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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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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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.

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HBOS and RBS received secret bank rescue loans

The Bank of England has revealed for the first time that it lent Royal Bank of Scotland (RBS) and HBOS £61.6bn in emergency funding last autumn.

Bank governor Mervyn King told a committee of MPs it “was to prevent a loss of confidence spreading through the financial system as a whole”.

The money was repaid in full by January this year, he added.

A spokesman for the prime minister said it was “a powerful reminder” of how the banking system had nearly collapsed.

 

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Will the recession end on Friday 23th October

Will the UK be out of recession from Friday 23rd October, or will the financial and  fiscal  results show we are still very much in recession.

Lets wait and see. (the answer is no)

Record recession for UK economy

The UK economy unexpectedly contracted by 0.4% between July and September, according to official figures, meaning the country is still in recession.

Retail sales were flat in September, which did not help overall growth

It is the first time UK gross domestic product (GDP) has contracted for six consecutive quarters, since quarterly figures were first recorded in 1955.

But the figures could still be revised up or down at a later date, because this figure is only the first estimate.

GDP measures the total amount of goods and services produced by a country.

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Will the recession end on Friday 23th October

Will the UK be out of recession from Friday 23rd October, or will the financial and  fiscal  results show we are still very much in recession.

Lets wait and see. (the answer is no) 22/10/09

Record recession for UK economy

The UK economy unexpectedly contracted by 0.4% between July and September, according to official figures, meaning the country is still in recession.

Retail sales were flat in September, which did not help overall growth

It is the first time UK gross domestic product (GDP) has contracted for six consecutive quarters, since quarterly figures were first recorded in 1955.

But the figures could still be revised up or down at a later date, because this figure is only the first estimate.

GDP measures the total amount of goods and services produced by a country.

Quarterly growth of 0.2% had been expected in the figures from the Office for National Statistics (ONS), although expectations had been tempered by recent figures showing no growth in retail sales in September, and a 2.5% decline in industrial output in August.

ANALYSIS Hugh Pym, BBC chief economics correspondent There’s no disguising how grim these figures are. Almost every City analyst expected there to be positive growth in the third quarter. Instead it was negative. That means the recession in the UK is the longest since modern records began in the 1950s. Germany, France and Japan have all come out of recession technically and the UK hasn’t. The decline has continued. And the markets didn’t really like the look of that. The foreign exchange markets have been selling the pound. There’s every indication that it’s going to be a long hard slog for quite some time to come as the British economy tries to turn itself round. Q&A: What is GDP? Where recession has hit hardest Flanders: First draft of history Redundancy Special report: UK economy

The unexpected decline in the services sector was the key factor behind the drop, with the distribution, catering and hotels sector performing particularly badly.

The UK economy’s reliance on the service sector, and financial services in particular, may be the reason why it is still in recession when partners such as France and Germany exited earlier in the year.

The economy contracted 5.2% compared with the same period last year, which was marginally better than the record figure of 5.5% in the previous three months.

It has now contracted 5.9% from its peak before the recession began.

The worse-than-expected GDP figures are likely to make the Bank of England consider extending its policy of quantitative easing.

Quantitative easing is the central bank’s policy of printing money and using it to buy bonds from banks and other companies to help stimulate the economy.

“Back in August we had a worse-than-expected second-quarter GDP number and that is the reason that the Bank of England extended the quantitative easing programme,” Bronwyn Curtis from HSBC told the BBC.

‘Awful’

The £175bn already announced for the quantitative easing programme will have been spent by next month, so the strength of the third quarter GDP number will be important in deciding whether to extend it.

Indeed, at the Bank’s current rate of spending, it is expected to have spent the whole £175bn in the next week.

Struggling to find work in the recession

As the next Monetary Policy Committee meeting, at which quantitative easing decisions are taken, is not until 4 November, that would leave it with a week with no extra cash to pump into the economy.

The figures were “awful with no positive news” according to James Knightley at ING.

“This clearly suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, although [it] is not a foregone conclusion.”

‘Help for business’

The pound fell more than a cent against the US dollar following the release of the figures, with traders particularly concerned that the UK may turn out to be the only major economy still in recession.

It is also worrying that the decline has continued despite the stimulus measures that the government and the Bank of England have introduced.

“Continued intervention – including help for businesses to access finance, and incentives to promote investment – is still needed,” said David Kern, chief economist at the British Chambers of Commerce.

“Above all else, business confidence must be nurtured, to ensure that recovery is not further delayed.”

‘Deeply disappointing’

Chancellor Alistair Darling said he had never expected to see growth before the end of 2009.

Chancellor Alistair Darling: ”Confidence is beginning to return”

“Our job is to support the economy as we come through towards recovery,” he said.

“[Growth] will come – I’m confident about that – and I’m confident that businesses and people generally will begin to see a difference, but it will take time.”

Shadow chancellor George Osborne described the figures as “deeply, deeply disappointing”.

There are many millions of people who will be deeply concerned to see that Britain is still in recession six months after France and Germany came out of recession,” he told the BBC.

“It destroys the myth that Britain was better prepared.”

Liberal Democrat Treasury spokesman Vince Cable said the figures were “a cold blast of realism”.

