Gordon Brown has defended his plans to increase government borrowing in order to tackle the economic downturn.

The prime minister told business leaders it was “responsible” for government to boost spending at this time to “speed up economic activity”.

Opposition parties have attacked the current levels of debt, saying Britain is inadequately prepared for recession.

Shadow chancellor George Osborne said government borrowing levels were already “out of control”.

Leading economists have also criticised the government over its spending plans and called for tax cuts instead.

‘Misguided’ strategy

In a letter to a Sunday newspaper, a number of economists warned against an expansion of government spending as a way of stimulating the economy.

They described a focus on public works projects and higher spending as “misguided and discredited”.

The latest quarterly public debt figures hit a record £37.6 billion – higher than the whole of the previous year.

“The responsible course is to borrow now to maintain growth and output” Gordon Brown

Keynesian theory explained

In a speech in London, Mr Brown said fiscal policy would be used to kick-start the economy so as to “help people through difficult times”.

However, in a change to his planned text, Mr Brown declined to say explicitly that borrowing would rise, stating instead that it was “right and responsible” to maintain “investment” at the current time.

But he said that when the economy begins to recover and tax revenues increase, “borrowing” levels as a share of economic output would then come down.

Mr Brown defended government measures to support the faltering economy including help for small businesses and homeowners to stave off the threat of repossessions.

“I can see why people are insecure and worried about their future,” he said.

‘Comprehensive solutions’

Outlining what he said was a “comprehensive” set of policies to help the UK through its current economic problems, he said the economy had the government’s “undivided attention”.

“We have to look at all the areas where we can move the economy forward and restore confidence in the banking and financial system.”

He said he would do “whatever is necessary” to ensure that banks swiftly moved to increase lending to businesses and homebuyers.

Mr Brown’s remarks came against a backdrop of further falls on global stock markets, with the FTSE 100 index of leading shares down nearly 4% in London.

And the Conservatives said that whatever action Labour took now could not hide the mistakes made in the past.

“Gordon Brown is a man with an overdraft not a man with a plan” Shadow chancellor George Osborne

Mr Osborne said higher borrowing was not a “strategy” for economic recovery but an inevitable consequence of the poor state of the public finances.

“What they are talking about is borrowing out of necessity not out of virtue,” he said.

“Government is being forced to borrow. Gordon Brown is a man with an overdraft not a man with a plan.”

Addressing responses to the downturn, Mr Osborne said ministers could look at the “timing” of big infrastructure projects but said spending on public works was not a “solution” to the situation.

For the Lib Dems, Treasury spokesman Vince Cable said it was “necessary” for borrowing to go up in a “period of recession”.

But he added: “What is important is that there is a clear plan from the government as to how the public finances are to be returned to balance.”

Welfare reform

Mr Brown’s speech came on the same day that incapacity benefit is being replaced by a new allowance aimed at getting one million people off benefits.

Mr Brown said welfare reform would be intensified despite the economic climate, saying that it would help people into new jobs.

“The very moment in an economic downturn when we need to invest in human capital is no time to slow down welfare reform,” he said.

Over the weekend, Mr Brown paid a brief visit to Glenrothes in Scotland as part of a by-election campaign and made predictions food and fuel bills would begin to come down next year.

He also hinted falling oil prices could lead to further co-ordinated interest rate cuts.

But while Mr Brown said on Monday that action on monetary policy did have a “role to play”, it was not “up to him” to tell the Bank of England what to do regarding rates.

Mr Osborne said “everyone in the country” wanted to see rates come down but that it must be up to the Bank of England to decide the timing of rate decisions.

News reported by The BBC

Global stock markets are continuing to fall as investors worry about how deep the downturn is going to be.

Calling the bottom of the market is a tricky job

The Nikkei in Tokyo is at its lowest level since October 1982 and stock markets seem to be falling throughout the world.

Every so often, there is a day of gains, but these have tended to be wiped out later in the week.

This comes despite trillions of pounds being pledged worldwide to secure the future of the banking system.

Has something new happened to spark the latest falls?

It is hard to point to specific events, but the falls seem to have been linked to attempts to solve the problems not reaping immediate rewards.

The Group of Seven (G7) issued a statement effectively threatening to intervene to weaken the yen, but the yen kept on rising against the dollar.

