History > 2008 > UK > Economy (VI)
 

Gerald Scarfe cartoon

Sunday Times

December 28, 2008

http://www.timesonline.co.uk/tol/comment/article5404205.ece

British Prime Minister Gordon Brown

House prices fall 12% in the past year

Tuesday 30 December 2008
12.50 GMT
Sandra Haurant
Guardian.co.uk
This article was first published on guardian.co.uk
at 12.50 GMT on Tuesday 30 December 2008.
It was last updated
at 16.04 GMT on Tuesday 30 December 2008.

House prices plummeted by 12.2% in the 12 months to November, and by almost 1.9% month on month, official data showed today. According to the Land Registry, the average property in England and Wales cost £161,883 in November, a fall of more than £22,000 compared with the same month in 2007.

Every region in England and Wales saw property prices fall in double figures across the year to November, with the greatest drops occurring in the East Midlands and the east of England, where house prices fell by more than 14%. Prices in London fell by 10.2%, and the average property in the capital now comes with a price tag of £317,101.

The falls reported by the Land Registry broadly echo those published by lenders. Nationwide said prices had dropped by 13.9% in the year leading to November, while Halifax reported a drop over the year of 14.9%.

Prospects for the housing market look decidedly grim for the coming year, with pundits across the board predicting prices will continue to slide in 2009, thanks in part to growing unemployment and increasingly tough lending criteria making it difficult for would-be buyers to secure funding.

The property information website Hometrack said yesterday that it predicted prices to continue to fall by as much as 12% in 2009, while Miles Shipside, commercial director of the property search website Rightmove.co.uk predicts falls of 10% next year.

Providing further evidence that the market has all but ground to a halt, the time it takes to sell a property has lengthened from an average 8.3 weeks to an average 12 weeks in December, according to Hometrack, while vendors are only managing to achieve 88.6% of their asking prices. A year ago, vendors were managing to sell for 93.5% of their asking price.

Estate agent Richard Hatch of Carter Jonas said 2009 would be "tough" for the property market, "with activity levels down by 10%–15% on 2008."

"Many potential sellers, having seen dramatic cuts in the value of their homes, will batten down the hatches until they feel there is some stability and prices have improved. This is simply not their market. If people do want to sell, they will have to price their properties realistically," he said.

Meanwhile, research suggests that people are growing increasingly concerned about meeting the cost of keeping a roof over their heads. According to research from the Conservative party, 44% of people are worried that they will not be able to pay their mortgage the coming year. Shadow housing minister Grant Shapps said: "Householders up and down the country and in every kind of housing are now concerned, as never before, about their ability to maintain a roof over their heads over the next 12 months."

    House prices fall 12% in the past year, G, 30.12.2008, http://www.guardian.co.uk/money/2008/dec/30/house-home-price-england-wales

Virtual West End for cyber shoppers

Retailers to offer 3-D replicas of top stores
 

December 28, 2008
From The Sunday Times
Chris Gourlay

The imaginary worlds of Sim City, Second Life and other digital utopias are about to be joined by a very different online experience – shopping in London’s West End.

An ambitious new scheme to duplicate online the real-life experience of a shopping expedition in central London is promising to transform the way Britain’s leading retailers do business.

Stung by the growing popularity of internet shopping – online sales in November were up 16% on last year – the body representing West End traders is creating a unique internet world where shoppers will be able to wander down computer simulations of London streets, click their way into exact replicas of well-known stores, and thumb through goods stacked on virtual shelves.

The aim is to combine the speed and efficiency of internet shopping with the sense of exploration and discovery that real high-street browsing entails. By turning the London shopping experience into an elaborate online haven filled with spectacular graphics and clever animations, more than 600 West End traders from Bond Street, Oxford Street and Regent Street could sell more goods online, and lure more shoppers away from their keyboards for a taste of real shopping.

The £8m scheme is the brain-child of Alex Wrottesley, a budding media entrepreneur whose Near software company has joined forces with broadband , to provider Be, a subsidiary of O2 create an interactive computer model of the main shopping streets in central London.

“This is the first time that someone has tried to recreate a city just as you’d find it in real life,” Wrottesley said last week. His company used laser measuring devices mounted on the roofs of vans to draw up 3-D maps of the streets in the project. Employing the sort of imagery used by Hollywood special effects designers, Wrottesley created a highly realistic 3-D computer model to be known as Near London. It is due to open for business online by October 2009.

The model will allow mouse-wielding users of Near London software to click their way down mostly traffic-free streets, and to enter any shop they choose. There will be no beggars, pickpockets or graffiti soiling the pristine online landscape. Only an occasional Routemaster bus will disrupt the smooth flow of pedestrian traffic.

The projects’ designers also intend to change the weather according to live Met Office data – if it’s raining on Oxford Street there will be simulated rain online – and newspaper billboards will show up-to-date headlines.

Virtual shoppers may also contact friends through social networks such as Facebook and MySpace, then head off on joint shopping expeditions using instant messaging to discuss their finds.

Any real-life shop-owners on a street included in the project can open their virtual doors to passers-by for a “rent” of £40 a month. They can then use the doors as portals to their own websites, or use Near’s designers to replicate their shop interiors in the style of the rest of the project.

“Most people see virtual reality worlds like Second Life as a bit geeky and pointless, but this is completely different,” said Jace Tyrrell, marketing manager of the New West End Company, a trade body that appears to have concluded: if you can’t bring the shoppers to Oxford Street, you need to bring Oxford Street to the shoppers.

Among retailers that have already expressed interest in a parallel London life are the fashion brands DKNY and Armani Exchange. Capital Radio, whose headquarters are on Leicester Square, may also join in.

The project’s designers hope that local museums, theatres and cinemas will sell tickets on the site.

“I think if retailers took the opportunity to design their shops in an engaging way, it could be successful,” said Trinny Woodall, the fashion adviser and television presenter. Katherine Jenkins, the mezzo-soprano, who yesterday opened the Harrods sale, said: “It could make internet shopping a lot more enjoyable. Virtual reality is seen as a bit geeky, but if they did it well I’m sure it would become popular with women.”

The danger, of course, is that shoppers will find the online London so much cleaner and more appealing than the real thing, that they will stop going to Oxford Street altogether, putting Britain’s best known high street out of business.

That thought has already occurred to Sir Philip Green, the billionaire retailer whose empire includes Topshop and Bhs. “It may work for people abroad,” he said. “But from a London perspective, where we employ thousands of staff, it doesn’t sound like it’s going to bring any more people to my stores where I’m paying rent.” Woodall said she doubted that a virtual London, however popular, could replace the traditional shopping experience.

“People will always want to try something on,” she said. Yet she acknowledged that online shopping had its advantages, especially in a recession – no parking tickets, no congestion charge, no hassle.

