The British pound continues to fall sharply against the dollar as foreign exchange traders predict that the UK economy will continue to lag behind that of the US and the 16-nation Eurozone.

UK short-term bond yields have hit all-time lows as analysts begin to predict that the Bank of England may go as far as to introduce negative interest rates on its deposits in an attempt to encourage lending to the wider economy.

On that piece of stunning news, Two-year gilt yields, which have an inverse relationship with price, fell to 0.83 per cent – the lowest level since records began. Commercial banks have begun to transfer cash deposits at the Bank of England into gilts. Mervyn King, governor of the BoE has strongly hinted that he is considering charging banks for holding deposits at the central bank because he fears the quantitative easing initiative is being undermined by commercial bank’s lake of desire to circulate money into the economy through increased lending.

According to information issued by the Office for National Statistics (ONS) one in six UK families have at least one unemployed, making for the highest rate since 1999. The number of households where at least one person is unemployed reached 3.3 million in the second quarter of 2009, a rise of almost a quarter of a million from the previous year, with the north-east of England being the hardest hit.

Lord Mandelson has once again displayed his desire to put the UK taxpayer’s money where his mouth is, by announcing that he is willing to invest heavily to ensure commit taxpayers’ money to, in exchange the long-term survival of Vauxhall, about to be sold off by General Motors, the American car group who are in liquidation.

The Business Secretary has again reiterated his pledge of financial help, around £500 million to any one of the three parties interested in buying the UK branch, and save its 5,500 jobs.

The minister is insistent that the party that receives taxpayer funds will be the one that produces a business plan protecting most of the Vauxhall workforce for the long term.

On the FTSE yesterday, it was reported that the U.K.’s mortgage lender, Lloyds Banking Group Plc may have no option but to write off £500 million on loans made to Admiral Taverns Ltd. The news did not inspire the market and their stock fell 0.1 percent, to 107.8 pence.

The FTSE 100 had a flat day’s trading, falling 26.22 points to 4,890.58, while the FTSE 250 took a sudden reverse, dropping 77.60 points to close on 8,783.21

Sterling continued to weaken on Wednesday’s trading, on reports that it was being hindered by poor financial results in the UK.

• Pound/US dollar 1.6228
• Pound/Euro 1.1391
• Pound/Japanese Yen 151.8732
• Pound/Swiss Franc 1.7324

In the US, the latest indications that the state of the world’s largest economy is growing increasingly positive came with the news that sales of durable goods and new home sales both soared last month, Durable goods orders were lifted by the popularity of the government’s "cash for clunkers" car scrappage scheme, helping US car orders to rise 0.9%, in July.

At the same time, the annual rate of sales of new US homes rose 9.6% last month, the biggest rise in sales of new houses since September last year.

On Wall Street, markets drifted from the morning’s highs during the afternoon, with the Dow Jones Industrial Average and the NASDAQ Composite index both gaining a further 0.3 per cent to 9,539.29 and 2,024.23, respectively.

The Bank of Japan announced on Wednesday that the volume of their exports rose by 2.3 per cent in July from June as stronger demand from Asia and replenishment of inventories boosted manufacturers.

The data suggest that Japan may enjoy another quarter of respectable economic growth from July to September, after last week’s report that output rose at an annualized rate of 3.7 per cent in the April-June quarter

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Tags: Admiral Taverns Ltd, Bank of England, Bank of Japan, Banking, British Economy, British Pound, cash for clunkers, Dow Jones, Durable goods, Economy, Financial News, FTSE, General Motors, Global Credit Crisis, Lloyds, Loans, Lord Mandelson, Mervyn King, Money, Money Markets, NASDAQ, Office for National Statistics, Recession, Sterling, Stock Markets, UK Banks, UK Economy, UK Recession, Vauxhall, Wall Street

The continuing decline of Sterling on the World stage was never in more evidence than yesterday when the pound reached its lowest level since the dark days of the Second World War.