The Japanese government promised further steps to support share prices, but the shares carried on falling.

Meanwhile, governments around the world have pledged eye-watering amounts of money to get banks lending to each other, but they are still not doing so.

“Every week credit markets remain dysfunctional is doing unknown damage to the macro economy,” said Thomas Lee at JPMorgan.

With the prospect of an approaching global recession, any bad news is knocking several percentage points off stock markets.

What happened to the cheer from the bank rescue packages?

There were indeed big gains on stock markets a few weeks ago as countries seemed to be prepared to work together to solve the banking problems that were at the heart of the credit crunch.

The problem is that despite the rescue, there is a widespread belief that many of the world’s biggest economies are going into recession.

The oil price has fallen, with Brent crude dropping below $60 a barrel, because it is thought that as economies slow there will be less oil used. The same argument goes for copper or coal.

That means that there is likely to be less demand for the products of the big global commodities companies that are particularly well represented on the FTSE 100.

What is going on with currencies at the moment?

There have been wild fluctuations on the currency markets too, with the G7 expressing concern about the volatility of the yen.

Also, the Australian central bank has taken the unusual step of intervening to support its currency twice in a few days.

But it really is the yen that is grabbing the headlines, hitting 13-year peaks against the US dollar and a six-year high against the euro.

The yen has been strengthening as a result of the end of the carry trade, in which traders borrowed the Japanese currency and used it to buy currencies with higher interest rates.

As the difference between Japanese rates and those elsewhere in the world has fallen, traders have been unwinding the carry trade, which means they have been using other currencies to buy yen, which has boosted the Japanese currency.

The strong yen is a particular problem for Japanese exporters, which see their products becoming more expensive for customers overseas, who are already being hit by their own national downturns.

How much further down can the markets go?

Spotting when markets have reached the bottom is a tricky and risky process.

Many traders believe in the idea of capitulation, which broadly means a market surrender.

This is when investors are prepared to get out of the market at any price because they have given up all hope of making money from their shares.

It is often marked by panic-selling and very high volumes of transactions.

The idea is that after capitulation you reach a point at which the last investor who is desperate to get out of shares and move into supposedly less risky assets has sold out.

Once there is a widespread belief that the bottom has been reached, bargain-hunters pile in and the market recovers.

Have we reached the bottom of the market then?

It is really difficult to say.

Some people think we’re nearly there.

The trouble is, some people reckoned we’d reached that point last month.

There were those who declared capitulation had been reached on 15 September when the Dow Jones index fell 504 points in a day.

But since then it has fallen another 2,500 points.

Capitulation is easy to spot in retrospect but the people who recognise it accurately at the time can get very, very rich.

News reported by The BBC

A building company, which employs 320 workers, has gone into administration.

The property downturn has been blamed for the move involving David McLean Holdings Ltd, of Flintshire.

The company has house building, property development and contracting subsidiaries, with offices in Cardiff and Shrewsbury.

Administrators Deloitte said McLean’s house building division was continuing to trade as they seek a buyer. The contracting division is to close.

The group, which was founded in 1972, has operations in south Wales, the Midlands and the north west and south west of England and a turnover worth £160m.

Downturn

A statement said the directors had, for some time, been trying to secure a restructuring of the group’s financial affairs following the downturn in the residential property market.

There were 30 lay-offs in May, following 50 job losses last December blamed on the credit crunch.

Nick Edwards, joint administrator, said: “Whilst the property downturn has impacted the group’s cash flow, the land and property assets are high quality, and combined with the excellent reputation of the group, should make the house building division an attractive prospect for potential purchasers.

“We are continuing to trade this part of the business whilst we seek a buyer.

“The contracting division has struggled to generate a critical mass of profitable contracts, and regrettably we have had to take the decision to close that part of the business, other than retaining a significantly reduced headcount to work with customers to complete or transfer limited works on outstanding contracts.”

The group’s headquarters are on the Deeside industrial estate, where 130 workers are based.

There are another 40 in Cardiff, 25 in Shrewsbury and 105 working out on location.

There are two significant ongoing contracting projects – North Wales Police HQ and Prestatyn School – and 11 housing developments in Wales, said the administrators.