“That said,” Woodall added, “it’s very important to get people into the West End. I hope this system doesn’t dilute the vitality of the high street.”

    Virtual West End for cyber shoppers, STs, 28.12.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article5404384.ece

Zavvi goes into administration

Wednesday 24 December 2008
13.45 GMT
Guardian.co.uk
Graeme Wearden
This article was first published on guardian.co.uk
at 13.45 GMT on Wednesday 24 December 2008.
It was last updated
at 13.45 GMT on Wednesday 24 December 2008.

The financial crisis claimed another high street victim today when entertainment chain Zavvi fell into administration, putting 2,500 jobs at risk.


While other retailers prepared for a post-Christmas sales bonanza, the board of Zavvi called in Ernst & Young to take charge of the firm's UK operations.


The administrators, who said they would keep Zavvi's 125 stores running while they searched for a buyer, blamed Zavvi's collapse on the failure of Woolworths. Its distribution arm, EUK, supplied Zavvi with DVDs and CDs - until Woolworths became Britain's biggest retail casualty of the slump so far. This left the former Virgin Megastore chain short of stock as it entered the crucial Christmas trading period.


Zavvi owes EUK £106m, which has cast doubt over the chain's future.


"Since EUK went into administration, and perhaps before, the impact of problems at EUK on the Zavvi Group has been significant," explained joint administrator Tom Jack.


"Minimal deliveries, no returns and worse trading terms are just some of the areas impacted. In the absence of a buyer for EUK, and with dire trading conditions on the high street, Zavvi has seen a material fall in sales."


Zavvi Ireland, which operates 11 stores, is not affected by the move.


Ernst & Young had been parachuted into Zavvi to attempt a rescue two weeks ago. The company was rebranded from Virgin Megastore late last year following a management buyout.


Zavvi's fall into administration comes in a grim week for the retail sector, which began with insolvency specialists Begbies Traynor predicting that 15 national and regional chains would collapse early next year.


Yesterday, two other high street names went into administration. Whittard of Chelsea was promptly bought by private equity firm Epic through a "pre-pack" administration procedure designed to keep stores running and workers employed. Officers Club, the menswear chain, also went into administration, with 118 of its 150 stores being quickly sold to the company's chief executive.


Ernst & Young said that Zavvi's post-Christmas sale would begin, as planned, on December 26. Like many other high street names, it has already begun offering large discounts at the start of this week in an attempt to get shoppers spending.


Faced with what will probably be the worst Christmas trading period in decades, some retailers are not even waiting for Boxing Day before discounting. B&Q began offering up to 50% off its kitchens and bathrooms this morning.


On the web, John Lewis decided for a 6pm Christmas Eve start to its clearance sale while Debenhams is among the retailers beginning their online sales on Christmas Day.


But more casualties are expected in the next few weeks, as the recession bites. The Financial Times reported this morning that Allied Carpets had been put up for sale as its French owner attempts to quit the UK retail sector. Some analysts also expect Marks & Spencer to warn that it has suffered a poor Christmas.


City analyst Freddie George at Seymour Pierce predicted that January would begin with a profit warning from M&S. He also advised selling shares in Carpetright, Debenhams, Topps Tiles, Findel, and Home Retail Group, the owner of Homebase and Argos.


Further retail casualties would be a heavy blow to the UK economy, which is sliding steadily into what could be a deep, prolonged recession. Official figures released yesterday showed the economy shrank 0.6% between July and September, the most severe contraction in close to 20 years.


The sector is a key employer of full-time and temporary staff. About 27,000 Woolworths employees will be unemployed from January 5 when the last store closes, which is likely to push the number of people out of work over the 2 million mark next year.


Other companies hit by the downturn include furniture chain MFI, which ceased trading last week.

    Zavvi goes into administration, G, 24.12.2008, http://www.guardian.co.uk/business/2008/dec/24/zavvi-administration-jobs

UK's reliance on gas continues to grow,

as domestic fuel reserves diminish

December 24, 2008
From The Times
Robin Pagnamenta,
Energy and Environment Editor

Britain's dependence on natural gas as a source of energy is growing, even as supplies from the North Sea are running out, figures suggest.

They indicate that the UK is relying increasingly on gas as its primary source of fuel for electricity generation, even though the country is being forced to import more and more as domestic reserves grow scarce.

The use of gas to generate power in the UK soared by 21 per cent in the third quarter of this year, compared with the same period last year, to 44 terrawatt hours, according to Energy Trends, a quarterly report on UK energy use published by the Department of Energy and Climate Change.

Meanwhile, output from Britain's ageing fleet of nuclear power stations, which have been beset by maintenance problems this year, fell by 30 per cent during the same period, to 11 terrawatt hours.

The figures emerged as leaders of some of the world's leading gas-exporting countries met in Moscow yesterday for talks about the formation of the Gas Exporting Countries Forum, an Opec-style cartel.

The meeting has alarmed gas-consuming countries, raising fears that the group, which includes Russia, Iran, Venezuela and Libya, would try to massage prices higher by setting production quotas.

Vladimir Putin, the Russian Prime Minister, who is embroiled in a dispute with Ukraine over gas supplies, told delegates at the meeting: “The time of cheap energy resources, cheap gas, is surely coming to an end. Costs of exploration, gas production and transportation are going up. It means the industry's development costs will skyrocket.”

The figures contained in the British Government's latest study reflect the huge challenges facing the country in weaning itself off gas and other fossil fuels.

The report showed that household use of gas in the UK fell by about 6 per cent during the third quarter of the year, mainly as a result of record price rises that prompted consumers to adopt a more frugal approach to energy use. However, the commercial use of gas for power generation is surging, as it displaces other fuels, such as coal and nuclear power.

Overall, UK gas demand in the third quarter was 5.3 per cent higher than during the third quarter of last year.

Although the Government wants energy harnessed from renewable sources, such as wind and waves, to play a much bigger role in electricity production in the long term, it still accounts for only 5 per cent of electricity supplies.

Meanwhile, many coal-fired plants are operating under restricted hours because of tough new European emissions standards, and Britain's nuclear industry, which produces little carbon dioxide, has also struggled with a string of technical problems at key plants this year. Commercial reactors at Hartlepool, Dungeness, in Kent, and Heysham, in Lancashire, were all out of service for repairs this year.

With the depletion of gas from the UK continental shelf, Britain is becoming dependent on imports, either by pipelines from Norway or elsewhere on the Continent or as liquefied natural gas from places farther afield, such as Algeria and Qatar.

Andrew Horstead, of Utilyx, the energy consultancy, said: “Having an energy system that is so reliant on gas at a time when our own supplies are running out is a concern.”

