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

Families 'to face extra £1,250 tax a year each' as Darling seeks the £39bn he needs to get Britain's public finances back on track

Families could face tax rises of £1,250 a year to plug a catastrophic black hole in the public finances, the country's most respected economic forecaster warned yesterday.

The Institute for Fiscal Studies predicted that Government debt, already over the previous target of 40 per cent of national income, could reach 80 or 90 per cent by 2016 - similar to the level of Italy's 'basket case' economy.

The forecast came amid a separate warning that unemployment will peak at 3.2million in the second half of next year - meaning Gordon Brown will have to fight an election with voters still losing their jobs.

The British Chambers of Commerce said the recession would last until the end of the year, with the economy shrinking by more than three per cent - its worst performance since the war.

Experts at Pricewaterhouse Coopers were yesterday reported to be predicting tax rises of £800 per taxpayer to plug the hole in the nation's finances.

The £1,250 figure from the Institute for Fiscal Studies is based on a more pessimistic appraisal of the UK economy. It issued a worse-than-expected assessment of the impact of the recession, bank bailouts and increases to Government borrowing.

The IFS was ambivalent on the issue of whether the Government could mount another round of debt-funded tax cuts or spending increases.

'Any plausible additional stimulus would be likely to pale into insignificance relative to the underlying weakening of the public finances,' it added.

'Conversely, one could argue that, because debt is going to be much higher than previously expected, it has become more dangerous to add to it - even relatively modestly.'

In the grimmest possible backdrop for Chancellor Alistair Darling's Budget later this month, the IFS said the Government may have to find an extra £39billion a year by 2016 to bring borrowing under control. It said that amounted to £1,250 in higher taxes per family.

Alternatively, a five-year real terms spending freeze would have to be implemented across the public finances.

An extraordinary assessment by the Royal Bank of Scotland, now 70 per cent owned by the taxpayer, warned that something was 'rotten about the state of the public finances'.

A briefing note from the bank said: 'Fiscal policy management has been poor, with policymakers seemingly lulled into complacently assuming revenues would continue to pour in.'

It said that it could take the best part of a decade to repair the damage and get the public finances back into balance.

Treasury officials are working on plans for tax rises and spending reductions as they battle to demonstrate a credible-exit path' for the public finances. That is seen as vital to reassure international financial markets about Britain's capacity to repay the record levels of debt.

An increase in VAT, reduced temporarily to 15 per cent, to as high as 20 per cent after the next election has been considweek'sered by the Treasury. The IFS forecast of a £39billion black hole in the public finances is almost twice as bad as that predicted by Mr Darling in his Pre Budget Report last November.

The Prime Minister told finance chiefs last night that reforming the economy was an 'urgent priority' following last G20 summit in London. Mr Brown, Mr Darling, Bank of England governor Mervyn King and Financial Services Authority chairman Lord Turner met in Downing Street to discuss the next steps.

They agreed to step up progress on directing support to sectors most affected by the global downturn, such as the car industry.

Last night it emerged that Mr Brown has failed to capitalise on the success of the G20 summit with the electorate.

A YouGov poll for The Times found that the Tory lead over Labour has widened to 13 points - killing off any prospect of an early election.

Labour is unchanged from last month on 30 points, while the Tories are up one at 43 and the LibDems down one at 18.

Osborne's public sector squeeze

George Osborne has infuriated public sector unions with his suggestion that plans for inflation-busting wage rises needed to be reconsidered.

The Shadow Chancellor said the three-year salary deal for nurses, teachers and police might have to be unpicked to reflect the fact inflation is now zero.

Downing Street immediately rejected such an idea, insisting the deal offered 'stability' to millions of public sector workers.

Under an agreement struck by Gordon Brown last year, most public sector workers are getting two per cent a year increases in their salaries until 2010-11.

Mr Osborne warned that urgent measures were needed to make the country live within its means.

He argued the Government's plans to limit spending growth to 1.1 per cent sounded strict but were 'not tight enough given the fiscal situation we have to face'.

Asked how he would restore the public finances if he were Chancellor, Mr Osborne said 'the bulk of the strain needs to be borne is on spending restraint'. He added there was a need to 'look at' the three-year public sector pay deals because 'they may be very inflexible at a time when the economic conditions are changing very quickly'.

Karen Jennings, head of health at Unison, said Mr Osborne's words were 'a disgrace'.

She said: 'Health workers will be outraged at George Osborne's suggestion that they have enjoyed an "age of excess".'

But Liberal Democrat Treasury spokesman Vince Cable said his party would also aim for public spending restraint. continues here

Jobless total will top 3m in two years, says Treasury

Unemployment will rise to more than three million over the next two years, according to Treasury forecasts disclosed yesterday. 