Flintshire councillor Patrick Heesom, who represents the Mostyn area, said: “I’m sorry we have lost another construction company.

“These problems will rebound down the scale to smaller companies. It’s a matter of deep regret that someone with such a long history of serving the community has run into difficulties.”

News reported by The BBC

The London Stock Exchange has said it has begun “succession planning” over who will replace its chief executive Dame Clara Furse.

Dame Clara has been at the firm for eight years – though the LSE said there was no suggestion that her departure was imminent.

A newspaper report said that a City headhunting firm had been lined up to oversee the new appointment

During her tenure Dame Clara has fended off several hostile takeover bids.

Last year it merged with Italian exchange group, Borsa Italiana and stakes in it have been sold off to Middle East investors in a bid to keep full ownership out of foreign hands.

‘Natural’ thinking

The Sunday Telegraph reported that the Exchange said there was “no formal timetable in place” for Dame Clara’s departure – adding she may stay beyond the end of next year.

The LSE played down the report.

“Clara has been with the Exchange for eight years and it’s natural that the Board is thinking about succession planning,” an LSE spokesman said.

“Clara remains fully committed to the Exchange’s continued success and, in particular, to the completion of its integration with Borsa Italiana.”

News reported by The BBC

Global finance ministers have expressed concern at the “extreme volatility” of the yen, as the Japanese currency remained near 13-year highs on Monday.

The comments came from heads of the Group of Seven (G7) leading industrialised nations, but they stopped short of prescribing action.

The yen’s rise continued to hit Japanese stocks, with the Nikkei index closing at a 26-year low on Monday.

Japan’s government said it would now move to shore up the share market.

The yen hit a rate of 91.93 yen against the dollar on Monday. On Friday it had touched 90.90 yen against the dollar, its highest level since 1995.

Global co-operation

The G7 leaders commented on the high value of the yen in a joint statement issued after talks in Tokyo.

They said they would co-operate as appropriate to bring stability to battered global markets, but did not give any specific details of how they hoped to lower the yen’s value.

The yen’s rise has concerned Japanese investors, who are worried about its impact on the country’s main exporters, as it makes their products more expensive overseas.

As a result, Japan’s main stock index, the Nikkei, fell on Monday to close at its lowest level since 1982.

‘Tighter controls’

Prime Minister Taro Aso said Tokyo would move to introduce tighter controls on the short selling of stocks, and also pledged increased bail-outs for the country’s banks.

Short selling occurs when an investor borrows company stock owned by another investor, then sells the shares in the market, hoping the price will fall.

If the price does fall, they then buy the shares back at the lower price, pocketing the difference.

Other nations, such as the UK, have already moved to put a temporary ban on short selling in financial stocks.

Japan’s Finance Minister Shoichi Nakagawa added that he would “continue to watch currency markets with great interest”.

The rise in the value of the yen is being driven by two main factors.

Firstly, like the US dollar, it is seen as a haven buy in uncertain times.

Secondly, the yen has risen as a result of the end of the yen carry trade, in which traders used the yen to buy currencies with higher interest rates.

The yen carry trade has been unwinding due to the difference between Japanese rates and those elsewhere in the world narrowing.

This means that traders have pulled out of investments in countries such as Hungary and Iceland, buying back the yen in the process.

News reported by The BBC

The International Monetary Fund (IMF) is to offer a $16.5bn (£10.4bn) loan to Ukraine and has agreed an as yet undisclosed package with Hungary.

Ukraine is to receive the loan to help it “maintain confidence and economic and financial stability”, the IMF said.

The country has seen its stocks, banks and currency badly shaken by the global credit crunch.

The “substantial financing package” for Hungary is due to be finalised in the next few days, the IMF said.

It is conditional upon Hungary adopting “strong policies” and will be drawn from the IMF, the EU, and some individual European governments “together with regional and other multilateral institutions”, IMF Managing Director Dominique Strauss-Kahn said in a statement.

“The policies Hungary envisages justify an exceptional level of access to fund resources,” he added.

“Ukraine and Hungary are trapped in the vice of the last phase of deleveraging, or the reduction in credit being provided by banks and other investors, and the decline in the real economy” Robert Peston BBC Business Editor

The BBC’s Sarah Morris in Washington says this suggests the loan is likely to be one of the biggest the IMF has ever made.

