The last full week of 2008 before New Year which has seen the price of oil fall still further amid a continued down-turn in world economies.

Early 2009 will be interesting for the retail industry, as we see another high street chain “Adams” go into administration. All the stores have been discounting heavily even before the January sales so that any revenue they made leading up to Christmas would lead to reduced profits and lower bank balances than normal.

This week Zavvi was placed into administration, a retailer that was heavily dependent upon Woolworths. Woolworths has been in administration for a number of weeks now, which has had a bad knock-on effect on Zavvi and this will result in the loss of over 3,000 jobs if a buyer is not found. Zavvi sells music, DVD’s and games and was a result of a management buy-out of Virgin Mega Stores in 2007.

Oil falls to another low

This week saw oil drop to below $40 a barrel and ended up at $37.80 at the end of the week. With more bad data coming out of the US with house sales at an 18-year low, commodity traders are worried that demand will continue to fall, which has pushed the price down lower.

Car-industry woes

Toyota has seen its first loss in 71 year , with the Yen has been strengthening recently and with the world economic slow-down Toyota finds itself in an unusual position with demand for its cars falling, it is expected to report a loss of 150 billion Yen (£1.13 billion). To compare Toyota reported a profit of 2.27 trillion Yen (£17.13 billion), which puts things into perspective. Sales of Toyota cars fell by over 20% in November over the same period last year, dropping to sales of 618,000.

Sterling continues its weakening trend

This week I reported a low of just over €1.05 per pound, but the Euro has ended the week even lower at just under €1.05. We are now very close to a one to one rate and the Euro has fallen by 20% since September this year.

Sterling fall is a life-saver for UK economy, The sharp slide in the pound has been a godsend for the UK economy and may have helped Britain avert a much more serious crisis, according to the German bank Dresdner Kleinwort. – as reported by Ambrose Evans-Pritchard of the Telegraph.

Well I would like to close this weeks round up by wishing everyone a Happy New Year and that they have a Prosperous 2009 – why not vote now in our Forum Poll on The Financial Crisis.

End of the week saw:
Stock exchanges:
FTSE 100: 4,217
DOW: 8,516
S&P: 873
Nikkei: 8,740

Currencies
UK Sterling £ to US Dollar $ 1.47591
UK Sterling £ to Euro € 1.04976
UK Sterling £ to Japanese Yen 133.872
UK Sterling £ to Aus $ 2.16884
US Dollar $ to Euro € 0.711265
US Dollar $ to Japanese Yen 90.7050

Commodities
Nymex Crude oil – $37.80
Gold – $870.20

The price per barrel of oil has fallen to below $40 and ended the day at $39.73.

Demand for oil is still continuing to fall due to the world economic crisis. I thought again that the price had hit a threshold at around $45 and the idea of $25 per barrel put forward by Merrill Lynch seemed way off, but is looking ever more likely!

This new low price has happened despite output cuts by Opec of some 2.2 million barrels per day earlier this month in order to hold up the price for the Opec members.

With China cutting its interest rates again this week to 5.31% due to economic problems hitting their country, which is leading to lower demand for oil which is putting further downward pressure on the oil price, after such high demand earlier this year which pushed the price up to a record $147 a barrel.

The US car manufacturers are not the only companies struggling in the present economic crisis with Toyota bracing itself for its first lost in 71 years.

The Yen has been strengthening recently and with the world economic slow-down Toyota finds itself in an unusual position with demand for its cars falling, it is expected to report a loss of 150 billion Yen (£1.13 billion). To compare Toyota reported a profit of 2.27 trillion Yen (£17.13 billion), which puts things into perspective.

Of course the USA is one of Toyota’s key markets, so where the US economy is in crisis sales are being hit hard, as we see President Bush throwing cash of some $17.4 billion (£11.78 billion) at struggling carmakers General Motors and Chrysler in order to stave off bankruptcy as they too see demand at an all time low.

The Pound against the Euro is almost on free-fall and ended last week at an all time low and today is trading yet lower and stands at 1.05435.

The good news for the UK economy on this though is when we see Christmas shoppers from Southern Ireland coming across in their droves to shop in Northern Ireland where shops are offering parity for the Euro. It will also make it cheaper for tourists to come and visit the UK of course, but will obviously make it more expensive for us to travel to Europe.

The lower Euro will also help exporters, as our exports will be that much cheaper, however, the underlying reasons for the fall in Sterling against the Euro are what is more to be worried about. The Government has borrowed heavily to get the country out of the current economic mess and investors are worried that the UK economy will be hit particularly badly and more than most countries over the present financial crisis.

Sterling against the Dollar has fallen over the past two weeks, but not to the same degree and the Euro has strengthened against the US Dollar too, which has not helped Sterling.

It is no surprise that the Bank of England had not understood the depth and severity of the economic problems and how deep the current financial crisis was.

The Bank of England admitted in an interview with Panorama that the bank thought the problem was less serious that it has turned out. Also, Sir John Gieve has told the BBC “that the Bank knew “crazy borrowing” was taking place and the price of houses and other assets was rising unsustainably”

It turns out that the Bank of England admits that it relies too heavily on interest rates to control the economy, but in reality this is all that they have at present. The problem with adjusting interest rates, both up and down, is that they affect the whole economy when in fact there might be other controls or adjustments needed.

It seems to me that the Bank of England need to keep a closer eye and control over the method of lending both between the banks themselves and with their customers. Lending has quite clearing got out of control and the World has become credit dependent, so something needs to change and with the present crisis this will probably happen.

One of the problems that the Bank of England needs to address, in my opinion, is how the banks have been falling over themselves to lend more and more on credit cards. With low and zero rate deals to entice customers to switch balances customers are finding that they end up paying the higher rates when the introductory rate ends.

