In surprise news which sent the pound sliding on Thursday, official figures showed that the Government borrowed £4.3 billion last month.

It was the first time since 1993 that the public finances had gone into the red in January – a month in which tax revenues usually push the Exchequer into the black.

Economists said that the scale of the shortfall in the budget could this year mount to above £180 billion – higher than even the Chancellor’s forecast of a record £178 billion.

Such a deficit would, at 12.8 per cent of British gross domestic product, be even greater than the deficit faced in Greece, which is facing a full-scale fiscal crisis and may need to be bailed out by fellow euro nations or the International Monetary Fund.

The public borrowing figures coincided with further bad news from the housing market, as the Council of Mortgage Lenders reported that mortgage lending dropped last month by 32 per cent, hitting the lowest monthly total in a decade.

The Bank of England also reported a decline in lending to businesses, indicating that the economic slowdown is far from over.

Source/Full Story: Telegraph

The US investment bank said there is a danger Britain’s toxic mix of problems will come to a head as soon as next year, triggered by fears that Westminster may prove unable to restore fiscal credibility.

“Growing fears over a hung parliament would likely weigh on both the currency and gilt yields as it would represent something of a leap into the unknown, and would increase the probability that some of the rating agencies remove the UK’s AAA status,” said the report, written by the bank’s European investment team of Ronan Carr, Teun Draaisma, and Graham Secker.

“In an extreme situation a fiscal crisis could lead to some domestic capital flight, severe pound weakness and a sell-off in UK government bonds. The Bank of England may feel forced to hike rates to shore up confidence in monetary policy and stabilize the currency, threatening the fragile economic recovery,” they said.

Source/Full Story: Telegraph

The British economy is in its longest recession on record, as figures out this morning showed a shock 0.4% drop in gross domestic product (GDP) in the third quarter of the year.
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TUC general secretary Brendan Barber said he hoped today’s figures would “head off the growing signs of complacency” on an economy which remains “extremely fragile”.

“Even if we had achieved a technical recovery today, it would not feel like a recovery to the thousands losing their jobs or afraid that they will join the dole queue in the months ahead when unemployment will continue rising. It takes more than a statistical read out and the return of big bank bonuses for a real recovery,” he said.

Philip Shaw, chief economist at Investec bank, said: “We thought there was a chance that the economy could contract, but not by this much … the numbers do come as a big shock.”

Peter Dixon, economist at Commerzbank in London said the figures made it more likely the Bank of England would next month extend its policy of flooding the economy with money, known as “quantitative easing”.

Source/Full Story: guardian.co.uk

European and emerging-market stocks fell for the fifth day, the longest losing streak since January, as an unexpected drop in U.K. retail sales and downgrades of U.S. banks by Standard & Poor’s fanned concern the global economic recovery will falter.

The Dow Jones Stoxx 600 Index of European shares slid 0.4 percent at 11 a.m. in London after a three-month, 36 percent rally that drove price-earnings valuations to the highest levels in five years. The MSCI Emerging Markets Index of 22 developing nations dropped 1 percent. The pound lost as much as 1.3 percent against the dollar after a report showed British retail sales fell in May.

“We could see a pullback in risk appetite in the near term and a more material correction lower in stocks,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London.

Retail sales in the U.K. fell for the first time in three months and Bank of England Governor Mervyn King said the economic recovery may be sluggish as banks ration credit to consumers. Gains in U.S. stocks evaporated yesterday and Asian equities fell today after S&P cut credit ratings on 18 U.S. lenders and said operating conditions for banks will become “less favorable.”

The British retail-sales report helped push Hemel Hempstead, England-based DSG International Plc, the U.K.’s largest electronics goods retailer, down 5.2 percent. Clermont- Ferrand, France-based Michelin & Cie., the world’s second- largest tiremaker, lost 2.8 percent as Chief Executive Officer Michel Rollier said in an interview with RTL radio that the tire industry will not recover until mid-to-late 2010.

Source/Full Story: Bloomberg.com

German Chancellor Angela Merkel, in a rare public rebuke of central banks, suggested the European Central Bank and its counterparts in the U.S. and Britain have gone too far in fighting the financial crisis and may be laying the groundwork for another financial blowup.

“I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line,” Ms. Merkel said in a speech in Berlin. “We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years’ time.”