The figures show ministers are prepared for the amount spent on joblessness benefit almost to double by the spring of 2011. 

Last week a Bank of England official said it was possible that that unemployment could rise to four million, a figure that would surpass the record 3.3million on the dole during the deep recession of the early 1980s. 

The Treasury calculations suggest the Government expects to spend just over £2billion on Jobseeker's Allowance, the main benefit for the unemployed looking for work, in the financial year that ends today. 

However the amount needed to pay the benefit is expected to rise to £3.25billion over the next 12 months, and to £3.8billion in 2010-11. 

Revealed to MPs in answer to a parliamentary question from former Labour minister Frank Field, this rise is predicted to increase costs to taxpayers by 84 per cent. 

It is thought 2.5million will be unemployed by the spring of 2011. 

Last month the claimant count rose by 138,400, the largest monthly increase since modern counting methods began in 1971  continues here

Immigrants unlikely to return home during recession, equalities watchdog warns

Immigrants are unlikely to return to their homelands during the recession, according to a report, putting further pressure on the jobs market.

The study claims that foreign nationals who have put down roots in Britain are here to stay, and will not move back home just because of rising unemployment, which has just breached 2million for the first time in more than a decade.

Almost 3.7million foreign nationals moved to Britain between 1997 and 2006, according to the Migration Policy Institute's new study, while 1.5m people born in this country emigrated, leaving net migration at 2.2m.

” immigration is part of the solution to economic problems, not part of the problem. He said the solution was not to "clamp down" on people wanting to move to Britain but to help workers improve their skills so they can compete for jobs more effectively...”

And migration levels are predicted to remain high despite the economic downturn, making it more difficult for low-skilled Britons to find work and risking clashes with people born overseas.

There were protests across the country in January after Italian and Portuguese contractors were given jobs at the Lindsey Oil Refinery in North Lincolnshire, while support for the far-right British National Party is said to be increasing amid fears that British workers are losing out to foreigners in the hunt for scarce jobs.

The report published said: "Return migration is not likely to be highly responsive to rising unemployment for most immigrant groups... as strong social and family ties encourage immigrants to remain in the country.

"Extensive evidence from past downturns strongly supports the argument that migration flows are only partially sensitive to economic conditions.

"Furthermore, in the long run, the underlying drivers of migration... will remain strong, suggesting that migration flows will pick up again during the economic recovery."

Sir Andrew Green, Chairman of the campaign group Migrationwatch UK, said: "In the past, a recession has only had a temporary effect on immigration but we are now in an entirely new situation where large numbers of European citizens can enjoy the full benefit of the welfare state rather than go home.

"So it would be no surprise if they do just that."

But Trevor Phillips, the Chairman of the Equality and Human Rights Commission, the Government watchdog that ordered the study, insisted that immigration is part of the solution to economic problems, not part of the problem.

He said the solution was not to "clamp down" on people wanting to move to Britain but to help workers improve their skills so they can compete for jobs more effectively.

Mr Phillips said: "The solution will lie in adapting our workforce for the new economy – an economy that will be more knowledge-driven, not built around the large hulking industries and even more reliant on innovation and skilled workers to fuel growth."

Hazel Blears, the Communities Secretary, claimed migration "probably will reduce" in the future.

She said: "I think it will go down but I don't think it's going to disappear tomorrow." continues here

House prices 'could drop another 55%' and leave Britain bankrupt

House prices could slump by another 55 per cent, a respected City forecaster warns.

It also predicts a deep recession lasting throughout next year and a 'very real probability' that Britain will go bankrupt.

The report leaked yesterday from financial analysts Numis Securities says that the collapse in house prices is not 'anywhere near over'.

They have already fallen 21 per cent from their peak, but the report says they will slump further by up to 55 per cent if the over-correction in prices is as bad as in the early 1990s.

That would leave 6million Britons in negative equity - when their house is worth less than their mortgage.

Yesterday also saw Alistair Darling warn that there could be 'no instant remedy or overnight solution' to the economic crisis.

The Chancellor used a speech to prepare the ground for slashing growth forecasts that now appear wildly optimistic.

In November, he had predicted thatthe economy would shrink by about 1 per cent this year, before growing by about 1.75 per cent in 2010.

He is expected to tear up those predictions in next month's Budget.

Mr Darling said: 'It is crucial to remember that we are dealing with a constantly evolving problem - making life difficult for every country.

'Since November, we have witnessed a collapse in world trade not seen in generations and a much deeper and more widespread global recession, with every country affected.'

He added: 'When it comes to economic forecasts, even the International Monetary Fund finds it difficult to hit this moving target.'

