UK economy emerges from recession

The UK economy has come out of recession, after figures showed the economy had grown by 0.1% in the last three months of 2009.

The economy had previously contracted for six consecutive quarters – the longest period since quarterly figures were first recorded in 1955.

There have been recent recovery signs – last week UK unemployment fell for the first time in 18 months.

The UK’s had been one of the last major economies still in recession.

Europe’s two biggest economies – Germany and France – came out of recession last summer. Japan and the US also exited recession last year.

The UK recession began in the April-to-June quarter of 2008.

During 18 months of recession, public borrowing increased to an estimated £178bn, while output slumped by 6%.

First estimates of how the economy has performed are made with about 40% of the data available, and Investec economist David Page has warned there is “plenty of room for surprises” in the figures.

sourced from the BBC

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Iceland approves new Icesave deal

Iceland’s parliament has approved plans to repay 3.8bn euros (£3.4bn) to savers in the UK and the Netherlands.

 

Icesave collapsed last October

The money will go to the British and Dutch governments, who partially compensated savers when the Icesave online bank failed.

More than 320,000 savers lost out when the bank collapsed in 2008.

A bill on the measure, narrowly approved against strong opposition, was seen as crucial to Iceland’s bid to join the EU and rebuild its economy.

The bill was passed by 33 votes to 30. The Icelandic government had threatened to resign if the measure was rejected.

“Approving the bill is the better option and will avoid even more economic damage,” Finance Minister Steingrimur Sigfusson said during the debate.

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In White House meeting, Obama calls on banks to increase lending

 sourced from The Washington Post 

By Binyamin Appelbaum and Michael A. Fletcher

Washington Post Staff Writer
Tuesday, December 15, 2009

President Obama exhorted the nation’s biggest banks on Monday to make “extraordinary” efforts to increase lending, even as some of those firms are racing to distance themselves from government control.

The nation’s most powerful bankers sat in the Roosevelt Room at the White House and nodded as the president spoke, but some executives and industry officials said afterward that increasing lending is largely beyond their ability.

Meanwhile, Citigroup and Wells Fargo announced plans Monday to spend billions of dollars — not on lending, but to repay federal aid. Citigroup chief executive Vikram Pandit missed the White House meeting to rally investor support.

Bank executives say they itch to make profitable loans, as many as possible, but are struggling to find qualified borrowers. They also say that the administration is asking for increased lending even as it pursues financial reforms that will limit the ability of banks to make loans.

Some note that a recession caused by an orgy of lending must be solved in part through greater restraint.

Obama has come under increasing pressure to demonstrate his concern for the plight of Americans caught in a rising tide of joblessness, even as the larger economy appears headed to recovery. The White House portrayed Monday’s meeting as a chance for the president to channel the anger of Americans who think federal programs intended to revive the broader economy have succeeded only in restoring Wall Street’s profitability.

“America’s banks received extraordinary assistance from American taxpayers to rebuild their industry,” the president said after the meeting. “And now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.”

Obama added that he expects not just effort but “results.”

Some administration officials privately conceded that borrowing always declines during recessions, and that they are struggling to find effective ways of spurring new lending. Furthermore, the administration’s options continued to be constrained by the belief of many officials that meddling in the details of banking is counterproductive.

The administration also is surrendering a measure of leverage over the industry as banks repay federal aid provided under the Troubled Assets Relief Program — although officials are eager to shed the political baggage of aiding big Wall Street firms. With the announcements Monday by Citigroup and Wells Fargo that they would repay federal aid, all of the nine major banks that got money late last year will be on track to pay it back.

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London 'damaged' by bonus tax, Barclays chief says

London’s role as a leading financial hub may be “damaged” by the new bonus tax, Barclays chief John Varley has told the BBC.

Mr Varley is the first senior British banker to attack the one-off 50% tax on large bonuses for bankers recently announced by the government.

“I think that London could well be damaged by this,” he said.

The Barclays chief executive also criticised Labour for not ensuring a “predictable tax environment”.

The bonus levy applies to bonuses of more than £25,000, and lasts until April next year. France has announced similar plans.

The tax is payable by banks, with bankers still having to pay income tax on any bonus they receive as usual.

Mr Darling predicted in his pre-Budget report that the tax would raise £550m, though banks have claimed it would raise far more.

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Darling 'must cut £36bn', IFS think tank says

Chancellor Alistair Darling has not revealed all the cuts needed to cut the UK’s deficit, experts have warned.

Alistair Darling says health and education will be ring-fenced

Public spending is facing a £36bn squeeze from 2011 – with £15bn of the cuts needed yet to be identified, the Institute for Fiscal Studies has said.

With health and education protected, the axe would fall on defence, housing, transport and higher education.

Justice Secretary Jack Straw said the IFS had not taken into account savings the government has already made.

‘Political statement’

He told BBC News: “We’ve already spent £4bn less on unemployment benefits and income support for the unemployed than was anticipated.”