Gas bill

By 2015, the UK is expected to import up to 80 per cent of its gas supplies compared with about 40 per cent now.

The UK was a net exporter of gas as recently as 2004.

UK petrol consumption has fallen by 6 per cent over the past year.

Source: Department of Energy and Climate Change

    UK's reliance on gas continues to grow, as domestic fuel reserves diminish, Ts, 24.12.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5391435.ece

UK economy shrank 0.6%

from July to September

Tuesday 23 December 2008
14.24 GMT
Guardian.co.uk
Julia Kollewe
This article was first published on guardian.co.uk
at 14.24 GMT on Tuesday 23 December 2008.
It was last updated
at 14.24 GMT on Tuesday 23 December 2008.

Britain's economy shrank at the fastest rate since 1990 in the third quarter, largely because of sharp falls in output from hotels, restaurants and the financial sector, as well as manufacturers including carmakers.


The UK's gross domestic product fell by 0.6% in the July to September period, not by 0.5% as previously reported, the Office for National Statistics said this morning. The annual growth rate of 0.3% was the weakest since 1992. City economists had not expected any revision.


"It's essentially showing that the recession was somewhat worse already in the third quarter than we had previously thought," said Matthew Sharratt at Bank of America. "The decline we are likely to see in the fourth quarter and first quarter of next year will be substantially worse than what we have seen in the third quarter. It really does paint an exceptionally gloomy picture about the speed with which the UK economy has lapsed into recession."


The worse-than-expected figures were followed by separate GDP data confirmed that the US economy shrank by 0.5% in the third quarter of this year – heightening fears of a deep and prolonged recession.


The pound hit a session low against the dollar after the UK data was released, falling to $1.4785 from around $1.4815. Traders speculated that the increasingly bleak outlook for the UK would prompt further, aggressive interest rate cuts by the Bank of England, which has hinted that borrowing costs could fall close to zero from 2% now.


Oil prices dipped below $40 a barrel, weighed down by the figures and other signs of waning world demand. Japan suffered a record fall in exports yesterday. The New York February oil contract slipped 6 cents to $39.85 a barrel. Prices have fallen 73% since hitting an all-time peak of $147 in July. In London, Brent crude edged up 2 cents to $41.47 a barrel.


The outlook for the global economy is worsening by the day, with the US, Japan and the eurozone already in recession. It also emerged today that Spain tumbled into recession for the first time in 15 years, while New Zealand's recession deepened.


In the second quarter, the UK economy stagnated, with GDP showing zero growth, ending an uninterrupted run of 63 successive quarters of growth since 1992.


With the global downturn rapidly gathering pace, the British economy is expected to have shrunk by up to 1% in the final quarter of the year. This will put the UK officially into recession, which is defined as two or more consecutive quarters of contraction. Those figures will be published on 23 January.


Hotels and restaurants were the hardest hit within the services sector in the third quarter, showing a 2.1% contraction, the worst since 1980. Business and financial services posted a 0.6% decline. The services sector overall, which makes up three-quarters of the economy, shrank by 0.5%, the biggest fall since 1990.


Manufacturing output was also weaker than previously thought, down by 1.6%, the sharpest rate of decline since the end of 2001. Falling car production was one of the main reasons for the slump. Productivity in Britain saw the first decline since 1989 in the quarter, separate official figures showed.


"The only area of growth really is the public sector," said Ross Walker at RBS. "It's going to be a pretty depressing six months, at least."


The UK's current account deficit widened to £7.7bn in the third quarter from £6.4bn.

    UK economy shrank 0.6% from July to September, G, 23.12.2008, http://www.guardian.co.uk/business/2008/dec/23/economicgrowth-recession

Mortgage approvals fall by 61% to record low

Tuesday 23 December 2008
09.59 GMT
Guardian.co.uk
Hilary Osborne
This article was first published on guardian.co.uk at 09.59 GMT on Tuesday 23 December 2008.
It was last updated at 10.45 GMT on Tuesday 23 December 2008.

The number of mortgages approved for house purchases fell to a record low in November, despite the 1.5% cut in interest rates at the start of the month, the British Bankers' Association (BBA) said today.


Just 17,773 loans were approved for homebuyers during the month, down from 20,767 in October and 61% below last November's figure of 44,315. This is the lowest level of approvals since records began in 1997, and the continued lack of demand for homes is likely to drive down house prices further in coming months. The value of home loans approved for buyers was down by almost 70% year-on-year, at £2.1bn.


It was not just a lack of numbers that pushed down the overall value of lending for house purchases - the average value of mortgages has also fallen sharply since last year as house prices have tumbled and lenders have restricted maximum loan sizes.


In November, the average loan for a house purchase was £116,700 - a drop of almost £12,000 since October and well below the average of £159,600 last June when the housing market was nearing its peak.


There was also a steep drop in the number of borrowers remortgaging during the month with just 29,798 borrowers having new loans approved compared with 52,452 in October, the lowest number for eight years.


Customers who would usually remortgage at the end of a special offer rate may have been persuaded to stay on their lenders' standard variable rate (SVR) after the banks were pressed to pass on the base rate cut to existing borrowers.


After the 1.5 percentage point reduction in rates, many SVRs are now more competitive than the short-term discount and fixed rates on offer to new customers.


The BBA said the shock interest rate cut to 3% had prompted November's slowdown in mortgage activity.


The BBA's statistics director, David Dooks, said the cut had "caused lenders to reassess product ranges and borrowers to reconsider future borrowing costs".


Many lenders pulled tracker mortgages early in the month as borrowers, convinced that further rate cuts were on the way, scrambled for loans attached to the base rate. Those that reintroduced the loans later on did so with much higher margins.


Dooks said consumers were also concerned about taking on new debts. "Volumes of mortgage approvals reached new lows and, with house prices still falling, the encouragement of lower costs had not filtered through by the month-end, largely because people remain concerned about the impacts of the rapidly slowing economy on their personal finances," he said.



Lack of confidence

After taking into account repayments and redemptions, the BBA said the value of mortgages advanced fell to £2.9bn in November. Consumer credit also remained subdued as households reined in spending, despite the start of the run-up to Christmas. Borrowing on credit cards, personal loans and other types of consumer credit was up by just £0.2bn over the month.


Howard Archer, chief UK economist at IHS Global Insight, said the BBA's data showed activity in the housing market was "dead in the water". "The outlook for the housing market remains bleak. Even if the government measures to tackle the financial crisis work on a sustained basis, it will clearly take time for confidence to improve and mortgage lending to pick up significantly.


"These factors are likely to continue to outweigh the beneficial impact of lower mortgage interest rates resulting from the Bank of England slashing interest rates, particularly as it is still very difficult to get a mortgage."