But the Numis report is scathing about the Government's response to the recession and warns it may end up needing a 1970s-style bailout from the IMF.

'The bankruptcy of the UK is a very real probability as the UK government is trying to stimulate a greater debt burden in a grossly over-indebted economy,' it says.

'We believe the scale of the imbalances in the UK means there is no prospect of a recovery in 2009 and we expect the UK to be mired in a deep recession through all of 2010.'

It calls the Government's aim to get banks to lend again at 2007 levels 'crazy' and warns against anyone borrowing now to enter the property market.

Numis predicts house price falls will accelerate in coming months as amateur buy-to-let investors begin to 'panic sell' their portfolios.

The biggest collapse will be in the glut of city centre flats and executive homes built in the past decade, it claims.

Numis suggests that the average house price - around £160,000 even after recent falls - is over-valued by between 17 per cent and 39 per cent.

It calculates that the average house price should be just £96,000, based on average earnings and the old lending limit of three times salary plus a 25 per cent deposit.

Tory housing spokesman Grant Shapps said: 'We all have to hope that what this report predicts doesn't happen. Clearly if house price falls of this scale did occur, it would mean disaster for untold millions of people.

'Ministers bear direct responsibility for fuelling buy-to-let speculation, partly as a consequence of Gordon Brown's taxes on pensions leading people to seek other investments.

'The glut of flats we have seen is a result of John Prescott's planning policies, which have created distortions in the market. 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

The very middle class dole queue: Jobseekers describe their first taste of unemployment

They are the human faces of the credit crunch. 

This was the sobering scene just after breakfast time in suburban South-East London yesterday when the local JobCentre opened its doors at 9.30am.



On the day that unemployment reached 1.86million, the snapshot of those seeking work starkly illustrates the middle class backgrounds of those being thrown out of work.

The Daily Mail spoke to a string of well-qualified business analysts, teachers, marketing consultants, recruitment managers and personal assistants - all of whom are experiencing unemployment for the first time.

All had previously enjoyed the benefits of good jobs but are now facing the stark reality of no work for the New Year.

Significantly, many were once employed by the building trade - which has been hardest hit by the slump and property market crash. Many of those the Mail spoke to still appeared shocked by their sudden unemployment.

Father of two Jonathan Birss, 40, a former business analyst who once earned up to £100,000 a year, was signing on for the first time after losing his job when a major IT contract came to an end.

Mr Birss, if Chislehurst, Kent, said: 'Signing on feels a lot like failure. It's the last thing I've ever wanted to do, I just want to provide for my family and it's not really possible at the moment. It's demoralising and humiliating.'

Francoise Raingeard, 58, a former personal assistant who earned £32,000, has been signing on for two months. She lost her job after the Government-backed postal watchdog, Postwatch merged.

She said: 'There are jobs available, it's just that too many people are applying for them.'

She has made more than 80 job applications but had only one interview in the past month.

Stephen Gibbs, 52, a former building site manager earning £50,000, was signing on for the first time. He was made redundant earlier this year, having been laid off after 35 years in the industry while younger workers on a lower salary were kept on.

He has no children but cares for his elderly father. His wife is a part-time youth worker.

Because he registered as self-employed 18 months ago, Mr Gibbs has been denied the dole for another six weeks.

He said: 'I think it's disgusting. Some people have never worked. I've worked hard all my life and paid taxes but now, when I really need it, I get nothing.

'I have been prudent with my savings but they are depleting quickly. I still have to pay the £600 mortgage each month on the house and it's getting increasingly difficult.' continues here

All 807 Woolworths stores to shut by January 5 as 27,000 jobs are axed

All 807 Woolworths stores will have closed down by January 5, the group announced yesterday. 

A countdown for the closure of the chain, a fixture on the High Street for 99 years, was triggered last night after no one offered enough cash to buy it as a going concern. 

The news means that some 22,000 permanent staff and 5,000 temporary workers will suffer a miserable Christmas and unemployment in the New Year.



The first 200 stores will close on Saturday, December 27, another 200 go on December 30, a further 200 on January 2 and the remainder on Monday, January 5.

Staff will be given just ten days' notice before their particular store closes.

Shopworkers' union Usdaw said it was 'appalled' at the news.

Some 50million new items are being delivered into stores this week, including DVDs, CDs and 200,000 copies of the X Factor single Hallelujah.

The firm administering the winding up of Woolworths, Deloitte, said current discounts of 20 to 60 per cent will be increased as the clock ticks down to store closures.

Deloitte said it has received interest from other retailers, including supermarkets, clothing and value chains, to buy 300 Woolworths stores. The others may simply be returned to their landlords and boarded up.