Hungary’s currency, the forint, has seen a sharp fall, stocks have tumbled and the country has cut its growth forecast for 2009.

Currency plunge

Internal political turmoil has delayed economic development in Ukraine and the IMF loan depends on the ex-Soviet state being able to balance its budget and make reforms to its banking sector.

Last week, the IMF said it was to give Iceland a £2.1bn loan as its banking system came close to collapse.

Pakistan and Belarus are also in talks about accessing IMF funding.

“The authorities’ programme is intended to support Ukraine’s return to economic and financial stability, by addressing financial sector liquidity and solvency problems, by smoothing the adjustment to large external shocks and by reducing inflation,” said Mr Strauss-Kahn.

“At the same time, it will guard against a deep output decline by insulating household and corporations to the extent possible.”

Easy credit and a property boom have seen Ukraine’s capital Kiev expand rapidly but the global downturn has seen investors and those willing to offer loans withdraw.

Ukraine also relies heavily on steel, but prices have collapsed and its currency, the hryvnia, has fallen sharply in the past two weeks.

News reported by The BBC

Japanese banking giant Mitsubishi UFJ Financial is to ask investors for up to 990bn yen ($10.5bn; £6.85bn) in a bid to strengthen its funding levels.

Like other finance firms, the bank – which is buying part of Morgan Stanley for $9bn – has seen its market value shrink in the falling stock market.

It will issue common stock of 600 billion yen and 390 billion yen of preferred shares.

The announcement came after Japan’s Nikkei index closed at a 26-year low.

‘Increasing pressure’

“The group aims for enhanced stabilisation of its financial base and further corporate growth as a global financial group by implementing this capital reinforcement,” Mitsubishi Financial said in a statement.

Compared with banks in the West, Japanese firms have suffered less of the fall-out from sub-prime-related mortgages in the US. This has allowed them to swallow up parts of various Wall Street businesses.

But the slowing economy is also making life more difficult for Japanese firms.

Credit rating agency Standard & Poor’s said the Japanese economy’s slowdown was putting “increasing pressure” on the bank’s asset quality and that its profitability was being further cut by “reduced demand among borrowers and a decrease in fee income”.

On Monday Mitsubishi UFJ Financial shares closed down 15%, after details of the rights issue was leaked.

Further deals

Meanwhile the Nikkei benchmark fell 6.36% to its lowest level since October 1982.

Mitsubishi UFJ announced in September it was buying a slice of Morgan Stanley.

It is the biggest overseas acquisition by a Japanese finance firm and will make Mitsubishi UFJ the biggest shareholder in the US bank.

It has also said it will pay $3.5bn in cash to take full control of UnionBanCal, California’s second-biggest bank, and will raise its stake in Japanese consumer lender Acom to 40% from 16%.

Mitsubishi UFJ is the world’s second largest bank holding company with $1.1 trillion (£595bn) in deposits.

News reported by The BBC

A number of the UK’s leading companies are backing a campaign aimed at getting the government to scrap the tax on empty business properties.

Firms such as Tesco and British Airways have signed up to the call from the British Property Federation (BPF).

The BPF has dubbed the taxation the “bombsite Britain tax”, as it says firms are encouraged to demolish empty buildings rather than pay the tax.

The Treasury said it was keeping the matter “under review”.

‘Ludicrous’

In an open letter to Gordon Brown, the BPF said it wanted the tax suspended.

The BPF says the tax is increasing the chances that more firms, both large and small, may go bankrupt as the economy continues to contract.

“For the sake of regeneration and development, the government needs to think twice about this ill-conceived tax” Bob Laxton, MP for Derby North

“Taxing hardship and business failure is a ludicrous way to help people through the hard times,” said BPF chief executive Liz Peace.

“Brown must act now to undo this mess.”

Other firms signed up to the campaign include McDonald’s, Nokia, B&Q, Next and Legal & General.

Tax changes

The level of tax on empty premises that firms have to pay is calculated by local authorities.

Prior to changes brought in from April this year, offices and shops were exempt from taxes on empty properties for three months, and then only had to pay 50%, while industrial properties had complete exemption.