While lending was down, the banks reported a spike in deposits as savers started to be paid back the money they had deposited in Icelandic banks. The pay out from the Financial Services Compensation Scheme to savers with the collapsed internet bank Icesave was part of the reason banks saw a net inflow of £3.9bn into accounts over the month.

    Mortgage approvals fall by 61% to record low, G, 23.12.2008, http://www.guardian.co.uk/money/2008/dec/23/mortgage-approvals

London Journal

The Doors Shut on an Emporium

Offering a Hodgepodge of Essentials

December 23, 2008
The New York Times
By SARAH LYALL

LONDON — It was not that its products were particularly exciting in themselves, or that its service was particularly attentive. But Woolworths was always there, a comforting part of the landscape, offering everything you wanted and more besides: ice trays and ironing boards; birthday cards and bars of soap; Play-Doh, pet food, paper clips and pajamas.

But all that is about to end. After trying unsuccessfully to find a buyer in a crashing economy, Woolworths announced last week that it was shutting its 807 stores in Britain for good, with the last one to close on Jan. 5. That will put 27,000 people out of work, news that is bad enough.

But there is a psychological loss, too. F. W. Woolworth closed in 2001 in the United States, reinventing itself as Foot Locker Inc., but the British company — long separated from its American parent — remained in Britain for a reason. It is a symbol of something, a vestige of a simpler past when the country had few department stores and no giant retailers, when shopping still seemed like a treat.

The simple act of walking inside the soon-to-be-gone Woolworths on Portobello Road in West London had a madeleine-like effect on a number of shoppers the other day, releasing a string of long-ago memories.

Woolworths, 27-year-old Nick Clinch said, was the treat he looked forward to more than anything on Saturday mornings as a child, clutching the precious 50 pence his parents gave him when they visited him at boarding school. Woolworths was where Tracy McManus’s daughter, now a grown-up singer, bought her first hit single, “Into the Groove” by Madonna, having been introduced to it on the television show “Top of the Pops” that very day.

And it was where the young Lena Smith took her pennies and spent them on the luridly colored candy known as Pic ‘n’ Mix, feeling independent and flush with consumer power.

“All we had was Woolworths,” said Ms. Smith, now 50 and carting around a basket stuffed with items, including a dozen polka-dot mugs and a horse-themed 2009 calendar. “It was the first big shopping place for us. It was our shopping experience.”

The store was packed and had the feeling of a house whose inhabitants had not quite moved out, or a gravely ill patient at the end of life: half there but half gone.

Banners around the store proclaimed with fake cheeriness that it was “Woolworths Biggest Sale Ever.” The crowds had come to take it in for the last time, but also to pick over the detritus, to see if they could find a final bargain in the chaotic jumble.

Ceramic vegetable peelers, candles that change color as they burn, ironing boards, metal garbage cans, thermoses, closed-circuit television cameras, de-icers, hair-straightening irons, bread bins, rubber bands, shower-curtain hooks, CDs, cans of paint, children’s underwear, wrapping paper — all displayed seemingly at random, all just an aisle or two away.

That quality of haphazardness has always given the store a certain charm, but it was a charm of the past, and it was not for everyone.

“Let’s be clear about the demise of Woolworths,” wrote Julia Finch in The Guardian last week. “It was not caused by Gordon Brown, or the credit crunch. It was caused by failing to attract enough shoppers to spend money. It was the result of being a horrible place to shop, which offered nothing that wasn’t cheaper or better elsewhere.”

And in truth, Mr. Clinch, the former boarding-school student, said that nostalgia was one thing and practicality was another.

He pointed to a shelf crammed full of unrelated, slightly seedy items, like mugs printed with cupcakes. “Look at how there’s all this tatty, broken stuff on the shelves,” he said. “It’s chaos here, and it’s not just because it’s closing. It’s always been like that.”

But to others, that was part of its ineffable charm.

“It was just someplace you could come and get all those odd things — shoe polish, curtains, mops, safety pins, paintbrushes, pillowcases,” said Georganne Uxbridge, 56, waiting in line for the checkout counter and pushing her heavy shopping basket along with her foot. She had already bought “masses” on an earlier trip, she said, and felt slightly uneasy, benefiting from such obvious misfortune.

“To be honest, I feel like a bit of a vulture,” she said. She tossed a box of Bailey’s Irish Cream truffles, displayed near the toasters close to the checkout counter, into her basket. “I feel — well, sad.”

So did Dolores Crummy, who was looking at the children’s clothes (toddlers’ fleeces: 50 percent off) and found herself struck by something like conscience, or nostalgia, or an inchoate combination of the two.

Alarm, too, at this tangible manifestation of the precarious state of the economy.

“As long as I’ve been alive, there’s always been Woolworths,” said Miss Crummy, who remembers shopping there as a child in Northern Ireland during the decades of “the Troubles.”

“It symbolizes longevity and memories that go a long way back, and it’s a sad reflection of the times that an old, established firm like this has gone to the wall,” she said.

Her eyes grew moist and she said she felt, finally, unable to buy anything.

“I suppose I just wanted to be here at the end,” she said.

    The Doors Shut on an Emporium Offering a Hodgepodge of Essentials, NYT, 23.12.2008, http://www.nytimes.com/2008/12/23/world/europe/23london.html?hp

Pound nears €1

as budget deficit hits record high

Thursday 18 December 2008
15.58 GMT
Ashley Seager, economics correspondent
Guardian.co.uk
This article was first published on guardian.co.uk
at 15.58 GMT on Thursday 18 December 2008.
It was last updated
at 15.58 GMT on Thursday 18 December 2008.

The pound tumbled to within sight of parity with the euro today after official figures showed the government's budget deficit lurched to a record high in November.

The figures spooked the foreign exchange markets because they showed the public finances were in deep trouble even before the tax cuts announced by Alistair Darling at the end of last month, implying that the government was going to be issuing even more debt than markets had expected to cover its ballooning deficits.

The pound fell to just above 95p to the euro, equivalent to around €1.05 to the pound. Sterling was also hit by comments from Bank of England deputy governor Charles Bean suggesting that interest rates, currently at 2%, could "fall all the way to zero".

Sterling has fallen sharply in recent months on the feeling that Britain's economy, like that of America, could suffer the worst in the global slowdown because of its over-reliance on the financial services sector in the City. The pound has not suffered as badly against the dollar in recent days, however, and today was trading off recent lows at around $1.53.

Analysts said parity between the euro and pound was now very possible. "Parity with the euro is within reach. There may be some psychological or options barriers at that level, but there is no reason why we shouldn't get there," Citigroup currency strategist Michael Hart said.

Sharp losses against the currency of its main trading partner also sent the pound tumbling to a record trade-weighted low against a basket of major currencies.