Joint administrator Neville Khan said: 'We are now moving to the closing down sale period.

'It is a very difficult situation for a lot of people, particularly the staff, and we are trying to deal with it in as sensitive a way as possible.'

He raised hopes that jobs could be saved, saying that - as far as possible under privacy laws - Deloitte would pass on the details of current Woolies employees to the buyers of the 300 stores.

Mr Khan also revealed that administrators are in talks over the sale of Woolworths trademark and its Worth It! value brand. Consequently, it is possible the name could be revived at some point.

Ironically, Woolworths has seen some of its biggest-ever sales in recent weeks on the back of its closing down sale. Shoppers who deserted the chain for decades have flocked back in search of bargains.

Woolworths' distribution arm EUK - which supplies CDs to supermarkets and Zavvi - is also in administration. More than 700 jobs from this business have been lost, however there are hopes it can be sold, which would save the remaining 400 staff.

Mr Khan said the task of saving Woolworths had been made harder because potential buyers have had difficulty raising the money needed from the banks, which have imposed strict controls on new lending. continues here

Head of IMF fears unrest without action on economy

Violent unrest may be sparked around the world by a prolonged global slump unless governments act with greater urgency to jump-start stalled economies, the head of the International Monetary Fund said on Monday. 

Dominique Strauss-Kahn sounded a stark warning over the consequences of what he argued was weak and uncertain government reaction to the economic crisis. He used a hard-hitting speech in Madrid to single out eurozone nations over what he attacked as an inadequate response. 

The broadside from the IMF's managing director came as fears over a protracted global recession, and political fallout, mounted after China said that its factories' output registered the weakest growth in almost a decade last month. 

Without swifter and more determined action by governments to boost economies, a world recovery could be delayed until late next year or early in 2010, with grave consequences, Mr Strauss-Kahn said. “A lot remains to be done, and if this work is not done it will be difficult to avoid a long-lasting crisis that everyone wants to avoid.”

The IMF has called for governments in leading economies to spend a combined 2 per cent of global GDP, or $1.2 trillion (£1,075 billion), to try to fend off the danger from global recession.“If we are not able to do that, then social unrest may happen in many countries - including advanced economies,” Mr Strauss-Kahn suggested. 

He also claimed that violent protests could break out in countries worldwide if the financial system was not reordered to benefit everyone rather than a small elite. 

Reinforcing anxieties over a global recession, the IMF chief said that the fund would probably cut its current 2.2 per cent forecast for world growth next year. He blamed governments' being unwilling or unable to use more public funds to bolster economic activity. At the same time, he also predicted that China's once red-hot pace of economic expansion was now set rapidly to run out of steam. 

“We started with China at 11 per cent growth . . . China will probably grow at 5 or 6 per cent [next year],” he said. “The possibility of a global recession is real. We realise something must be done.” 

Concern over China was heightened as industrial output growth from the Asian powerhouse slowed to an annual pace of only 5.4 per cent last month. That was sharply from 8.2 per cent in October and the weakest since 1999. 

Turning his fire on the European Union, Mr Strauss-Kahn put himself sharply at odds with Jean-Claude Trichet, President of the European Central Bank, who yesterday urged European leaders to stick to their fiscal rule books and keep a lid on state borrowing, even as they deliver packages of economic stimulus measures. 

Mr Trichet called for European countries to stick by the EU's controversial Stability and Growth Pact that limits governments' borrowing and total debt. But Mr Strauss-Kahn said that existing rule books should be scrapped, and demanded new rules to match the scale of the economic threat he saw. 

“We are facing an unprecedented decline in output and we have evidence of substantial uncertainty limiting the effectiveness of some fiscal policy measures,” he said, “What was decided by Brussels . . . 1.5 per cent of GDP in the form of stimulus, is a bit below what we need.” 

His comments come amid continued wrangling and sharp clashes between European leaders over how they should react to the crisis. 

Germany has expressed substantial doubts over the wisdom of pumping huge amounts of public money into economies to try to stimulate growth and has resisted pressures to contribute more to a joint EU effort.  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

UK food and energy prices are rising twice as fast as those in Europe, report finds

Power and food bills in the UK are rising at twice the rate they are in the European Union. 

A report from the Organisation for Economic Cooperation and Development yesterday showed that British bills surged at the fastest rate of any EU nation in October. 

Energy costs rose by 24.2 per cent compared with the same time last year, the OECD said.



That was twice the gain in Finland, which recorded the second highest rate of power price inflation.

And UK grocery bills gained 10.1 per cent, a rate matched only by Finland.

Across the EU, the average for food inflation was 5.5 per cent, while energy costs were up 11.7 per cent.

