UK economy contracts by its highest level for more than half a century

According to a report issued yesterday by the Office for National Statistics (ONS) the UK economy contracted 2.4% in the first quarter of 2009,
more harsh than the earlier estimate of a 1.9% fall, and worse than even the gloomiest analyst expectations.

ONS attached blame for the sharp revision primarily on weaker output in the construction and manufacturing sectors as well as more complete services sector figures showing a sharper decline.
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In a start contrast to the news of contractions in the UK economy, consumer confidence was reported to have increased to the highest level in 14 months in June.
Unemployment claims also rose less than economists forecast for May, while a host of independent business surveys continue to indicate that the economy is starting to climb back. So who do you believe?

As if to compensate, the U.K. government announced their plans to be the cornerstone investor in a new U.K. Innovation Fund to invest in high-tech start-ups. First Secretary of State, Lord Mandelson announced that the government will put up an initial £150 million investment in the new venture capital fund of funds, with the hope that the fund will attract sufficient investment from pension funds and the private sector to allow the creation of a £1 billion fund within 10 years.

UK Minister for Science and Innovation, Lord Drayson, announced that two thirds of the Governments £150 million stake in the fund will come from the Department of Business, Innovation and Skills, with the balance being put up by the Department of Health and the Department of Energy and Climate Change.

A manager is soon to be appointed to run the fund that will focus initially on early stage companies in life sciences, green technology, digital technology and other similar high-tech sectors. The fund, yet to be named, expects to make its first investment by the end of the year

Carrying on their crusade to convince their staff to share in their losses, British Airways announced that they would really like their staff to accept a two-year pay freeze, as well as 3,000 redundancies among crew and administrative staff. Talks on the matter between unions and management to agree on cost savings were adjourned earlier are expected to resume today.

Reportedly being lined up as the next chairman of Lloyds Banking Group is experienced British banker Sir Win Bischoff. Sir Win , (67) chairman of Citigroup, till he stepped down from the role in February, has been apparently been approached by UK Financial Investments to take up the challenge at Lloyds and steer them through the process of integrating HBOS, which the Lloyds took under their wing late last year at the peak of the bank’s crisis.

London equities held reasonably firm on Tuesday, helped by more optimistic data from the UK housing market and support from the resource stocks in line with firmer commodities markets

As trading closed, the FTSE 100 had reversed its gain from Monday losing 44.82 points to finish the say’s trading on 4,249.21
The FTSE 250 dropped for the first time in three days, by 62.65 points to close on

Sterling’s day was weak against the leading currencies.

Pound/US dollar 1.6436
Pound/Euro 1.711
Pound/Japanese Yen 159.1014
Pound/Swiss Franc 1.7841

US equities rallied on Monday as upgrades in the consumer sector and improving energy stocks helped lift stocks later in the day after an early collapse.

On Wall Street, the Dow Jones finished the day dropping most id its previous day’s gains, down 82.38 points to 8447, while the NASDAQ lost 9.02 points to close on 1835.04.

US super bank, Morgan Stanley announced that they will be joining forces with Japan’s Mitsubishi UFJ Financial Group. The joint lending venture will give the bank extra firepower to compete with such Wall Street rivals as Citigroup and JPMorgan Chase.

In the eurozone, annual rates of inflation turned negative in June for the first time since the single currency was introduced in 1999. Prices in the 16-nation zone fell 0.1% in the past year, against 0% in May.

Inflation in the eurozone, dragged down by lower energy and food prices, has also been affected by falling demand for goods from companies and households.

Japan announce that they believe that they are on course for growth in the next fiscal year, but the recovery of the world’s second largest economy could yet prove vulnerable,
The comments came just before a quarterly Bank of Japan survey showed that business confidence had risen for the first time in two and a half years. industries such as auto making, steel and electrical machinery as leading the rebound after an”unthinkably bad” first quarter of 2009.

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Tags: Banking, British Economy, Credit Crunch, Economics, Economy, Financial News, FTSE, Money, Recession, UK Banks, UK Recession