Following the reforms, offices and shops have to pay 50% of the taxes on empty buildings for the first three months, and subsequently must pay the full amount. Industrial properties have to pay 50% for the first six months, and then total amount.

“The reforms to empty property relief are aimed at ensuring a fairer balance between incentives to re-let property, and giving property owners a period of relief while they manage vacancies,” said a Treasury spokesman.

“As with all taxes we will keep the position under review.”

Council impact

Birmingham Council, which has also joined the campaign, estimates that companies in the city are having to pay more than £23m in empty rates per year.

It adds that the local authority itself has to pay more than £800,000 annually for empty council property.

The BPF is calling for full relief from the taxation for the first three months that any property is unoccupied.

It wants this to then continue indefinitely for industrial premises, and for shops and offices to only have to pay 50% of the tax after the first three months.

Other local authorities have also released figures for how much taxation they are having to pay on empty property.

Derby City Council says it has to pay £112,030 per year on 54 properties, while Bristol City Council says its bill totals £381,346.

“For the sake of regeneration and development, the government needs to think twice about this ill-conceived tax,” said Derby North MP Bob Laxton.

News reported by The BBC

South Korea’s central bank has cut its key interest rate to 4.25% from 5% in an attempt to boost one of Asia’s biggest economies.

It is only the second time in history Bank of Korea has cut interest rates at an emergency meeting.

The bank said the rate cut was needed “to guard securely against the possibility of a sharp contraction of real economic activity”.

Some analysts think the bank may be forced to lower rates again.

Goldman Sachs economist Kwon Goohoon called the rate cut “decisive and provocative”, adding that at least one more cut of half a percentage point was likely early next year.

“Additional rate cuts are possible. A cut in rates might take place in December but more likely early next year,” said Meritz Securities economist Cho Seong-joon.

South Korean shares closed higher on Monday for the first time in several days, while the won continued to fall against the US dollar.

Government actions

South Korean President Lee Myung-bak told the country’s parliament the government was going to cut taxes and increase public spending.

He said the current situation could not be compared to the 1997-1998 financial crisis.

“What matters is rather the psychological aspect,” he said.

“The most dreadful foe we have to guard against is over-reacting and being engulfed in fear that exceeds reality.”

Earlier this month South Korea had already taken several steps to protect the economy from the global financial crisis.

These measures included a $135bn government package to help struggling banks, and cutting interest rates by a quarter of a percentage point.

News reported by The BBC

Millions of pounds have been wiped off the value of the UK’s pension pot in the last year as shares have fallen, a pension consulting company says.

The value of employees’ defined contribution pensions has dropped by nearly a third from £552bn to £395bn, according to research by Aon.

About four million people in the UK are in so-called “defined contribution” pensions provided by their employer.

An advice body says they are encouraged to take too many investment risks.

Defined contribution schemes are different from a final salary scheme, which guarantees a pension based on end-of-career earnings and length of service.

Under a defined contribution scheme, workers and their employers make contributions which are invested in shares and bonds, but the size of the final pension is not guaranteed as it depends on market performance.

Slashed

Research by Aon Consulting suggested that the value of defined contribution assets dropped by 28% to £395bn between October 2007 and October 2008.

“Most workers will have the fortune of time on their side as their retirement will be many years away, enough time to weather the current storm” Helen Dowsey, Aon Consulting

Coping during the downturn

During the same period, an estimated £6.7bn of contributions were paid into these schemes by employers and their staff.

“It may appear a double blow to workers that not only are they facing more of a struggle to make ends meet, but the economic turmoil is also seemingly eating into the money they have been putting aside for retirement,” said Helen Dowsey, of Aon Consulting.

“However, most workers will have the fortune of time on their side as their retirement will be many years away, enough time to weather the current storm.”

She said anyone approaching retirement might consider delaying, and she encouraged people nearing retirement to seek professional help when considering how to move around their investments.

The estimate is the first of its kind by Aon Consulting and was gleaned from a range of market information, research and data.

The government-funded Pensions Advisory Service warned earlier this month that millions of people were being encouraged to take too much risk with their pensions.

It said workers who paid into pension schemes which invested heavily in shares might not have been aware of the risks.

News reported by The BBC