The OECD figures prove that UK consumers are still being hit hard by a rising cost of living despite the economic downturn.

The official rate of inflation, currently 4.5 per cent, has come down from a high of 5.2 per cent in September, partly because of the fall in the price of oil and the discounting of goods such as computers and DVDs.


Experts have been warning that the UK could face a bout of deflation - the opposite of inflation - as firms aggressively slash prices.

But so far there is little evidence of this in the official figures.

They suggest that some firms are rebuilding profit margins by refusing to pass on reductions in the costs of their raw materials.

Energy giants lifted their prices after the cost of a barrel of oil soared to nearly $150 a barrel over the summer.

Since then the cost of energy paid by utilities has dropped along with the precipitous decline in crude prices.


But this has yet to be reflected in bills, the OECD figures showed.

Richard Haddelsey, of energy analysts McKinnon & Clarke, said UK utilities are much quicker to pass on gains in wholesale costs of gas and electricity to consumers than rivals on the Continent.

Yet prices are often slow to come down afterwards.

That is partly because the UK has less gas storage, making it hard for utilities to stockpile gas during periods where prices are low.

But he said wholesale energy costs have tumbled recently, so utilities ought to start passing reductions on to customers.

'Wholesale prices are the lowest for 12 months or more, and that is already having an impact for industrial and commercial energy customers,' he said.

'It will take longer to filter through to domestic customers.

'But you would expect to see domestic price declines in the coming months to reflect the way the oil price has fallen back.'

The rapid gains in food prices fly in the face of assurances by supermarket giants that they have been easing the pain on consumers.

UK super-markets have been accused of ' fattening up' their profits despite the falling cost of raw produce on agricultural markets.

The Daily Mail's own Cost of Living Index showed that food price gains recorded in October continued into November.

The price of a typical shopping basket leapt by 21.3 per cent in November, adding more than £1,100 a year to family grocery bills.
JOBS AXE RECORD

The jobs market is 'heading downhill at breakneck speed', a devastating report reveals today. continues here

Mortgage lending dives 70% to second lowest figure on record as new bank collapses

Mortgage lending falls to second lowest figure on record

London Scottish Bank goes into administration

Manufacturing shrinks at record pace

Mortgage lending plunged 70 per cent in just four weeks, figures revealed yesterday. 

As homeowners face their biggest battle to get a loan, net lending collapsed in October to just £459million, compared with £1.5billion in September. 

Net lending is the difference between money lent to new homeowners and repayments from existing homeowners. 

A recent Government report has said that in the current mortgage drought net lending could turn negative next year for the first time. 

Yesterday's figures, from the Bank of England, spell out the misery facing anybody trying to sell a home. 

With so few loans being handed out, families up and down the country who desperately need to sell cannot find a buyer, even if they slash the price. 

If the banks do not start handing out money, Britain faces plunging into a much more painful recession, the Bank's Governor Mervyn King warned last week. 

Banks insist they are not closed for business but are being noticeably more cautious about handing out loans. 

The cheapest mortgage deals now require a 40 per cent deposit. All 100 per cent loans have been scrapped. 

However, the lending collapse has been brought about not just by banks' caution but also because many customers do not actually want a loan now and are choosing to sit things out while prices fall further. 

Yesterday - only days after the Government spent billions of taxpayers' money bailing it out - Royal Bank of Scotland tried to appease taxpayer fury by promising not to repossess a home until the lender was at least six months in arrears with mortgage repayments. 

Nevertheless, repossessions are predicted to rocket to 45,000 this year - up 70 per cent on last year.. 

Economists were also forecasting gloom yesterday. Ed Stansfield, of the consultancy Capital Economics, said: 'Activity levels will remain close to rock bottom levels for several months yet and house prices will fall markedly further.' 

The figures came as specialist financial services group London Scottish Bank said today that it had gone into administration.

The Treasury confirmed that it would protect all retail deposit savings with the bank - including those with deposits above the £50,000 maximum limit.

The Manchester-based bank said it was forced to call in administrators after suffering a shortfall in regulatory capital and was unable to find a firm buyer for the business in time.

The bank has around 10,000 savers with some £250 million in deposits.

There are also more than 700 staff at the bank, which offers fixed-rate savings accounts and lends money to people with poor credit histories.

The Chancellor confirmed all eligible depositors under the Financial Services Compensation Scheme (FSCS) would be not lose their savings.

Administrators said all 10,000 depositors are eligible under the scheme.

London Scottish had been hoping to secure a sale after it struggled with a multimillion-pound hole in the amount of capital it is required to hold by regulators.

Shares in the group were suspended today at 2.62p having lost almost all of their value amid its financial problems over the past year.