Because they are not discussing priorities openly a great deal of damage is being done Vince Cable, Lib Dem Treasury spokesman Nick Robinson on the IFS report Darling denies pre-election ‘con’

The government hoped to make further savings by “moderating the rate of increase of unemployment”, he added.

Mr Darling has continued to face accusations that he is withholding the full extent of the cuts required until after the election.

And BBC political editor Nick Robinson said he understood the Treasury and No 10 have been at odds over the issue of public spending next year.

Gordon Brown had won out, he said, in his insistence that existing commitments to boost spending by £30bn must be maintained.

Philip Hammond, for the Conservatives, said the IFS report “underlines the fact that the PBR… was a political statement designed for electioneering purposes rather than to address the real needs of the country”.

In its report, the IFS estimates the cost to families of paying back the national debt is £2,400 a year for eight years.

This would come from tax increases, such as the 0.5% rise in National Insurance from 2011 announced by Mr Darling in his pre-Budget report on Wednesday, and the impact of spending cuts.

The IFS says whichever party wins the next general election will have to cut 6.4% per year between 2011 and 2014 if they want to protect schools, hospitals and increase overseas aid, as both Labour and the Conservatives say they do.

The think tank predicted “severe cuts” elsewhere, of the kind not seen in Britain since the late 1970s, potentially across departments such as housing, transport, higher education and even defence.

The clampdown could even mean that all of Labour’s increase in public spending since it came to power could be unwound by 2018, the experts warned.

The IFS also estimated that Mr Darling had a 25% chance of missing the government’s own Fiscal Responsibility Bill target, compelling it to halve Britain’s record £178bn budget deficit in four years.

But they were also critical of Conservative plans to tackle the deficit, saying it had a 16% chance of success.

Of the £36bn in public spending cuts needed, the IFS said £12bn will come from efficiency savings – although it warns that the government has fallen short of its previous targets for efficiency savings – and £3.4bn will come from the public sector pay cap announced in the pre-Budget report.

Union anger

A further £1bn will come from cuts to public sector pensions and £5bn from already announced scaling back of spending programmes like IT, legal aid and prison management.

That would leave £15bn of unidentified cuts.

The IFS also warns that debt levels could remain high “for a generation” – at about 60% of national output – without policies to tackle the impact of the ageing population on the UK’s public finances.

Lib Dem Treasury spokesman Vince Cable, who argues that no areas of public spending should be off limits when it comes to cuts, called for a “proper debate” on where the axe should fall.

“Because they are not discussing priorities openly a great deal of damage is being done,” he told BBC News.

TUC General Secretary Brendan Barber called for “radical new thinking” to avoid cuts to services and warned of possible industrial action over the “unfair” public sector pay freeze.

He said there should be a “fairer contribution from the wealthiest” to help pay off Britain’s debts.

But BBC economics editor Stephanie Flanders said the IFS analysis also suggested the tax rises in the pre-Budget report would “overwhelmingly” impact on the top 10% of earners.

“Their income, if nothing else changes, will be cut by 5% by 2012,” she added.

From The BBC

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Bank set to hold interest rates

The Bank of England is expected to announce no change in policy when it reveals the outcome of its most recent meeting later.

The Bank of England has left interest rates unchanged for eight months

The Bank is likely to hold interest rates at 0.5% and leave its £200bn asset purchase programme unchanged.

Last month, the Bank added £25bn to its quantitative easing programme, which involves printing money to buy assets from firms to stimulate the economy.

It is expected to wait until the scheme runs out before taking further action.

‘Scene set’

In November, the central bank said that the fragile economy and the risk of inflation falling below its target of 2% had led it to extend its quantitative easing scheme, which runs out in January.

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\Yorkshire and Chelsea building societies agree merger Yorkshire and Chelsea building societies agree merger

The Yorkshire and Chelsea building societies have confirmed they will merge to create a large rival to the UK’s biggest society, the Nationwide.

The deal would create a society with 2.7 million members, a network of 178 branches and assets of £35bn.

The merger is considered a rescue for Chelsea, which lost significant sums it had invested in failed Icelandic banks.

The merger needs to be agreed by the societies’ members, who will not receive a windfall from a deal.

The two societies will retain their brand names under the proposals, but the enlarged society will be called the Yorkshire Building Society.

Most of the Chelsea’s head office in Cheltenham will close, with the enlarged society being run from the Yorkshire’s head office in Bradford.

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Alistair Darling defends secret loans to RBS and HBOS

The Chancellor, Alistair Darling, has defended the Bank of England’s secret loans to RBS and HBOS in an emergency statement to parliament.

Mr Darling said that any disclosure or leak of the operations would have seriously jeopardised the financial stability of the system as a whole.

He added that there had been no cost to the taxpayer.

It emerged on Tuesday that the two banks were secretly given £61.6bn last autumn to keep them afloat.

Both banks had repaid the loans by January 2009.

Filed under: banking sector, bbc, British Goverment, Alistair Darling, £61.6 bn, banking sector, banks, bbc, business, HBOS, rbs, secret bank loans, UK, UK economy