A rapidly rising budget deficit is another symptom of that economic weakness, since tax revenues are tumbling while spending on things like welfare benefits is continuing to grow rapidly.

The Office for National Statistics said that public sector net borrowing rose to £16bn in November, a much worse number than City pundits had expected and the worst since monthly records began in 1993. The number was also £5bn worse than the same month last year.

The public finances are taking a hammering from dwindling tax revenues as unemployment rises and company profits fall and as spending on benefits rises.

Last month's pre-budget report tax cuts are set to push borrowing up to a massive £118bn next year, equivalent to 7% of national income.

The ONS said net borrowing surged to £56bn for the first eight months of the fiscal year 2008/09, compared to £29bn a year earlier. The new number means Darling has already hugely exceeded the £43bn deficit he pencilled in for the whole of this year in the March budget - showing just how rapidly the economy is plunging into recession.

"The public finances look pretty awful and it's just worrying that they are that bad this early in the recession," said Vicky Redwood, analyst at Capital Economics.

Philip Shaw, chief economist at Investec bank, added: "The scale of net borrowing is very, very disappointing, in particular tax receipts seem to be very, very weak."

The ONS figures also showed that the national debt stood at £650bn at the end of November, equivalent to 44.2% of gross domestic product.

    Pound nears €1 as budget deficit hits record high, G, 18.12.2008, http://www.guardian.co.uk/business/2008/dec/18/budget-deficit-record

By counting those left out,

total tally would reach 4m

December 18, 2008
From The Times
Tom Whipple

Unemployment, one would reasonably assume, is the state of not being employed. Following this logic, by adding together all the employed people and unemployed people of working age in Britain you would expect to get all the people of working age in Britain. According to official statistics, the employment rate is 74.2 per cent. But the unemployment rate is just 6 per cent – 1,864,000 people.

That leaves one person in five unaccounted for: neither employed, nor unemployed. It gets more confusing.

According to another set of official statistics, the unemployment rate is just above one million. Grouping people (who are messy) into categories (which are distinct) has always been the statistician’s downfall. Is an ex-Lehman’s banker, currently drinking last year’s bonus in a Goan beach bar, unemployed? What about an ex-miner, who would like to do light work but lives in an industrial area and claims incapacity benefits?

There are 1,071,900 people currently claiming jobseeker’s allowance. Everyone agrees that they are unemployed. But most statisticians also agree that there are plenty of unemployed people who are not on the dole. If your partner works, if you have savings above a certain level, or if you are outside a set age range, then you may not qualify for jobseeker’s allowance. And some people just decide, for whatever reason, not to claim.

The best estimate of unemployment is calculated by the Office for National Statistics. It uses a definition set by a United Nations agency, the International Labour Organisation. This rate counts people who want to work, are available to work, and are actively seeking employment – based on survey data. This brings the rate for August to October – the earliest period for which data is available – to 6 per cent, the highest since 1999.

What, though, of the missing one in five? For the same period, there were 7.9 million people over 16 and below retirement age who were classed as “economically inactive”; 2 million of those were students; 2.3 million said they were looking after a family or home; and another 2 million were long-term sick. None of them is counted as unemployed, whatever definition is used.

But, when questioned, 2.1 million of them said they would like a job. If they were included, the unemployment rate would rise to just under 4 million.

    By counting those left out, total tally would reach 4m, Ts, 18.12.2008, http://www.timesonline.co.uk/tol/news/politics/article5361869.ece

Sterling hits record low against the euro

December 15, 2008
From Times Online
Grainne Gilmore

Sterling tumbled to a new low against the euro today, with some travellers receiving less than €1 for every pound they exchange at airport terminals and train stations.

The euro has risen to a record high of 89.98p, coming close to breaking through the key 90p barrier.

The pound is now at its lowest level since the single currency was introduced in 1999 and has been weakening since the beginning of the year, though the decline has become more marked in recent days as the UK economy worsens.

Britain is regarded, so far at least, to have been hit harder by the global slowdown and financial crisis than the 15-nation eurozone.

This week, new figures are expected to show that UK unemployment is worsening, increasing from 5.8 per cent to 6 per cent, while the number of people claiming jobless benefits is forecast to have risen by 45,000 in November.

Just a few months ago, travellers could be confident of receiving at least €1.15 or €1.20 for each pound, but that amount has fallen to €1 in many foreign exchange outlets.

Sharply falling demand for sterling-denominated assets, such as shares in UK-listed companies, has also helped reduce demand for sterling, which has dragged the pound lower.

But spread-betting companies are reporting a surge in business as thousands of private investors in Britain are joining institutional investors in reckoning that sterling has further to fall.

    Sterling hits record low against the euro, Ts, 15.12.2008, http://business.timesonline.co.uk/tol/business/economics/article5345534.ece

Sterling hits new record low against euro

 

Wednesday, 10 December 2008
The Independent
By Tamawa Desai, Reuters
 

Sterling hit a record low against the euro and a basket of currencies today as pessimism about the UK economy was reinforced by a think tank report showing a sharp contraction in growth.

The report, which said the nation's economy shrank more than many believe in the three months to November, kept expectations high that the Bank of England will continue to cut interest rates aggressively.

The pound extended losses as British finance minister Alistair Darling told parliament on Wednesday that sterling depreciation would help the country's exporters.

By 1507 GMT, the pound had fallen to 87.83 pence versus the euro, its weakest since the single currency was introduced in 1999.

Meanwhile, trade-weighted sterling fell to 79.7, the lowest on a daily basis according to Bank of England records going back to 1990.

"There's really not much good to say about the pound, although it has already fallen a long way," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

Given the prospect of lower interest rates and a rising fiscal deficit, "the risks are still clearly to the downside," he added.

Despite sterling's losses against the euro, it rose 0.6 percent to $1.4829 (GBP=) against a broadly weaker dollar on a slight pullback in risk aversion as global shares gained on news of a tentative agreement to bail out US carmakers.

The National Institute of Economic and Social Research said on Wednesday Britain's economy shrank by a full percentage point in the three months to November and the pace of contraction looked set to accelerate into the end of the year.

"There is every reason to believe that the output decline in the fourth calendar quarter of the year will be larger than one percent in magnitude," it said.

The report came on the heels of dismal data in manufacturing, housing and retail sales on Tuesday, which bolstered expectations that a sharp economic downturn will put more pressure on the central bank to ease rates further.

"Altogether, these readings made a strong case for the United Kingdom ultimately suffering the worst recession in the developed world," Commerzbank analysts said in a research note.

The BoE has cut key interest rates by 300 basis points since October to 2 percent, their lowest since 1951.

