is likely to suffer a permanent loss in potential economic output as a result of the global crisis.
The report, commissioned by the European Economic Community (EEC) stated that the current market disruption in financial markets can be expected to have a permanent negative effect on potential growth, e.g. through reduced availability of capital for R&D and innovation activities.

There were reminisces of Nick Gleason on the oil markets this week as oil prices began to shoot through the roof. Later oil traders both in London and New York hastened to explain that “unauthorised trading” had caused an exceptional rise in business activity on Tuesday According to a leading New York oil trader “Trading volumes rose overnight and prices jumped more than $2 a barrel without apparent justification,”.

Oil futures contracts for more than 16 million barrels of oil changed hands in one hour, when the average is around 500,000 barrels.
A particular broker has been implicated for sparking off the rally, with other brokers racing to follow.

After the furore, oil prices on Thursday fell to $66.5 a barrel, down almost 10 per cent from Tuesday’s artificially induced peak. Brent crude for August settlement fell as much as 1.3 percent to $65.77 a barrel on London’s ICE Futures Europe exchange.

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Tags: Alcan Food, Arnold Schwarzenegger, Bank, Bank of England, Banking, BskyB, Daily Mail, Financial News, Mirror, Nick Gleason, Recession, Retail, Rio Tinto, Sky, UK Banks, UK Recession, Wall Street Journal