UK to sink further into red than any major country, warns OECD

The UK is predicted to sink further into the red than any other major developed country next year, according to the Organisation for Economic Co-operation and Development (OECD).

The fiscal deficit is expected to rise to 14 per cent of economic output in 2010, compared to an average of 8.75 per cent in the 30 most developed markets, it says in a report.

The OECD warned that "public finances have deteriorated sharply" since the beginning of the recession and called on the UK to continue to develop "a strong and credible" framework for reducing the ratio of debt to output.The report said the downturn in economic activity had pushed up unemployment and reduced wage growth inflation. And still they open the gates...

"To improve stability, the government should continue to develop a concrete and comprehensive plan to ensure that debt is on a declining path once recovery takes hold," the OECD said.

The organisation said the state of the UK's balance sheet meant the possibility of extra stimulus to the economy was curtailed.

Ireland, the US and Spain are all expected to have fiscal deficits above the average figure next year, the report said.

It also said the UK economy was likely to recover "only mildly" in 2010, with any return to health dependent on an upturn in the housing market and credit availability.

The report said the downturn in economic activity had pushed up unemployment and reduced wage growth inflation.

It predicted that UK unemployment, which currently stands at a 12-year high of more than 2.2 million, will "rise substantially" and "labour market conditions will remain unfavourable for a long period".

"While labour market flexibility remains relatively high in the United Kingdom, policies to help the unemployed remain employable should remain a priority," it said. continues here

Retailers suffer worst trading conditions for 25 years

The high street is suffering its most difficult trading conditions for at least 25 years with a "vast number" of retailers expected to go bust in the New Year, figures showed yesterday.

The research came as administrators at Woolworths said it would close all of its stores by the first week of the New Year, with the loss of nearly 30,000 jobs, unless a last-minute buyer was found for the business.

It is expected to become the most high profile of a long list of retail failures, as the recession bites.

The business group CBI warned yesterday that shops were suffering from their weakest trading since at least 1983. The warning was just one of a number to highlight the deteriorating state of the economy.

:: The number of people out of work rose by 137,000 to 1.86 million in the three months to October – the highest level since 1997.

:: Minutes showed that the Bank of England considered cutting interest rates by more than 1 percentage point earlier this month but did not because they feared it would cause the pound to collapse.

:: The pound sunk to a new low of against the euro, falling 2.4 per cent to €1.08

The CBI figures showed that 67 per cent of 20,000 shops it polled in its respected monthly survey said sales volumes were lower in the first half of December compared with a year ago.

The number of retailers reporting a fall in sales versus a rise fell to the weakest reading since the survey began in 1983.

Nick Bubb, retail analyst at Pali, predicted that the poor state of the high street would lead to yet more businesses going bust in the New Year, as they struggle to attract consumers and can no longer afford to pay their rents.

"There will be a vast number of administrations in the next few weeks," he said.

Neville Khan, the administrator of Woolworths, admitted it had been difficult to break the news to the company's 22,000 permanent staff and 5,000 temporary workers.

Up to 500 staff at its warehouses will also lose their jobs. Many more jobs are at risk in the supply chain, with 500 firms owed money by Woolworths.

The stores will close in stages starting on December 27, with the final store closed on January 5.

TUC general secretary Brendan Barber said: "This is a terrible blow to Woolworth's staff and to the firms and jobs that rely on the chain's custom. It will also mean a further dent to business and economic confidence and less spending power in the economy."

The administrators plan to pump 50 million products into the stores in the run up to this weekend in an attempt to persuade shoppers to visit the stores for a final time.

The X-Factor single – Alexandra Burke's version of Leonard Cohen's Hallelujah – will be on sale for £3.17, a discount to the standard £3.99 at most shops, as part of the "closing down sale" which is likely to see the price of many goods cut by 70 per cent.

Other retailers, including Marks & Spencer and Boots, announced yet more discounts yesterday. M&S is knocking 30 per cent off all knitwear.

While the High Street has suffered, online retailers have enjoyed a record year and experts expect today (thu) to be another busy day.

Shoppers need to order their goods by the end of the day at several retail websites to guarantee delivery by Christmas. These include Borders and Boots, but other online stores have set the deadlinen at midnight on Friday.

Most economists believe that the cut in VAT from 17.5 per cent to 15 per cent and the swathe of discounts have failed to save the high street from bearing the brunt of the impending recession.

Andy Clarke, chairman of the CBI distributive trades panel, and retail director of Asda, said: "The next week will be nail-bitingly tense for retailers as they pin their hopes on a last-minute Christmas dash.

"We have already seen many stores bringing forward their sales and discounting goods deeply in order to entice customers into the shops. But with shoppers continuing to watch their pennies, it seems many are holding off doing their Christmas shopping in the hope of bagging a bargain. continues here

ECONOMIC DOWNTURN 'WILL DEEPEN'

The head of Barclays bank predicted that the economic gloom gripping the UK would deepen further, with house prices set to tumble as unemployment figures soar.

