UK economic recovery set to be slow and sluggish by the CBI

March 24th, 2010 by tom | Filed under Central banks, Daily News, Debt, Employment, Energy Prices, Exchage Rate, Recession, Retail, Stocks and shares, The Budget, UK Bank Accounts, UK Banks, UK Small Business, UK employment, World Banks.

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It only stands to reason that the U.K.’s economic recovery will be slow in 2010. There is an election about to happen and the public have obviously chosen a path the correct path to save spend less and save more. According to the Confederation of British Industry (CBI) the economy will grow by 0.3 percent in the first quarter and move up to 0.4 percent in the second quarter, and will finally settle down to expanding 0.5 percent in the second half of the year. The CBI also predicted that gross domestic product (GDP) will increase by 1 percent in 2010 and 2.5 percent in 2011. Britain’s economy exited its deepest recession on record in the fourth quarter with growth of 0.3 percent.

Bank of England (BOE) officials were also expressing caution on the eve of what may well be the Labour Government’s last budget in well over a decade. The BOE have consistently issued warnings that financial recovery in the UK may prove uneven as credit strains persist.

Chancellor of the Exchequer Alistair Darling is due to deliver his budget today, with just a few weeks before the general election, the date of which is yet to be announced. A spokesman for the CBI stated that the government must avoid “damaging” tax rises and focus on spending cuts to narrow the record deficit,

As budget fever mounts, speculation is rife as to what Chancellor of the Exchequer Alistair Darling will reveal in his speech. Darling has repeatedly stated there will be no pre-election giveaways in the budget but he wants to encourage more investment in UK business after an 18-month recession.

It is expected that government departments which be called on to cut costs that will add some credibility to the U.K.’s deficit reduction plan and Yvette Cooper, the work and pensions secretary, has set the wheels in motion by announcing her department are plan to introduce savings of at least £500 million pounds by the 2012 / 2013 fiscal year.

What is for sure is that the Labour government will unveil their plans to establish a £2 billion "green" investment bank in the budget, designed to help Britain’s transformation to a low carbon economy. The green bank, designed to help finance projects such as railways, offshore wind power generation and eco-friendly waste management, will be partially funded by sales of government assets with the remaining money being drawn from the private sector.

Strike hit British Airways have come up with an estimate that the current three-day strike by the airline’s cabin crew will cost them around £7 million a day in lost earnings. However the airline hastened to point out that the industrial action was unlikely to have much impact on its earnings for the full-year. According to a company spokesman, around a third of flights to and from the UK’s main airports on Monday have so far been cancelled.

BA Heathrow suffered the biggest disruption on Monday, with 201 of the 443 flights on BA’s online schedule being cancelled.

Every cloud does have a silver lining and one of them appears to be that because of the recession, one in four children have reduced their spending. According to new research published this week t children’s attitudes to money have been strongly impacted by the recession with 80% of the children polled stated that they would prefer to save up to buy something rather than get into debt.

The latest financial results from fashion retailer Monsoon show an increase in profits for 2008/2009 eight times higher than the previous year. Over the year to August 29, 2009, the privately owned company showed a profit of taxes of £32.9 million, up from £3.9 million the previous year. Monsoon, who currently operate over 1,000 outlets, report strong sales at its overseas division. Over the next 12 months Monson plan to open another 140 stores.

Another fashion in the financial spotlight is New Look who has announced that they may resurrect their £1.7 billion flotation plans. The decision may come as soon as this week when the New Look board meets to consider whether market conditions have sufficiently improved. The fashion retailer shelved its planned IPO in February, blaming volatile markets. Meanwhile sales at the group are said to be ahead of expectations.

In a move which could raise as much as £400 million pounds Music recording giants EMI are reported to be considering plans to licence its music catalogue. Competitors in the industry would manage the music group’s catalogue, which includes music from The Beatles. If successful the licensing would enable EMI to meet their debt repayments and stave off an attempt by Citigroup, to take control of the company.

Sterling continues to fall ahead of this week’s budget and the fast-approaching general election due to be held in early May, and the prospects that it will be closely fought and may even result in a hung parliament.

The pound continues to be stuck around the $1.50 mark, closing at $1.5037 on Tuesday, while the Euro was on €1.1137.

As concern consists about debt levels whether the next government will be equipped to tackle challenges on public finances the pound looks likely to continue in the doldrums.

The FTSE 100 index closed on Tuesday up 23 points at 5,673.63.

On Wall Street, the Dow Jones was still on the rise, this time by 147 points to close on 10888.83 The NASDAQ also was on the rise up 42 points to 2415.24

According to Greece’s central bank the country’s economy is trapped in a "vicious circle" and is liable to contract more severely than government predictions. .

The Bank of Greece (BoG) said economic output in 2010 will fall by 2%, much higher than the Greek government’s prediction of between 1.2% and 1.7%.

BoG says the recession will be worse due to planned public spending cuts.

The report comes ahead of a European Union summit to discuss Greece’s economic crisis, as German resistance towards financial aid for Athens persists.

Athens has already come close to defaulting after misleading European partners about the scale of its financial problems, which last year saw its public sector deficit hit almost 13 per cent of gross domestic product

Meanwhile Germany’s coalition government is reportedly planning to establish a banking levy that will protect taxpayers from the costs of any future bank bail-outs. The German government was obliged to seriously deplete their treasury coffers to provide a €500 billion rescue package to shore up the banking system late in 2008.

On the other side of the World, in Dubai, bank officials await anticipation of the severely troubled Dubai World company presenting their long-waited proposals on how they intend to restructure $26 billion of toxic debt.

The Dubai stock market has surged 11% this month on speculation a proposal is imminent.

Crude oil prices managed to rebound from early weakness to settle at around $81.25 a barrel.

Analysts at the Centre for Global Energy Studies said that global oil demand was on the path to full recovery but upward pressure on prices would be limited due to supply side changes.

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