Ms. Merkel also said the ECB “bowed somewhat to international pressure” when it said last month it plans to buy €60 billion ($85 billion) in corporate bonds — a move that is modest in comparison to asset-buying by its counterparts, the U.S. Federal Reserve and the Bank of England. Details are to be unveiled by the ECB’s president, Jean-Claude Trichet, Thursday.

The public criticism is unusual — and not only because German politicians rarely talk harshly about central banks in public. When politicians around the world do criticize their central banks, they almost always gripe that they are too tightfisted.

The conservative German leader’s comments came as Europe’s statistical agency reported that unemployment in the 16 countries that share the euro rose to 9.2% in April — the highest level since September 1999 and still below the 11.5% that the European Commission forecasts for 2010.

Source/Full Story: WSJ.com

The Bank of England is concerned that the UK’s banking system is heading for a third wave of crisis that could snuff out fragile signs of recovery in the economy.

On Thursday the Bank surprised the City by announcing that it would pump an extra £50bn of new money into the economy despite recent stockmarket rallies.

Now the Guardian has learned that this increase in quantitative easing was driven by fears in Threadneedle Street that the credit crunch is still sucking the life out of the British economy and the banking sector remains in deep trouble.

The new mood of caution chimes with comments from business leaders yesterday, who warned that apparent green shoots in the economy had shallow roots.

Richard Lambert, director general of the CBI, said: “The fact is that for all the injections of taxpayers’ money, the credit markets are still not working properly.”

Source/Full Story: The Guardian

The Tower of Basel: Secretive Plans for the Issuing of a Global Currency

Do we really want the Bank for International Settlements (BIS) issuing our global currency

by Ellen Brown

Global Research, April 18, 2009

In an April 7 article in The London Telegraph titled “The G20 Moves the World a Step Closer to a Global Currency,” Ambrose Evans-Pritchard wrote:

“A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order.

“We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,’ it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.

“In effect, the G20 leaders have activated the IMF’s power to create money and begin global ‘quantitative easing’. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it.”

Indeed they will. The article is subtitled, “The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity.” Which naturally raises the question, who or what will serve as this global central bank, cloaked with the power to issue the global currency and police monetary policy for all humanity? When the world’s central bankers met in Washington last September, they discussed what body might be in a position to serve in that awesome and fearful role. A former governor of the Bank of England stated:

“[T]he answer might already be staring us in the face, in the form of the Bank for International Settlements (BIS)…. The IMF tends to couch its warnings about economic problems in very diplomatic language, but the BIS is more independent and much better placed to deal with this if it is given the power to do so.”1

Source/Full Story:: globalresearch.ca

There are a multitude of pictures in this piece, at the source, make sure to check them out.

Police were braced for another day of violence in London today after officers were pelted with bottles as they tried to save a protester dying on the street.

The man, believed to be in his 30s, had collapsed at a makeshift camp set up near the Bank of England. He was pronounced dead shortly after arriving at hospital.

Protesters are already on the march in the capital again today as the G20 summit started in earnest to agree a rescue deal for the global economy.

Police have already made their first arrests this morning after demonstrators gathered outside the Stock Exchange, threatening to disrupt the financial markets.

One man was taken away by police after a brief chase and a scuffle and a second was detained for arguing with officers.
Fight for life: A police paramedic battles to save a man in his forties who collapsed during the G20 protests

A small group of protesters gathered in Paternoster Square next to St Paul’s Cathedral as a steady stream of City staff arrived for work.

Dressed in top hat and tails, they played a giant game of Monopoly using crates full for fake money and huge fluffy dice.

Further east in the city, the Excel Centre in the Docklands was surrounded by a ring of steel as world leaders arrived to thrash out an action plan for the global economy.

Snipers could also be seen at the Excel Centre while police were turning back anyone without a pass within a half mile radius.

Source:  Mail Online

The G20 protests in central London turned violent today ahead of tomorrow’s summit, with a band of demonstrators close to the Bank of England storming a Royal Bank of Scotland branch, and baton-wielding police charging a sit-down protest by students.

Much of the protesting, from an estimated 4,000 people in the financial centre of the capital, was peaceful, but some bloody skirmishes broke out as police tried to keep thousands of people in containment pens surrounding the Bank of England on Threadneedle Street.