Adding to the bleak economic news, manufacturing activity shrunk at a record pace last month as fresh figures fuelled fears today about the depth of the UK recession.

The latest purchasing managers' index for the industry showed a reading of 34.4 in November - the lowest level in the survey's near 17-year history.

Output, new orders and employment all hit new lows as the sector continued to struggle in the economic downturn.

The data marks the seventh consecutive month of falls for the sector and was below City forecasts of 39.7.

On a rare brighter note though, the number of mortgages approved for house purchase has remained stable for the past four months.

Around 32,000 new loans were approved for people buying a property, only slightly down on September's figure of 33,000, suggesting the market may have bottomed out at a very low level.

Howard Archer, chief UK and European economist at IHS Global Insight, said: 'An extremely weak set of Bank of England mortgage approvals and lending data suggest that house prices still have a long way to fall.  continues here

Britain will be hardest hit by economic slump, warns European Commission

Britain will be hit harder by recession than any other major EU economy, the European Commission has warned. 

It predicts the UK economy will shrink by 1 per cent next year and will grow by a mere 0.4 per cent in 2010. 

Unemployment will grow by 25 per cent to more than 2.2 million next year. Meanwhile, incomes will stagnate and house prices continue to tumble.



Only Estonia and Latvia are expected to suffer more profound recessions in 2009.

Earlier this year Chancellor Alistair Darling had predicted the UK will grow by as much as 2.75 per cent in 2009 and three per cent in the following year. But he and Gordon Brown last month admitted the picture had changed due to the bank failures.

With the credit crunch hitting tax revenues, forcing the Government to increase public borrowing, the EU forecasts suggest that the deficit could hit £80 billion next year and £94 billion in 2010 - more than double the Treasury forecasts given in March.

The Commission is, however forecasting a gradual recovery in the Eurozone in the second half of next year - but admits that this is unlikely in Britain until 2010.

It said: 'The central outlook envisages a marked fall in private consumption in 2009 and 2010, driven by more restrictive borrowing conditions and lower household wealth.' continues here

Economy shrinks as Britain enters recession

Britain’s economy is shrinking for the first time in 16 years, official figures showed yesterday, confirming that the country is in recession.

The toll from the credit crisis and housing crash has ended Britain’s longest unbroken run of growth since quarterly records began in 1955. City analysts gave a warning that the economy could shrink at an even faster pace in coming months.

Figures for gross domestic product revealed a worse-than-expected fall of 0.5 per cent over the past three months. A recession is defined as two consecutive quarters of negative growth, but a further contraction is inevitable.

The response on the financial markets was swift and brutal. The pound plummeted against the dollar and nearly £49 billion was wiped off the value of Britain’s leading companies. Alistair Darling, the Chancellor, sought to shore up confidence among fearful families and businesses. “It’s obvious now that our economy, other economies across the world, are moving into recession,” he said. “Yes, it’s going to be difficult, yes it’s going to be tough, but we can get through it.”

Charlie Bean, the deputy governor of the Bank of England, said that Britain was only “in the early days” of the fallout from unprecedented global financial convulsions. “This is a once-in-a-lifetime crisis, and possibly the largest crisis of its kind in human history,” Professor Bean said.

Shares in London slumped in response. The FTSE 100 closed down a further 204.5 points, or 5 per cent.The pound suffered one of its worst batterings since it was floated in 1971. At one point it was down by 8 cents against the dollar, before closing a little over 3.5 cents down on the day at $1.5837. In Europe, leading shares also fell by 5 per cent, while US blue-chips fell almost 4 per cent in a day of wild swings in financial markets. continues here

Worst financial crisis in human history': Bank boss's warning as pound suffers biggest fall for 37 years

• Economy outstrips forecasts to shrink by 0.5%

• Pound suffers worst fall against dollar for 37 years

• FTSE plunges 9% before rallying to close down 5%

• Asian markets tumble for a third day amid global fears
  
  Consumers face higher shop prices, dearer fuel and more expensive holidays after the pound slumped yesterday.
  
  Sterling took a hammering as economic figures showed the UK approaching full-blown recession.
  
  Bank of England deputy governor Charlie Bean warned that the pain is just beginning, calling the situation the 'largest financial crisis of its kind in human history'.
  
  
  
  On the 79th anniversary of the Great Crash of 1929:
  
  • Britain's economic output slid 0.5 per cent - more than twice the decline expected by the City;
  
  • Markets tumbled around the world, with leading UK shares losing almost £50billion;
  
  • Sterling had its worst-ever week against the dollar since 1971 and hit a record low against the euro;
  
  • The oil cartel Opec cut production, a move likely to increase petrol prices up to 5p a litre;
  
  • Experts warned that hedge funds are facing disaster, with billions likely to be wiped off savings and pension funds;
  
  • Hundreds of jobs were axed in the insurance, cosmetics, haulage and textile industries.
  
