UK treasury misfires on their borrowing targets, and by a long way

Figures issued on Thursday have reported that the UK Treasury looks like failing to hit their borrowing targets for 2009, and not by a narrow margin. Tax revenues, are now expected considerably less than that of Alistair Darling’s pre-Budget report forecasts of late November 2008.

Representing the worst January figure since self-assessment was introduced, public sector net borrowing January was set at £3.3billion. These figures are especially worrying as the public sector usually shows a large surplus in January. This is because tax revenues are higher than normal largely due to higher rates of income tax paid on bonuses awarded as well as corporation tax from financial sector companies. Happy occasions that seem to be few and far apart these days in the UK and mean that a continuing sharp drop in tax revenues over the next two months, coupled with likely losses in the banking and other public sectors, will force the government to confront much higher public borrowing when Budget time comes around in April.

Further worrying news came with the announcement that the UK’s public debt appears to be moving steadily towards the £1,200 billion mark, or eighty per cent of national income for the next three years This figure is twice what the government budgeted on even twelve months ago and represent around £25,000 for every UK citizen.

Gordon Brown took a bit of light verbal abuse yesterday from Richard Lambert director general of the Confederation of British Industry (CBI) as well as former Bank of England policy maker. In what was said to be the CBI’s first major criticism of the Labour government’s economic strategy during the recession period, which, to be fair, only began last month.

Lambert stated his opinion that “The government appears to have been fighting a series of forest fires rather than building a platform for economic recovery,” “There’s little sense of a coherent strategy about what’s happened to date.” He continued.

Prime Minister Brown, who as Chancellor handled the UK economy during the first ten years of Labour rule, could not be found for comment

“What is needed is a better sense of the big picture, an overview of what has been put in place and of what each initiative is intended to achieve, together with the dates at which each one can be expected to kick in,” Lambert commented and added the suggestion that Brown and Darling should create a Web site similar to that being used by President Barack Obama which could include clear and easy to understand explanations of the U.K. economic plan

On a slightly more optimistic front, reports that U.K. retail sales show an increase in. Reasons given were that stores attracted shoppers with price cuts, overcoming the effects of job losses and the deepening recession. Questions continue to be asked as to the reliability of these statistics and the effect of the stores profitability, which may be being sacrificed in an attempt to improve cash flow. Either way increased revenue, no matter how low, might have put a smile on Gordon’s face for a moment or two.

On the market Thursday , what was most notable was the news that Sir Crispin Davis, the outgoing chief executive Reed Elsevier chief was about to retire on a high note. Profit forecasts for the company in 2008 are expected to be way ahead of expectations. Pre-tax profits for the year actually fell to £617million, but this figure was inflated by £225million of financing costs for the company’s £5.7billion debt burden. Reed Elsevier reported sales last year of £5.3bn, up from £4.5bn in 2007. Shares in the company rose 21 pence to 542 pence yesterday

Another company that remains positive is Ladbrokes, the high street betting office chain, despite fall in income and profits. The company, who showed a decrease in pre-tax profits of 27 per cent for 2008, announced that they are confident of their ability to ride out the recession storm.

Another piece of evidence that for most company’s surviving is all came from Europe’s largest home-improvement retailer, Kingfisher Plc, who announced yesterday that same-store sales fell for a fifth straight quarter as customers spent less on maintenance projects.

Thursday was a bad on the FTSE, with the FTSE 100 index, which had been hovering around the 4,000 mark dropping 2.72% or 109.26 points to 3,909.11 The FTSE 250 finished the day down by 2.45per cent, or 152.08 points, higher at 6,065.78

Sterling continues to climb slightly against the main trading currencies/

Pound/US dollar 1.4319

Pound/Euro 1.339

Pound/Japanese Yen 134.71.

Pound/Swiss Franc 1.6936

Wall Street shares also took a pounding on Thursday.

The Dow Jones Average dropped 89.68 to close at 7465.95 with the NASDAQ following suit, down 25.15 points to 1442.82.

The Euro appears to be under fire, especially against the dollar. This week saw it drop to a two-month low amid heightened concerns over eurozone banks’ exposure to the worsening conditions in Eastern Europe.

Austrian, Swedish and other banks with eastern European subsidiaries are expected to be under pressure as the region’s economies continue their slump.

Swedish carmaker Saab, owned by General Motors, announced that they filed for reorganisation, the Swedish equivalent of Chapter 11 bankruptcy, following and extraordinary board meeting held on Thursday.

The news was not unexpected and follows continued concerns regarding the loss-making carmaker’s future. The Swedish government rejected GM’s call for aid and there are expectations that the government will consider providing loan guarantees to Saab.

Sales for the company were down 25% in 2008 and considering that the Swedish carmaker has not made a profit since 2001 it is not a surprise that they find themselves in stormy waters.

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Tags: Alastair Darling, Bank, Banking, British Economy, Credit Crunch, Gordon Brown, UK Recession