A minority of demonstrators seemed determined to cause damage, seeking confrontation as they surged towards police lines. Late tonight, much of the City remained cordoned off.

By about 8pm, running battles between riot police and demonstrators were taking place across London Bridge. Bottles, sticks and bricks were thrown.

Nearer the heart of the City, police moved in to break up a ‘climate camp’ on Bishopsgate, with baton-wielding officers said to be pushing through a line of tents and bicycles. At least five armoured police vehicles were also at the scene.

The trouble broke out as Gordon Brown and Barack Obama announced that the G20 leaders were “within a few hours” of agreeing a global deal for economic recovery. The G20 summit will be held tomorrow, amid high security, in London’s Docklands.

Source: guardian.co.uk

World leaders gathering for Thursday’s G20 summit in London were warned today by the Organisation of Cooperation and Development that the world economy was shrinking much faster than previously thought and that global trade was in freefall.

The Paris-based thinktank also told the British prime minister, Gordon Brown, there was no room for the type of fiscal stimulus that the prime minister had been touting around the world.

“The world economy is in the midst of its deepest and most synchronised recession in our lifetime caused by a global financial crisis and deepened by a collapse in world trade,” the OECD said in its latest twice-yearly economic forecasts.

It predicted that in spite of big cuts in interest rates around the world, fiscal stimuli and banking system bailouts, recovery would not come until 2010 at the earliest.

The organisation had warned on Monday that unemployment among its 30 rich nation members was likely to rise by 25m in the current crisis.

Japan and Germany announced big rises in joblessness today: in Germany it rose to 3.5m, its highest since February 2008 and giving a jobless rate of 8.1%, while Japan’s rate reached a three-year high of 4.4%. Japan announced a new fiscal stimulus package as it seeks to pull its economy – a big exporter punished by the slump in world trade – out of a deep recession.
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The OECD expects global trade volumes to slump by 13% this year. “International trade is in freefall,” it said.
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Separately, the World Bank forecast that growth in the developing world would slow to just 2.1% this year from 5.8% in 2008.

“Across the developing world, we see that conditions of recession are affecting the poorest people, making them even more vulnerable than before to sudden shocks but also reducing opportunities available to them, and frustrating their hopes,” said Justin Yifu Lin, the World Bank’s chief economist.

The OECD echoed comments made last week by the Bank of England governor, Mervyn King, when he said Britain’s worsening budget deficit meant the government had little room to cushion the impact of the recession if it turned out to be deeper than expected.

Source: guardian.co.uk

Source: The Independent

The UK’s annual rate of inflation showed a shock rise in February after retailers offset higher import costs caused by the weak pound.

The Consumer Prices Index (CPI) rose unexpectedly from 3 per cent in January to 3.2 per cent, according to figures from the Office for National Statistics (ONS) today.

The rise confounded predictions of a sharp drop and resulted in another letter from Bank of England Governor Mervyn King to Chancellor Alistair Darling explaining why inflation is still more than 1 per cent above the Government’s 2 per cent target.

Mr King said the “somewhat higher than expected” rise in CPI was likely to be due to the lower pound being passed on to consumers on goods containing a large proportion of imported components.

But he expects CPI to fall back below the 2 per cent target in the coming months as the impact of lower gas and electricity prices come through and the continuing recession bears down on demand.

The U.K. inflation rate unexpectedly rose in February after higher food costs and the weakness of the pound sustained price pressures even as Britain’s recession deepened.

Consumer prices rose 3.2 percent from a year earlier, the Office for National Statistics said today in London. The median forecast of 28 economists was for 2.6 percent. Officials said that Bank of England Governor Mervyn King will explain the increase in a letter to the government today after the rate breached its 3 percent upper limit.

Bank of England policy makers say the higher cost of imports from the British currency’s drop may make inflation volatile while the recession defuses prices pressures from the economy. The bank has started printing money to fight the slump and King says the outlook for consumer prices will determine how long they need to keep doing so.

“We’ve got such huge spare capacity in the economy,” James Knightley, an economist at ING Financial Markets in London. “Inflation pressures are going to be very weak indeed in the months to come. The process will continue through this year and into the next.”