A reminder if you have not yet completed your 2008 tax return and would like to have your tax collected through PAYE. You still have time to elect for HM Revenue & Customs to collect any tax liability that is under £2,000 through your PAYE code.

The claim for this must be made on your tax return and this must be filed electronically on or before the 30th of December 2008.

If this is not the case, then you still have until the 31st of January 2009 to file your tax return online.

Finally, I would like to thank you for your continued support and readership of my business blog and I would like to wish you all a very Merry Christmas and a prosperous New Year.

Official figures from the Office for National Statistics reported this week that UK retail sales rose last month with total sales volume rising by 0.3% in November 2008 and are up by 1.5% from the same time last year.

Sales had been predicted to fall in November and in the same week we see shoppers out in force, so it looks like Christmas might not be as bad as predicted for retailers. However, shops have been discounting their prices heavily and staying open late to entice shoppers in. A survey has also shown that UK consumer confidence has improved for two months running with the reduced VAT rate, lower interest rates and lower petrol prices helping.

Low interest rates in the US

This week also saw the US cut interest rates to below 1% this week and now stand at 0.25%. This was a surprise move, as the rate was expected to be dropped to 0.5%. However, the US Federal Reserve is so concerned about the state of the US economy that it felt the step was necessary. We wait to see what the UK’s Bank of England will do next month with UK interest rates.

Major fraud hits banks and investors at a bad time

HSBC has emerged as one of the worst hit by alleged $50 billion (£33.5 billion) fraud by Bernard Madoffs at a time when banks and investors are already struggling to cope with the credit crunch. It amazes me that financial systems and controls can allow this sort on situation to arise in the first place. It just shows that world governments need to review their financial controls with what has happened in the banking sector and their abuse of sub-prime loans and with this recent alleged fraud.

Credit to remain tight until 2010

John Varley, Barclays Bank head, has told the BBC that although credit remains available to households and businesses, the amount is shrinking. He has also said that both consumers and businesses will continue to find it difficult to obtain credit for until up to 2010. During this period the amount of debt in the economy will reduce and will be hard on a number of individuals, but will be a necessary process to go through in order to get back to a healthy economy again.

Help for the US car-makers approved

President Bush has approved a US government loan of $17.4 billion (£11.7 billion) to help US car manufacturers General Motors and Chrysler in order to help them survive. However, Barack Obama has urged these carmakers to reform their ways and become more efficient and to “not squander this chance to reform”. However, it is very likely that these firms will be knocking on the Whitehouse door in early 2009, as this is a loan to see them through and to help them avoid immediate collapse.

End of the week saw:
Stock exchanges:
FTSE 100: 4,287
DOW: 8,579
S&P: 887.88
Nikkei: 8,589

Currencies
UK Sterling £ to US Dollar $ 1.49195
UK Sterling £ to Euro € 1.07165
UK Sterling £ to Aus $ 2.18563
US Dollar $ to Euro € 0.718290

Commodities
Nymex Crude oil – $42.94
Gold – $838.70

The price of oil fell to below $40 this week and closed the day at $40.32 representing another low of this year and down to levels seen back in 2004.

Opec have been cutting production to help maintain the barrel price and has again agreed to cut this again by a record 2.2 million barrels per day. However, despite these cuts and to-date this is 4.2 million barrels per pay, the price of oil has continued its fall, as inventories of oil build up in America and other major oil consumers around the globe.

Merrill Lynch predicted that, should China go into recession, the price could fall to around $25 per barrel, which I must admit seems so low, but then I though that price had bottomed out at around $55 per barrel and then at just over $40. So it is any ones guess where the bottom might be to this fall in oil prices at a time where consumer confidence in world economies is at an all time low.

The US Federal Reserve surprised analysts when they cut rates to 0.25% instead of the predicted 0.5% and as a result the US Dollar fell against other currencies.

It could be possible to see these low rates in the UK as well, with the Bank of England cutting rates to 2% earlier this month and considering cutting them further in the minutes of that same meeting. It will be interesting to see where rates will go next and I will certainly be looking on with interest at next months Bank of England meeting.

Inflation in the US saw a record fall of 1.7% bringing the rate down to 1.1%, which has lead the US Fed to cut the interest rate to this all time low. The inflation in the UK is much higher than in the US still sitting at over 4%, but the rate is expected to fall to similar levels as that of America and consequently, our interest rates could fall to similar low levels too.

The administrators of Woolworths have confirmed that all their stores will be closed by 5 January 2009, which is one of the casualties of the present economic crisis. If no part of the business can be sold to the still interested parties, this will add a further 30,000 jobless to the ever increasing unemployment list. The jobless total, which is expected to rise, will in itself continue the downward pressure on the UK market and on inflation giving the Bank of England even more reason to cut rates further.

However, it is worrying and what we don’t want to see is a long period of deflation, which is what Japan saw for a long period. Japan suffered greatly as a result of this deflationary period and their property market took a hit of some 60-75% hit. Property in the UK and across the pond in America has dropped dramatically and is continuing to fall. With interest rates at such low levels, which is where interest rate fell to in Japan, there is the real worry that both the UK and America will go into a deflationary period.

Inflation has been reported to have fallen to 4.1% in November, continuing its fall after peaking at 5.2% and falling to 4.5% in October.

The main causes for the rise in inflation being the rise in commodity and food prices, with oil prices rising to record levels back in July 2008. However, most will have noticed the falls in pump prices of both petrol and diesel with petrol prices in the UK below 80 pence per litre and diesel now falling below £1 per litre.

The governor of the Bank of England has written to the Chancellor saying that the inflation rate could fall below 2% in 2009.