Sterling hit $1.38, (the weakest level versus the dollar since 1985) and €1.07, a sign that investors are totally lacking in confidence in the UK economy. This feeling of doom and gloom was not lightened by the prophesy of Bank of England rate-setter Paul Tucker that the latest bailout of the banking sector by the Government is not guaranteed to succeed. .

Whilst appearing before the Commons Treasury Select Committee, Tucker added that this week’s slump in banking stocks risks had overshadowed the rescue package, or at least this stage of it.

Carrying on the same less than optimistic themes, Bank of England Governor Mervyn King predicted yesterday that the central bank may have no option but to start snapping up assets within the coming weeks, after reducing the main interest rate to its lowest level since 1694.

U.K. stocks continue to decline for the third day in a row, as predictions that unemployment rates would rise at as fast a rate as the pound would decrease in value were proven to be true.

Among the many companies whose shares were still on the decline were Reed Elsevier Plc who declined by 3.9 percent to 528.5 pence, Vodafone Group Plc falling 2.8 percent to 132.8 pence and the U.K.’s second-largest clothing retailer, Next Plc, who lost 2.5 percent and went down to 1,102 pence per share.

Other UK stocks on the decline were:

African Copper Plc who dropped by a record 25% (0.38p to 1.13) after the company announced that it would need an immediate cash injection of $15 million to survive.

The U.K. mail-order retailer Flying Brands Plc dropped 1.6 percent,( 0.5 pence, to 31 pence) on the announcement of profit cuts against weak sales..

Declining 12 percent ( 17.75 pence to 129.75 ) was SIG Plc Britain’s largest supplier of insulation and roofing materials after being downgraded by UBS AG. The reason for the downgrade given was a breach of loan covenants by the company seemed likely due to forecasts of a “tough year ahead for insulation products.”

Bank shares continued their decline, although slowing down just like an elevator does as it reaches the basement.

The FTSE 100 Index fell 0.8 percent (31.52 to 4,059.88 ) the lowest rate since December 2008 and showing a drop of 2.1 percent this week alone

The FTSE 250 Index stood still closing at 6,159.50
With fourth-quarter gross domestic product data due on Friday 22nd that are expected to officially confirm that Britain is in recession, and the Bank of England likely to announce that it is to cut interest rates by a half a percentage point on 5 February, the mood of despondency is looking to be with us for some time. .

The downward lurch followed Wall Street, where investors returning from a holiday. Share prices pitched sharply lower despite the euphoria as Barack Obama took office, with the Dow Jones industrial average plummeting by four percent (332.13 to 7,949.09), its worst ever showing for an Inauguration Day.

Broader stock indicators also fell sharply, as the Standard & Poor’s 500 index fell 44.90, or 5.3 percent, to 805.22.

Wall Street futures suggested U.S. markets are more likely to recover during Wednesday’s trading. Dow futures were up 60 points, or 0.8 percent, at 8,005 and S&P500 futures were up 5.3 points, or 0.6 percent, at 811.10.

Across Asia and Europe as Obama assumed power the feeling was that oratory alone cannot bring about a quick recovery in the world’s largest economy, even through President Obama plans to begin a massive stimulus package early this year.

In the latest signs of strain on Asian economies amid the global slump, Singapore slashed its 2009 growth forecast for a second time this month, saying the economy could shrink as much as 5 percent due to from plunging demand for its exports from industrial countries and elsewhere.

In Japan, the Nikkei 225 stock average dropped 164.15 points, or 2 percent, to 7,901.64, while Hong Kong’s Hang Seng Index shed 381.19 points, or 2.9 percent, to 12,578.58.

Trading in Sterling was rapid with the currency fetching low prices on selling.

Pound/US dollar 1.38293

Pound/Euro 1.06530

Pound/Japanese Yen 123.132

In oil, light, sweet crude for March delivery fell 47 cents to $40.37 in Asian trade. The contract fell $1.53 to settle at $40.68 overnight, with the February contract expiring Tuesday.

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Tags: Bank of England, Financial Issues, Financial News, Money, Sterling, UK Financial System