Inflation accelerated by 0.2 percentage point from 3 percent in January, the statistics office said. The rate increased for the first time in five months.

Prices of food and non-alcoholic drinks increased, boosted by gains in the cost of vegetables after poor crops in Spain of cucumbers and courgettes, the statistics office said. The data also showed the effects of the exchange rate pushed up the cost of imports, influencing this month’s figures.

Source: Bloomberg.com

Source:  Reuters

Savers are feeling the pinch after the Bank of England made a further cut in interest rates to a historic low of 1.5 percent on Thursday.

Some high street banks had already cut rates on instant access accounts to as low as 0.1 percent, with rates of up to 4 percent only available for those prepared to lock their money up for a period of time.

Lobby groups for pensioners and the elderly called on the government to offer extra help in benefits for those trying to eke out their retirement with income from their savings.

There was also support for plans from the opposition Conservatives to cut tax on savings accounts for lower income earners.

Interest rates have fallen by 3.5 percentage points since October as policymakers pull out all the stops to revive an economy facing its first recession since 1992.

Investment firm Legal and General said the rate cuts were starting to look futile and even counter-productive.

“We have reached the point now where only the fortunate few are really benefiting and savers are really starting to suffer,” said L&G’s Mortgages Director Ben Thompson.

“What lenders need more than ever are savers’ deposits, and they are not going to get them if they can only offer paltry rates of interest.”

Full Story

Technorati Tags: Bank of England, interest rates

Source: guardian.co.uk

Unemployment in Britain has surged at its fastest rate since 1991, taking the total number of people claiming jobless benefits to over 1 million for the first time in seven years, adding to the increasingly bleak outlook for the economy.
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On the broader International Labour Organisation measure, unemployment increased by 137,000 in the three months to October to reach 1.86 million – the highest level since 1999. Many experts believe it will top the 2 million mark over Christmas. The unemployment rate climbed to 6%, up 0.4 percentage points from the previous three months.

“The figures look absolutely horrible,” said Amit Kara at UBS. “We are looking for a forecast of 3 million in 2010 or higher – rising every month next year and into 2010. We are in for a period of prolonged pain.”

George Buckley at Deutsche Bank echoed his comments. “I think what’s interesting is the scale of job losses this early in the cycle. Unemployment is normally a lagging indicator so to see so many job losses this early in the cycle is extremely worrying.”
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Unemployment is likely to rise above 3 million in the current recession, the Bank of England’s labour market expert, David Blanchflower, warns today. In previous UK recessions, unemployment soared to more than 3 million.

“I expect unemployment to continue to rise to through 2009 and into 2010, probably to over 3 million,” Blanchflower, a member of the Bank of England’s monetary policy committee, says in an article for the Royal Economic Society’s January newsletter, a copy of which was obtained by the Guardian. “Where is the light at the end of the tunnel? I can’t see any,” he says.
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Technorati Tags: Unemployment, International Labour Organisation

Source: guardian.co.uk

Britain’s economy may be deeper in recession than previously thought after official data showed that industrial output plummeted at the fastest rate in nearly six years in October, with previous months also weaker than estimated.

The figures, described as a “horror story” by one economist, raised expectations in the City that interest rates will have to be cut aggressively again and that they could fall close to zero next year.

The Bank of England has already slashed borrowing costs by three percentage points since October to 2%, a 57-year low, in a desperate – and some say belated – attempt to kickstart the economy.

The pound fell against the euro and the dollar following the news, dropping by over 1% to $1.4742. The euro rose to 87.25p, closer to its recent record high of 87.38p.

Industrial production, which comprises manufacturing, mining and utilities, fell by 1.7% in October from the month before, the Office for National Statistics reported this morning. The fall was more than three times the size predicted by City economists and the biggest drop since January 2003. It took output down 5.2% from a year ago, the steepest annual decline since April 1991.

The ONS also revised down output in previous months and said, other things being equal, that would mean GDP contracted by 0.6% in the third quarter of 2008 instead of the 0.5% fall initially reported. Britain will officially be in recession once the fourth-quarter GDP figures, which are expected to show a sharp contraction, are published in late January.

Industrial production was down 1.4% in the third quarter from July to September, worsening to a decline of 1.8% in the three months to October.

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Technorati Tags: recession, Bank of England, UK