  The plunge was prompted by the worst set of UK growth figures for 18 years, recording the first time that the economy has officially contracted since 1992.
  
  The Office for National Statistics reported UK output dropping 0.5 per cent between July and September.
  
  Another fall in the final three months of the year would propel Britain into the first official recession since the days of John Major.
  
  Tory leader David Cameron declared: 'This is the day the recession became real.
  
  'We have had ten years of a Government saying no more boom and bust. We have had ten years of a Government not putting aside money for a rainy day. Well, that rainy day has now come.'
  
  At one stage, the pound was worth as little as $1.52, prompting speculation that the UK was on the brink of a currency crisis.
  
  Although it later rallied, it has lost a quarter of its value against the dollar over the past year.
  
  Foreign investors are less willing to finance the UK because of its record debt burden and slumping economic output. The rush to sell sterling means prices of imports like clothing and electronic goods will rise, holidays will cost more and overall living standards will suffer.
  
  The Tories said sterling's decline proves Mr Brown has left Britain ill-equipped to face the banking crisis.
  
  Shadow Chancellor George Osborne said: 'Once again, under Labour, the pound in your pocket is worth less. Indeed Gordon Brown has set a new record for Labour Governments, but it's not one he's likely to boast about.
  
  'The 25 per cent fall in the value of the pound over the last year is even greater than the devaluations under Jim Callaghan and Harold Wilson. It's a sign that international investors think Britain is badly prepared as boom turns to bust.'
  
  Analysts warned that the nation faces an extended period of austerity, as unemployment soars and families are forced to save on even basic essentials.
  
  Professor Andrew Clare, of Cass Business School, said Britain has amassed a record debt burden that must now be paid off.
  
  The economist added: 'We are going to have to wear a hair shirt as a nation. If this turns out to be recession lasting five or six quarters, which looks possible, we are not going to see the slightest upturn until 2010. And even then we can expect at least five years of muted growth.' 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

US to host global finance crisis summit

Leaders from the so-called G-20 nations will be invited to the summit, which will be held on November 15 in Washington

The US government announced plans to host a global economic summit in Washington next month to address the financial crisis.

Leaders from the so-called G-20 nations will be invited to the summit, which will be held on November 15.

The leaders will discuss the "underlying causes of the financial crisis", according to a White House spokeswoman, together with a review of the progress that has been made to addressing them.

"Everybody will come with their own ideas. Not everybody will have the same solution. It’s too soon to say what will come out of it," the spokeswoman said.

The gathering "will provide an important opportunity for leaders to strengthen the underpinnings of capitalism" and "how they can enhance their commitment to open, competitive economies, as well as trade and investment liberalisation", she added.

The Group of 20 nations was created as a response to the financial crises of the late 1990s. Its members include the UK, the US, Argentina, Brazil, China, France, Germany India and the European Union. continues here

Pound plunges after Bank of England governor Mervyn King declares 'We ARE in a recession'

The pound plunged to a five-year low last night after Bank of England governor Mervyn King warned for the first time that Britain had entered a recession.

In his first public comments following a month of unprecedented turmoil, Mr King insisted that an extraordinary set of dangers are facing the economy and said it would be a 'long march' to recovery.

Not since the First World War has the banking system come so close to collapse, he said.

His comments sent the pound tumbling against the dollar by 3 percent $1.71 to a five-year low of $1.62.



And the governor hinted that further interest rate cuts could be made in the coming weeks as the Bank of England tries to prop up the economy.

In a speech to business leaders in Leeds, Mr King said: 'Taken together, the combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand.

'Indeed, it now seems likely that the UK economy is entering a recession.'

The supply of finance to firms has 'ground to a halt', families' access to credit has suffered a 'severe blow' and housing market weakness is 'likely to continue', he said.

Meanwhile, disposable incomes have already been pushed down because of rising food and energy prices.

Mr King went on: 'We now face a long, slow haul to restore lending to the real economy, and hence growth of our economy, to more normal conditions.'

His warnings will further damage Gordon Brown's claims to have put an end to 'boom and bust' and cast serious doubts over the Prime Minister's hopes of spending his way out of recession.

However Mr King struck a note of optimism by suggesting that this month's £37billion bail-out of Royal Bank of Scotland, Lloyds TSB and Halifax Bank of Scotland was the moment when 'we turned the corner' in the financial crisis.

Yet the country will never return to the days of free and easy lending that prevailed until August last year, he warned.