“We’ve had a lot of talk recently based on a booming stock exchange and prices of luxury houses in London that somehow this problem was at an end, and it isn’t,” he said.

One of the measures expected to be a particular help in the final quarter of the year is the change in VAT.

The rate of VAT is due to return to 17.5% from 15% at the beginning of January and consumers are expected to step up their purchasing ahead of that increase.

Sourced from The BBC

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Full impact of recession yet to hit UK public sector, study claims

Research says that effects of downturn will not hit some parts of Britain for several months – and that local councils need to prepare for this ‘aftershock’

 

The full cost of the worst global downturn since the second world war has yet to hit Britain’s local and central government finances, new research reveals .

Analysis by data company Experian shows that the recession – in terms of unemployment, debt, fraud and increasing demand for public services – will not hit some areas of the UK for another seven months and, in some places, will be felt for many years after growth resumes.

Experian found that the south, from Kent through to Cornwall, was feeling the least impact from the recession; the midlands, Wales and the north-east the severest impact; with Scotland between the two extremes.

Local authority areas that would be hit hardest, it said, were Blaenau Gwent, Kingston-upon-Hull, Inverclyde, Glasgow and Wolverhampton. Areas that would suffer the least included the City of London, Kensington and Chelsea, and Westminster.

Charlotte Hogg, managing director of Experian, said: “The tremors of the recession may have been felt in many households and businesses, but local and central government now needs to brace itself for the aftershock.

“So far, the public sector has been cushioned by government investment and spending. But with unemployment rising, revenues falling and the need for public spending cuts, local authorities need to think how they can do more for less.”

Over the next 10 years, Experian expects London, Edinburgh and Leeds, as well as a number of other major northern cities, to prosper the most. However, many Scottish locations such as Dumfries and Galloway, East Dunbartonshire, South Ayrshire and Argyll and Bute as well as English local authorities including Copeland, Malvern Hills, Weymouth and Portland, West Somerset and Stafford will take much longer to recover from recession due to persistent unemployment and deprivation problems.

According to the research, the people who will experience the greatest levels of financial stress are young single people on limited incomes who rent small flats from local councils or housing associations, and older pensioners who have found their retirement incomes eroded by inflation and are dependent on state pensions.

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Brown optimistic over UK economy

Prime Minister Gordon Brown has painted an optimistic prediction for the economy, saying it was “simply not true” that tough times are ahead.

Gordon Brown is optimistic about the UK’s economic growth

Mr Brown told the Daily Telegraph that the action the government had taken was bringing the economy around.

“We’ve said that the economy will grow by 1.5% next year and more people are moving towards our position,” he said.

Mr Brown’s assessment of the rate of recovery contrasts with the Treasury’s forecasts for annual growth of 1.25%.

And the IMF has made a prediction of 0.9%.

Mr Brown said: “If you have a growth policy for Britain, get unemployment down, get the economy moving forward, then Britain can have upgrowth,” he said.

“I think people have moved closer to our view that Britain is capable of coming back to growth at a higher rate next year than people were originally assuming, and higher rates in the future.”

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Brown urges G20 to keep spending

Mr Brown told the summit the global economy was at a critical juncture

It would be “a serious mistake” for rich nations to scale back plans to support the global economy, Prime Minister Gordon Brown has said.

Mr Brown told a meeting of G20 finance ministers that despite “tentative signs of recovery”, cutting spending could cause another “downward lurch”.

He called on ministers to fully implement the $5tn fiscal expansion plan agreed at last April’s summit.

Mr Brown also said there must be new global “binding rules” on bankers’ pay.

‘Exit strategies’

Mr Brown told the meeting at the Treasury that the global economy was now at a “critical juncture”.

Germany and France, which are both officially out of the recession, want the G20 to start discussing “exit strategies”, but Mr Brown warned against any such move.

He said it could lead to a reduction in growth and employment and “worsen governments’ debt positions over the longer term”.

“It is clear in my view that too early a withdrawal of vital support could undermine the tentative signs of recovery we are now seeing and lead to a further downward lurch in business and consumer confidence,” he said.

“The stakes are simply too high to get these judgements wrong, so to decide now that it is time to start withdrawing and reversing the exceptional measures we have taken would in my judgement be a serious mistake.”

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Iceland to pay back Icesave cash

The Icelandic parliament has voted in favour of repaying more than $5bn (£3bn) to the governments of the UK and the Netherlands.

The governments will be reimbursed over 15 years

  

The so-called Icesave bill will reimburse funds paid by the governments to compensate those who lost money in the Icelandic online bank Icesave.

About 400,000 savers lost their money when its owner Landsbanki collapsed last year.

The bill has enraged many in Iceland, who fear it might bankrupt the nation.

The deal was agreed in June, but was only passed after an amendment was added setting various limits to the payments.

‘Fairness’

The Icesave bill’s passage means that the Icelandic government has agreed to guarantee the repayment of the £2.3bn loan the UK government made last year to ensure that none of its savers lost money.

The amendments will now have to be agreed by the UK and the Netherlands.

“It is my sincere hope after this vote, that the UK and Holland will show us understanding and fairness in this matter,” Iceland’s Prime Minister Johanna Sigurdardottir said after the vote in parliament.

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