BoE policymaker Paul Tucker is appointed deputy governor for financial stability for a five-year term starting next March, and arch policy dove David Blanchflower will step down when his term expires in May, Darling told parliament.

    Sterling hits new record low against euro, I, 10.12.2008, http://www.independent.co.uk/news/business/news/sterling-hits-new-record-low-against-euro-1060664.html

Manufacturing output falls again

 

Tuesday, 9 December 2008
The Independent
By Russell Lynch, PA

Manufacturing's biggest slump in almost 30 years deepened today after a worse-than-expected 1.4 per cent fall in output during October.


October's dire performance represents the eighth successive month of decline in the worst run since 1980, according to the Office for National Statistics (ONS).


This leaves annual output 4.9 per cent down after September's figures were also revised lower.

Overall industrial production, which also includes the mining and utility sectors, fell 1.7 per cent between September and October, at the peak of the crisis in the banking sector.

Paul Dales, of Capital Economics, said "activity all but fell off a cliff" at the start of the final quarter of 2008.


This follows a 0.5 per cent drop in output between July and September - the first in 16 years - as the ailing UK economy lurches into recession.


"The recession is clearly deepening and the downside risks to our forecast that GDP will fall by 1.5 per cent next year are growing," said Mr Dales.


Declines across the manufacturing sector were widespread, with transport equipment the worst hit. Output from firms making vehicle bodies and parts was almost 15 per cent below the previous year in the three months to October.


Car sales have slumped amid worries over "big ticket" spending and yesterday Birmingham-based Wagon became the latest victim, calling in administrators to its UK business and putting 500 jobs at risk.


Meanwhile, output from brick and cement makers was nearly 22 per cent lower in the three months to October - reflecting the current slump in the housing market.


Bank of England rate-setters have slashed interest rates from 5 per cent to 2 per cent in the past two months in a bid to revive the struggling UK economy and experts suggested more cuts to come following today's figures, taking rates to an all-time low.


"We expect interest rates to fall to a low of 0.5 per cent in the second quarter of 2009 and then stay there for the rest of the year," IHS Global Insight economist Howard Archer said.

    Manufacturing output falls again, I, 9.12.2008, http://www.independent.co.uk/news/business/news/manufacturing-output-falls-again-1058577.html

The great credit card scandal

Companies defy ministers

by increasing charges

despite plunging interest rates

 

Tuesday, 9 December 2008
The Independent
By Kate Hughes,
Deputy Personal Finance Editor,
and Andrew Grice

Credit card companies are facing an investigation by competition watchdogs after defying government warnings to improve their lending practices.

An analysis by The Independent has found that the cost of card borrowing has risen over the past three months despite three cuts to the Bank of England base rate. Cardholders are now facing average interest rates of 17.7 per cent on credit cards, up from 16.6 per cent 12 months ago.

The Business Secretary, Lord Mandelson, had given providers two weeks to come up with fair principles to help cardholders manage their debts following a summit with card providers in November. By Thursday, the Government is expecting proposals from the industry on how it will implement fair principles on existing debt, responsibly provide credit and support households in difficulty.

Failing to do so could see the card companies facing investigation by the Office of Fair Trading (OFT), but so far card providers have made no move to reduce the expensive lending rates which so often plunge debtors into further financial hardship.

One government source said last night: "We are not backing off. If the companies don't move, if necessary, we will go down the OFT route."

Only two cards, those designed to track the base rate, have reduced rates since Lord Mandelson's ultimatum and Yorkshire Bank and Clydesdale Bank have gone ahead with increases to the rates and fees they charge their Gold Mastercard customers. Halifax and the Bank of Scotland have also increased balance transfer fees.

A spokesman for Clydesdale Bank said: "The changes in our rates were announced in October and our rates remain very competitive. We fully support the Government's initiatives for helping people in difficulties."

Store card debtors are facing even higher rates despite cheaper borrowing for lenders. The average cost of borrowing is now 25 per cent a year, up from 23.9 per cent this time last year, with no sign of a cut in rates even though the base rate has dropped from 5.25 per cent to 2 per cent over the same period.

But based on the industry's response this week, Lord Mandelson and the Consumer Affairs minister Gareth Thomas are expecting to produce a plan to address the dramatic increases in some cardholders' bills.

A spokeswoman for the Department for Business, Enterprise and Regulatory Reform said: "We've asked lenders to report back by the end of this week and have been in continuing talks with industry following our summit [on 26 November]. We have every expectation that industry will come back with proposals to stop the pockets of bad behaviour that we have identified in risk-based repricing and will continue to work with them to ensure borrowers are treated fairly, responsibly and consistently."

Vince Cable, the Liberal Democrats' Treasury spokesman, said: "The Government has got to get tough with credit card companies determined to make a quick buck out the millions of people struggling to make ends meet. Tough words are worthless unless they are backed up with real action."

Alan Duncan, the Conservatives' business spokesman, accused ministers of pumping out "hot air". He said: "The Government's policy after the banks' bailout has clearly not reached the credit card sector. It has done nothing to clamp down on credit card ownership – particularly by the most vulnerable people."

Industry leaders have been summoned to another meeting with Mr Thomas on Thursday.

Apacs, the UK payments association, denied interest-rate rises were the problem. "Risk-based pricing is not about the base rate at all," said a spokeswoman. "This is about a customer with a card whose APR may go up as a consequence of changes to their circumstances. It is a feature of credit cards that the interest on this unsecured borrowing may be adjusted. If the customer can't pay, the provider has no security on getting the money back and may decide to re-price the cost of using the card. The agreements that were made [at the summit] were about breathing space for customers in difficulty."

Critics of the move believe a half-hearted approach will make little difference to consumers. Martin Lewis, of Moneysavingexpert.com, said: "This ultimatum is absolute nonsense, and shows that Lord Mandelson has never had any connection to credit cards in his life. Is he saying that credit card companies should drop their interest rates in line with the base rate drop, from an average of 18 per cent to one of 15 per cent? To make this work they would actually have to cut their interest rates by 60 per cent to mirror the real changes in the base rate, so if even if every credit card on the market took 3 per cent off their interest rates it would mean nothing."

Credit and store card companies have long been accused of employing dirty tricks to boost income. The order of payments is regularly skewed so that the most expensive debt, with the highest interest rate, is paid off last.

Companies defy ministers by increasing charges despite plunging interest rates, I, 9.12.2008, http://www.independent.co.uk/money/loans-credit/the-great-credit-card-scandal-1058003.html

Schrank

The Independent        7 December 2008

http://www.independent.co.uk/opinion/the-daily-cartoon-760940.html?ino=3

L to R:

Chancellor Alistair Darling,

British Prime Minister Gordon Brown.