This clashes with assurances from ministers that firms benefiting from taxpayer cash will supply at least as much credit as they did in 2007.

Mr King's intervention came as the respected National Institute of Economic and Social Research warned Britain is likely to suffer a recession lasting at least a year.

The gravity of the situation was underlined by separate figures showing industrial production has dropped in the past month.

Confidence among manufacturers is now at its lowest ebb since the early 1980s, the Confederation of British Industry said.

Mr King has previously refused to speak of recession, but his decision to do so last night reflects the sharp plunge in Britain's economic fortunes over recent days.

A recession is defined as two or quarters of falling economic output. The last time this happened was under Conservative Prime Minister John Major in the early 1990s

The economic situation has become so dire that the Bank of England cut interest rates by a half point, to 4.5 per cent, at the beginning of October following similar moves by the U.S. Federal Reserve and European Central Bank.

Last night economists from NIESR published their report called The Great Crash of 2008. It warned there were no 'magic solutions' to prevent recession.

The research body, which counts the Bank of England and Treasury among its clients, said Britain entered recession over the summer and may not emerge until 2010.

Yet the Government can do little to ease the pain, NIESR said.

It gave short shrift to Mr Brown's pledges to spend his way out of recession, saying it will take a long time to bring forward investment plans.

Government borrowing could exceed £100billion, and this money will have to be paid back eventually, the report said.

Meanwhile banks are unlikely to heed Treasury calls for lending to be lifted to 2007 levels it added, calling this ministerial 'rhetoric'.

And NIESR said rate cuts were less 'powerful' than they used to be because banks are refusing to pass them on to customers. continues here

UNEMPLOYMENT `SET TO SPIRAL`

The Government has been warned that unemployment could spiral to three million after the biggest jobless rise since 1991 left 1.79 million people looking for work.

Unemployment soared by 164,000, more than 10%, in the quarter to August, while the number of people claiming jobseeker's allowance increased for the eighth month in a row.

Prime Minister Gordon Brown vowed to do all he could to keep people in jobs, pointing out that unemployment was higher in America, Germany, France and Italy than in Britain.

The Prime Minister said one way to tackle unemployment and climate change at the same time was to train people to install loft insulation. 

He said: "We are training large numbers of additional people to do that work in insulation and that will become one of the unemployment programmes that will grow over the next period of time. So the need to meet climate change goals and cut people's gas and electricity bills will create work."

Unions and opposition politicians pressed the Government to halt its programme of Jobcentre closures and 12,000 job cuts in the Department for Work and Pensions in the face of lengthening dole queues.

In the Commons, shadow foreign secretary William Hague said it was a "grim day" for the British economy, and claimed that a Government promise of £100 million to help retrain the jobless had been previously announced, and would be spread over three years, working out at just £18 for each unemployed person. 

TUC general secretary Brendan Barber said: "This is extremely bad news, and these figures do not even show the effects of the bank crash. After years when we could take reasonably full employment for granted, we are now in for grim times. This is the next big challenge for the Government."

Vicky Redwood, of Capital Economics, forecast that, at the current rate, the number of people claiming jobseeker's allowance would top a million by the end of this year. Total unemployment would rise by 1.5 million to about three million by the end of 2010, she predicted.  continues here

Interest rate cuts overshadowed by spectre of recession

IMF says world is heading for major downturn

Interest rates across the world were slashed yesterday as central banks took unprecedented emergency action in an effort to contain the worst economic threat since the Great Depression. 

Hours after the Government unveiled a £500 billion rescue package for the British banking system, the Bank of England joined forces with its counterparts across the Western world to cut rates by half a percentage point. 

The extraordinary level of coordination was designed to demonstrate resolve in the face of financial panic but failed to restore confidence in the stock market. Share prices rallied briefly in London but the FTSE 100 index closed down 239 points at 4,367, its lowest point for four years. 

In its bleakest forecast for years, the International Monetary Fund said that the world was entering a major downturn in the face of “the most dangerous shock . . . since the 1930s”. The US and Europe were either on the brink of or already in recession.

The Chancellor’s plan to part-nationalise the worst-hit banks, guarantee some of their debts and flood them with fresh supplies of cash drew a mixed reaction. There were accusations that he was favouring bank shareholders over ordinary taxpayers and breaching fiscal rules. 

The Government has earmarked up to £50 billion to inject into banks in return for preference shares and possibly ordinary shares. It has also offered to guarantee all short-term borrowings made by participating banks in the wholesale markets, a potential liability of £250 billion. A further £200 billion is being provided to money markets to allow banks to swap risky assets for Treasury bonds. 

Robert Chote, of the Institute for Fiscal Studies, said that the package could push the Government’s debts towards 50 per cent of national income. continues here