John Varley, group chief executive of Barclays, painted a bleak outlook, predicting that property prices could fall by up to 30%.

In an interview with Jeff Randall Live on Sky News, the bank boss also criticised mortgage borrowing levels over the last decade.

The comments will be seen as highly significant in the City as they come from such an eminent figure.

Mr Varley warned that the UK was only "halfway" through the slump with house prices set for even greater falls.

He said: "Our view was that from the top to the bottom, you would see a fall of something like 25 to 30%.

"I suspect we're about halfway through that at the moment. I mean that slowdown, the negative house price inflation started in 2007, it's accelerated in 2008.

"We're probably about halfway through that period, so in other words we've got another 10 to 15% to fall between now and the end of next year. That would be our assessment." continues here

First full-year slump since 1940s, says IMF

A stark warning from the IMF that the world’s developed economies are collectively set to endure their first full-year contraction since the Second World War, triggering a global recession, sent shares plummeting again on both sides of the Atlantic. 

In its bleakest assessment yet of rapidly worsening global prospects, the International Monetary Fund predicted that industrial economies as a whole will shrink through next year by 0.3 per cent, in the worst such slump of the postwar era. 

The IMF said that the toll imposed by the downturn across the West would sap the strength of the world economy and cut global growth next year to an anaemic 2.2 per cent. That is down 0.8 points from its last forecast, made only a month ago, and is below the 2.5 per cent threshold at which the world economy is judged to be in the grip of global recession. 

Shares plunged in New York, in London and across Europe as the IMF’s grim prognosis fuelled alarm among investors about the economic peril now confronting the world.  

In London, the FTSE 100 index plunged by another 258.33 points, or 5.7 per cent, to 4,272.41, leaving it down by more than a third so far this year. In Europe, Germany’s Dax index sank 6.8 per cent, while France’s CAC 40 closed down 6.4 per cent. 

In New York, the Dow Jones industrial average of leading US blue chips sank by 4.85 per cent, and the broader-based S&P 500 index fell by more than 5 per cent, leaving American equities nursing their worst two-day loss since October 1987. 

As leaders, finance ministers and central bank governors of the key Western and emerging market economies prepare for two weekends of crisis talks – with “G20” meetings in São Paulo this weekend and in Washington next Saturday – the IMF urged governments to ramp up tax and spending measures to shore up global economic activity. 

“There is a clear need for additional policy stimulus relative to what has been announced so far,” the fund said. “Room to ease monetary policy should be exploited.” 

It added: “Financial stress is likely to be deeper and more protracted than envisaged [in its October forecast].” 

The IMF’s call for still more far-reaching measures to boost global growth came as it drastically cut its already dire forecasts for all of the world’s big economies. It now predicts that the US economy will shrink by 0.7 per cent next year, compared with its October forecast of meagre 0.1 per cent growth. In the eurozone, GDP is expected to drop by 0.5 per cent, down from the fund’s October expectation of a 0.2 per cent expansion. Britain is now forecast to bear the brunt of the global slump, with its GDP plunging by 1.3 per cent in what would be the worst year for the UK since the economy shrank by 1.4 per cent in 1991. 

In emerging and developing countries, the IMF now expects growth next year of 5.1 per cent – down a full percentage point from its October view as the knock-on impact of the West’s plight ripples around the world. 

Olivier Blanchard, the IMF’s chief economist, said that although action by the world’s governments and financial authorities to stem the crisis had been aggressive and comprehensive, further flare-ups in the economic crisis were likely. “We can’t be sure that there are no landmines left in the field,” he said. 

Mr Blanchard added that the spectre of Japanese-style deflation also loomed over the developed economies, although he believed that the probability of such a trend, with prices generally falling on a sustained basis, was still small. He cautioned that in some countries, such as the US where interest rates now stand at 1 per cent, there was only limited room left to shore up activity with rate cuts, so that governments would have to resort to using fiscal policy.  continues here
 

Tighten your belts: Downturn could be the worst for half a century

Britain will suffer its worst downturn in at least 50 years, a former Bank of England official has predicted. 

The forecast comes as figures are expected to show today that the economy has shrunk for the first time in 16 years. 

Danny Gabay, of City consultants Fathom, said UK recessions have become progressively worse in recent decades, both in depth and duration.


Forecast: Downturn could be the worst in at least 50 years

Mr Gabay, a respected figure who has worked for the Bank of England, said Britain has suffered seven recessions since the mid-1950s.

The average length has been nine months, but the past two, in the beginning of the 1980s and the beginning of the 1990s, both lasted for more than a year.

'It is hard for us to think that the coming one will be milder than the average of the past,' he said.



'Indeed, the coming recession will combine elements of the 1990 housing-led recession and some elements of the 1970s oil shock-led decline.

'With a great big global credit squeeze layered on top, it could very well break records.'

Adding to the gloom, former U.S. Federal Reserve chairman Alan Greenspan called the financial turmoil a 'once in a century credit tsunami'.