Bank of England cuts rates to 2%

Published: December 4 2008 12:00
Last updated: December 4 2008 16:20
The Financial Times
By Norma Cohen

Signs that the economic downturn is gathering pace prompted the Bank of England’s monetary policy committee to cut interest rates on Thursday by a full percentage point to 2 per cent, the lowest level for nearly four decades.

The last time interest rates were at 2 per cent was in the final days of George VI’s reign in 1951 and the previous time lending costs were cut from 3 to 2 per cent was October 26 1939, after Britain entered the second world war.

Explaining its move, the Bank said in a statement that it believed demand was now so weak that “there remained a substantial risk of undershooting the 2 per cent CPI inflation target in the medium term.”

The rate cut, while much larger than the Bank is accustomed to, is smaller than the 1.5 percentage point reduction made at the MPC’s last meeting in November and smaller than the money markets had begun to expect.

The Bank’s move was followed by the European Central Bank which cut its key policy rate by ¾ per cent to 2.5 per cent as central banks around the world attempt to tackle slowing rates of growth. The Riksbank in Sweden cut its interest rates by an unprecendented 175 basis points to 2 per cent and the Reserve Bank of New Zealand cut its main lending rate by 150 basis points to 5 per cent.

The cut by the Bank suggests either that the MPC is less convinced than many private sector economists that deflation is a real possibility, or that it has other concerns about the impact of much lower rates, including worries over the slide in the pound. Sterling on Thursday fell to the lowest level against the dollar for six and a half years and to a record low against the euro.

In its announcement, the Bank pointed to “a number of fiscal measures in train”, both in the UK and abroad, aimed at boosting demand to counteract the current downturn. The minutes of the last MPC meeting showed that some members expressed a desire to see how the fiscal stimulus outlined in the government’s pre-Budget Report might affect demand before making any exceptional moves in interest rates.

The move comes after key purchasing managers’ index readings for the construction, manufacturing and services sectors hit record lows in recent days, with the future orders component of each index predicting that worse is to come.

In making its interest rate decision, the Bank expressed concerns about the flow of credit to businesses and households. “Despite the actions taken to raise bank capital, ease funding and improve liquidity, conditions in money and credit markets remain extremely difficult,” it said.

Ominously, the Bank concluded that it was “unlikely that a normal volume of lending would be restored without further measures.”

Interbank lending markets have seized up again, after a brief breathing spell following the government’s move to provide a £37bn taxpayer-funded lifeline to the nation’s banks. That suggests that the woes of the financial sector are still too great to allow it to resume its normal pattern of lending to households and businesses.

The Bank noted that while CPI inflation remains high at 4.5 per cent, the weaker outlook for activity in the near term and further falls in commodity prices have lowered that profile. The recent decision to cut value-added tax temporarily should also bear down on inflation in the near term, although that effect will be reversed in 2010.

Andrew Smith, chief economist at KPMG, said: ”The battle against deflation is on. Rates are set to fall further, possibly to zero, and soon, as policymakers try to counteract the powerful contractionary forces at work in the economy.

“However, it is unlikely that low interest rates alone will achieve the desired result and the UK may well have to follow the US with unorthodox measures, such as buying up mortgage and commercial debt, to free-up lending and re-liquefy the financial system.”

Ian McCafferty, chief economic adviser to the CBI, the employers’ body, welcomed the cut.

“The economy needs a significant monetary stimulus and the Bank has clearly decided this will be best achieved by another big cut in interest rates. What is critical for business and consumers alike is that this reduction is passed on,” he said.

Stephen Robertson, director general of the British Retail Consortium, said: “This is exactly the type of decisive action we need during these uncertain times. With the threat of inflation fading, the Bank is right to concentrate on jump-starting the economy.

He added: “The Bank’s job is not done. It must continue to cut rates in the new year to get the economy heading in the right direction again.”

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, was more guarded. While describing the cut as a “bold move”, he added: “In our opinion it will not on its own be sufficient to bolster confidence given the scale of the current financial crisis.

“Further significant job losses will be announced in the run-up to Christmas and into the first half of 2009, putting pressure on the Bank to cut rates further. We expect rates to fall to 1 per cent by the end of the first quarter of 2009.”

    Bank of England cuts rates to 2%, FT, 4.12.2008, http://www.ft.com/cms/s/0/07ee3a02-c1eb-11dd-a350-000077b07658.html

House prices fall

at fastest pace in 25 years

December 4, 2008
From Times Online
Rosie Lavan

British house prices tumbled at a record 16.1 per cent in November, marking the sharpest drop in property values for a quarter of a century.

Figures released this morning by Halifax revealed that prices fell 2.6 per cent in November compared with October, and are 16.1 per cent lower than in November 2007.

The year-on-year decline is deeper than falls recorded during the last recession in the early 1990s, and is the biggest drop since 1983.

The shock fall emerged just hours before the Bank of England's Monetary Policy Commitee (MPC) cut the interest rate again by 1 per cent to 2 per cent, after last month reducing borrowing costs by 1.5 per cent to 3 per cent.

The reduction is likely to be accompanied by a rate cut by the European Central Bank, which is predicted to fall by 50 basis points in the 15-nation eurozone.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Ongoing very tight credit conditions, still relatively stretched housing affordability on a number of measures, faster rising unemployment, muted income growth and widespread expectations that house prices form a powerful set of negative factors are weighing down on the housing market."

The average price of a house in the UK is back to the July 2005 level of £163,445, but this is 124 per cent higher — or £90,000 — than the figure in November 1998.

Mr Archer said Halifax's figures had placed further, last-minute pressure on the Bank to deliver a large cut in rates.

IHS Global Insight predicted that interest rates would fall as low as 0.5 per cent in the first half of the new year, and could be reduced even further.

Central banks around the world have cut interest rates ahead of today's moves.

Sweden's central bank today cut its key rate by a record 175 basis points, to 2 per cent, the third reduction since October and the biggest since 1992. It expects rates to remain at 2 per cent throughout next year.

The Riksbank said there was an "unexpectedly rapid and clear deterioration in economic activity since October".

New Zealand also announced a record cut of 150 basis points, bringing its rate down to a five-year low of 5 per cent and acknowledging that further cuts would probably be necessary.

Indonesia made a surprise 25 basis-point cut to its rate. This reduction, the first since December last year, takes the interest rate to 9.25 per cent.

Yesterday, the Bank of Thailand cut rates by 100 basis points to 2.75 per cent, partly in response to the recent political turmoil during which the ruling party was dissolved and the Prime Minister forced out of office.

On Tuesday, the Reserve Bank of Australia surprised with a larger-than-anticipated 100 basis-point cut to 4.25 per cent.

But Mr Archer added that: "...it is highly questionable how much of further interest rate cuts by the Bank of England that mortgage lenders would pass on."