Gloom: Former chairman of the Federal Reserve Alan Greenspan called the turmoil a once in a century tsunami

He said the implosion of western banking giants had left him in 'a state of shocked disbelief'.

Economists expect today's figures to show the UK economy contracted by 0.2 per cent in the three-month period ended in September.

That would be the first time the economy has shrunk since the second quarter of 1992, when Conservative Prime Minister John Major was in power.

A recession is defined as two consecutive quarters of falling output.

The figures will put the final nail in the coffin for Gordon Brown's claims to have ended Britain's record of 'boom and bust'.

Worries about the figures forced sterling down to fresh lows against the dollar last night, trading at $1.60. Stocks swung wildly between gains and losses in the City and on Wall Street as the febrile mood battered markets.

Oil prices bounced back above $69 a barrel yesterday as the Arab-dominated oil cartel OPEC prepared to slash supplies to force up the price of crude.

Both the Prime Minister and Bank of England Governor Mervyn King have warned this week that a downturn is all but inevitable.

The Bank of England is under pressure to slash rates sharply to alleviate some of the pain.

But if sterling continues to fall, it could restrict Governor King's room for manoeuvre. A weaker currency drives up the cost of imports and therefore inflation, restricting scope for rate cuts.

The Bank lowered its official rate by a half point to 4.5 per cent on October 8.

Minutes from its emergency meeting on Wednesday suggested that another cut could be on the cards as soon as next month.

Yesterday the financial turmoil spread further across the world, as emerging markets suffer from the credit contagion.

Iceland, Pakistan, Hungary, Ukraine and Belarus have all been forced to ask the International Monetary Fund for loans to prop up their economies.

Traders also voiced concerns about the health of Russia's economy, which is heavily dependent on oil and gas exports.

Last night Lord Mandelson vowed that ministers would not 'wrap our heads in a blanket' and hope the global recession would go away.

The Business Secretary told private and public sector professionals at the Northern Regeneration and Renewal Summit in Manchester that Gordon Brown would lead the country through the 'storms' of the current financial climate.

A leading cancer charity is preparing to slash its budget by up to 3643million over the next five years as the credit crunch hits fundraising.

Cancer Research UK needs to make the drastic cuts following 'the dramatic decline in the economy' over the past year, according to an internal report. continues here

Credit crunch could lead to crime wave, Home Office warns Downing Street

The economic downturn is set to lead to more crime, fewer police, more illegal immigration and a rise in far right extremism, a leaked Home Office letter reveals.

A blunt assessment of the pressures that a recession will bring on law and order is detailed in a document which is to be sent to Number 10 from Jacqui Smith, the Home Secretary. 

It outlines the potential rises in crime, including violent crime, that could occur because of the credit crisis. Overall crime is expected to rise as a result of the more difficult economic times, which could also fuel terrorism, it warns. 

The document also claims there will be an increase in "hostility" towards migrants as people question the financial assistance newcomers are given by the state. 

The Conservatives said the revelations "ripped the veil" off complacent statements made by ministers about improving performance at the Home Office. In particular there is concern about lack of resources at Britain's border security operations. 

The letter - titled 'Responding to Economic Challenges' - says in the tougher economic climate "we should expect increased public hostility to migrants." It adds that "sensitivities about access to services and employment could be heightened." 

It also warns that there could be an increase in far right extremism that could in turn lead to those targeted turning to terrorism. 

The letter states: "There is also a risk of a downturn increasing the appeal of far right extremism and racism, which presents a threat as there is evidence that grievances based on experiencing racism is one of the factors that can lead to people becoming terrorists." 

Stopping illegal immigrants entering Britain will also be hampered, the Conservatives say, after the bleak assessment of funding pressures by the Home Office. 

The details are in a draft document which is set to be sent to Number 10 after Gordon Brown ordered all the major Whitehall departments to report how they would be affected by the economic downturn. 

It says that with visa numbers generally coming down the revenue that the UK Border Agency needs to monitors Britain's border security could be hit. Smuggling and migrants working illegally are also set to rise as some employers seek to "save costs." 

The letter states: "Reduced revenue will put the agency's activities under pressure, in particular major programmes, including those at the border, and caseworking activity". 

Damian Green, the Shadow Immigration Minister, said: "This rips the veil off the complacent comments we have been getting from Home Office ministers about how their performance is improving. It is clear that in almost all areas of the Home Office things are going to get worse. 

"Ministers need to come clean on which operations at the border agency are under threat. If it includes any enforcement activities or the e-border system then our safety is under threat as result of Gordon Brown's economic mismanagement. 

"If they are looking for ways to save money they should scrap the expensive and pointless ID card scheme straight away." 

A lack of cash could also hamper police attempts to tackle crime, the Home Office claims. 

It warns that police authorities could be unwilling to fully use their budgets and that "this, along with other cost pressures, such as high fuel costs and rising salaries, might leave forces facing financial pressures and require difficult decisions over officer numbers and priorities." contiunes here