Yesterday, Gordon Brown unveiled a rescue package for homeowners who struggle to meet their mortgage repayments if they lose their jobs or suffer a severe drop in income.

Those with loans of up to £400,000 — typically borrowers on upper and middle incomes — will be able to cut payments, with the taxpayer underwriting the risk of default.

The emergency state guarantee, which will enable homeowners to defer mortgage interest payments for up to two years, was announced unexpectedly in the debate following the Queen's Speech yesterday.

The Prime Minister said eight big lenders which account for 70 per cent of the market — HBOS, Abbey, Nationwide, Lloyds TSB, Northern Rock, Barclays, Royal Bank of Scotland and HSBC — had signed up to the £1 billion plan.

Northern Rock, the nationalised lender, yesterday announced that it would follow Royal Bank of Scotland (RBS) in delaying the issue of repossession orders by six months.

RBS announced that it was taking the same measure on Monday.

    House prices fall at fastest pace in 25 years, Ts, 3.12.2008, http://www.timesonline.co.uk/tol/money/property_and_mortgages/article5284863.ece

New car sales in November

plunge 36.8%

December 4, 2008
From Times Online
Angela Jameson

New car sales plunged in November for the seventh consecutive month, as the economic crisis continues to put a severe brake on transactions.

Car sales for November fell by 36.8 per cent, compared with the same month in 2007, according to the Society of Motor Manufacturers and Traders (SMMT). Just 100,333 new cars were registered in November, marking the steepest fall since June 1980.

The market for private car sales is particularly weak, down 45.1 per cent in November.

The industry is expected to use the latest figures to step up its argument for help from the Government. Several UK car manufacturers have had to put their workforces on short hours or plan production stoppages to reduce the market oversupply.

Paul Everitt, chief executive of the SMMT, said: "November has been another difficult month for the motor industry and, whilst some consumers may have delayed their purchases to take advantage of the recent VAT reductions, overall demand continues to fall."

"Urgent action is now required to ease access to credit and finance, both to support consumers and meet the cashflow needs of the industry," he said.

November's slowdown in sales was steeper than feared and suggests that just over 2.1 million units will be sold in total this year.

The market decline has happened across all sales types, fuel types and segments. Small cars have weathered the decline better than most.

    New car sales in November plunge 36.8%, Ts, 4.12.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/industrials/article5284845.ece

British Consumer Confidence

Drops in November

December 3, 2008
Filed at 4:41 a.m. ET
The New York Times
By THE ASSOCIATED PRESS

LONDON (AP) -- Consumer confidence in Britain hit a new low in November, a survey by the Nationwide Building Society showed Wednesday, with almost half of respondents expecting the economy to worsen over the next six months.

Nationwide said its consumer confidence index dropped to 50, down from 56 in October.

Three quarters of respondents believe the economic situation is bad. Some 45 percent expect the situation to be worse six months from now, up from 38 percent in October; 22 percent thought it would be better, up five points.

However, more people thought it was a good time to buy a house or car -- 26 percent held that view compared to 18 percent in October. Nationwide said this seemed to reflect a belief that it's a good time for bargain hunting.

Sixty-five percent of the respondents said they believe their own household income won't change over the next six months.

''Reports of job cuts have almost certainly impacted on sentiment about the present and future employment situation, causing purse strings to tighten further, even as the festive season gets under way,'' said Fionnuala Earley, Nationwide's chief economist.

It remains to be seen, she added, whether recent moves by the government, including a cut in the sales tax, will boost confidence.

Nationwide's survey is based on interviews with 1,000 people between Oct. 20 and Nov. 16, and results had a margin of error of plus or minus 3 percentage points.

------

On the Net: http://www.nationwide.co.uk/consumer--confidence 

    British Consumer Confidence Drops in November, NYT, 3.12.2008, http://www.nytimes.com/aponline/business/AP-EU-Britain-Economy.html

Queen's speech:

Banks face fines

for breaking new lending rules

The move comes after a flood of complaints from small firms
whose banks have suddenly raised their fees
or hit them with more restrictive loan arrangements

Wednesday December 3 2008
09.15 GMT
Guardian.co.uk
Graeme Wearden
This article was first published on guardian.co.uk
at 09.15 GMT on Wednesday December 03 2008.
It was last updated
at 09.26 GMT on Wednesday December 03 2008

Britain's banks will face potentially huge fines if they refuse to lend fairly to small businesses and individuals under legislation to be announced this afternoon.

The Queen's speech is expected to include making the current voluntary code of practice for the banking sector legally binding, as part of several major reforms to the financial sector contained in a new Banking Reform bill.

The move comes after a flood of complaints from small firms whose banks have suddenly raised their fees or hit them with more restrictive loan arrangements, even if they had been trading profitably for years.

Having bailed out the banking sector with a £500bn rescue package, the government is concerned that small businesses could be driven to the wall as the repercussions of the credit crunch continue to batter the UK economy.

The existing code of conduct sets out the minimum standards that banks must provide to their customers. This includes lending responsibly, giving help for customers who hit problems, and more transparent bank charges.

However, the most severe penalty for a breach is only to be "named and shamed". The plans that are expected to be announced today will include unlimited fines for banks that break the rules and refuse to improve their service. It will be policed by the FSA.

HBOS announced new support for businesses this morning. Small and medium-sized firms who are customers of Bank of Scotland will be offered funding worth £250m, which will be available at up to 80 basis points below standard lending rates, it said. The company added that it will guarantee pricing on Bank of Scotland small business customer overdrafts for 12 months from the date of arrangement for new loans and renewals.

HBOS is receiving a multi-billion pound injection from the government as part of its rescue merger with Lloyds TSB.

A row is already brewing between HBOS and the FSA over its tracker mortgages. Like several other lenders it operates a "collar" that stops the rate of repayment falling below a certain point. The Bank of England is expected to cut interest rates again tomorrow, and the FSA has already indicated that it expects any reduction to be passed on – even it that would take repayment levels below the collar.

The Banking Code:

The Banking Code was last updated in March this year, when these changes were added:

• A new commitment on responsible lending
• A new commitment on current account switching
• More help for customers who may be heading towards financial difficulties
• Strengthened credit assessment practices to enhance responsible lending
• Clearer information about products, including pre-sale summary boxes for unsecured loans and savings accounts
• Prohibition of account closure as a result of a customer making a valid complaint
• Information on how to find lost accounts
• Greater clarity of cheque clearance times
• Clearer information about credit cards and credit card cheques, upgrading current accounts,
moving or closing branches, alternatives to Chip and PIN, and protecting accounts

Queen's speech: Banks face fines for breaking new lending rules, G, 3.12.2008, http://www.guardian.co.uk/business/2008/dec/03/banking-queens-speech