The British pound is coming under pressure again on the currency markets as investors dump the pound in favour of currencies like the Euro and the US Dollar!

Sterling has dropped to the following rates:

One UK Pound will get you just $1.37 in the USA – this is great for the travelling American so they can come to visit our shops like we did when the rate hit over $2 to the Pound!

One UK Pound will get you €1.06 – which is not quite as low as it has been, but it is still very low and will likely give you a par exchange at the airports when you are travelling abroad.

One UK Pound will translate to Australian $2.10 – for those of you that are travelling further afield!

One UK pound gets Japnese Yen 121.77 – Which is not good for Japan exporting cars to the UK and this will put pressure on these car manfacturers!

From a business perspective this is good for companies that export to other countries and especially to the US and Europe, because our goods become so much cheap cheaper (up to 35% cheaper in the USA from the Sterling high last year) to those countries where we export.

However, where companies are heavily dependent upon imports, then where these come from within the Eurozone and from the USA, their costs will have risen sharply and of course could force them to either put up their prices or could force them out of business all together! Where prices are forced up, this could put pressure on inflation within the UK, which is the last thing we need right now!

The 15 eurozone leaders are meeting in Paris to try to establish a common front to tackle the financial crisis.

They were joined by British PM Gordon Brown, who urged them to adopt similar measures to his bank rescue plan.

According to a draft statement seen by the AFP news agency, the leaders plan to guarantee loans between banks.

Banks’ unwillingness to lend to each other has been the key problem of the credit crunch and it is hoped that loan guarantees will solve it.

Money lent for up to five years would be guaranteed but the banks would be charged at commercial rates for the service.

The draft statement also says that the eurozone leaders are determined not to let any major financial institutions fail and will step in to provide extra capital to failing banks if necessary.

Gordon Brown says there is ‘common ground’ on what needs to be done

A member of the French government has already said that the French cabinet will hold a special session on Monday to approve a bill offering state guarantees and recapitalisation to banks in trouble.

Several other countries also announced steps to protect their banks and depositors on Sunday.

– Norway’s government said it would take control of the Norwegian branch of ailing Icelandic bank Kaupthing
– Norway is to borrow 41bn euros ($55bn; £32bn) to pay for measures to provide extra cash to financial markets
– Portugal’s finance minister announced a 20bn euro state guarantee for banks
– Australia has agreed to guarantee all deposits in the banks, building societies and credit unions for the next three years
– New Zealand is guaranteeing all retail bank deposits for two years.
– The British rescue plan, which was announced last week, involves making £50bn available to buy stakes in major banks, another £200bn for short term loans from the Bank of England and offering £250bn of loan guarantees for banks lending to each other.

“The decisions we make in the next few days are decisions that will affect us for many years ahead” Gordon Brown

The French plan sounds similar, although the details are not yet clear.

After meeting other EU leaders, the British prime minister said he expected confidence in the banking system to be restored “in the next few days”.

“The decisions we make in the next few days are decisions that will affect us for many years ahead,” Mr Brown said.

He added that European leaders had found “common ground” and agreed “co-ordinated action” on the way forward.

Gilles Carrez, a senior member of the French parliamentary finance committee, said earlier: “We need a law to put in place a state guarantee and an organ that will be charged with raising funds to help banks deal with their need to recapitalise.”

The heads of the EU’s four biggest economies – Britain, France, Germany and Italy – held a first crisis summit last week, but were split over the need for a common plan.

Ahead of Sunday’s eurozone meeting, French President Nicolas Sarkozy and German Chancellor Angela Merkel ruled out a joint financial rescue fund for Europe, along the lines of a recent $700bn rescue by the US government.

Late on Friday, the architect of the US scheme, Treasury Secretary Henry Paulson, said the US planned to invest directly in banks for the first time since the 1930s, following the UK programme of partial bank nationalisation.

News reported by The BBC

The European Central Bank has kept its key interest rate on hold at 4.25%, resisting pressure for a rate cut.

Eurozone inflation fell to 3.6% in September, but it is still well above the 2% target.

ECB president Jean-Claude Trichet said that a quarter-point interest rate cut had been considered, but there had been a unanimous vote against it.

He added that the risk to economic growth had increased and that economic activity was weakening.

Mr Trichet said that the effects of the banking crisis had yet to feed through into economic data.

But he also said it was important for the ECB to keep inflationary expectations down.

“With the weakening of demand, upside risks to price stability have diminished somewhat but they have not disappeared,” he said.

Recession

Last week, Ireland became the eurozone’s first economy to be formally in recession.

There is concern that the problems facing Europe’s banks could send other economies into recession.

“In the past four days, the governments of no less than seven European countries were required to nationalise banks or guarantee the deposits of large cross-border institutions,” US economics professor Nouriel Roubini said on Wednesday.

The ECB has been lending billions of euros to its struggling banks in an attempt to ease the credit crisis.

News reported by The BBC

Nationwide is planning to expand into the Irish Republic next year, giving the UK’s largest building society access to European funds to help combat the effects of the credit crunch.

The mutual has already approached the Financial Services Authority and the Irish Financial Services Regulatory Authority over the move and expects to begin operating early next year.

A spokesman described the decision as a “prudent strategic move … to further diversify its geographical operations and funding opportunities.” The move will give Nationwide a foothold in the eurozone, which would give it access to some of the European Central Bank’s funding for fin-ancial institutions to help ease the effects of the credit crunch.

The building society has more than 800 branches, controls half of all mortgage lending business and is the second largest savings provider in the UK.

However, Nationwide’s Republic of Ireland customers will not enjoy the same range of products as their UK counterparts. Customers in the Republic will have access to just two products – an instant access savings account and a fixed-rate bond, available by phone, post or online.

A spokesman for Nationwide said: “It is too early to say how the interest rates for these products will compare to the UK market, although they will be competitive for the Irish market.”

There are no immediate plans to open branches in the Republic or offer customers more complex products like mortgages. This also means that Irish customers will not have access to the membership and voting rights that Nationwide’s UK investors enjoy.

“This is a relatively small but growing market and there could be scope for a more wide-ranging product line in the future,” the spokesman said.

Further details of the expansion will be made available after formal applications to the UK and Irish regulators.

News reported by The Independent

The trade deficit of the 15-nation eurozone shrank sharply in June, but failed to meet forecasts, data shows.

The deficit fell to 101m euros ($149.1m; £79m) in June, from a deficit of 3.9bn euros in May.

While the deficit narrowed, it was far off the 7.5bn-euro surplus seen in June 2007, Eurostat said. Some analysts had forecast a 1.2bn-euro surplus.

A major factor adding to the deficit has been a rise in energy imports, with oil prices soaring in recent months.

And demand from the US – the eurozone’s second largest market after Britain – has slipped as the dollar has weakened.

The stronger euro makes goods such as German cars far more expensive for shoppers in the US.

Overall imports in June reached 135.6bn euros, while exports hit 135.5bn euros.

The latest figures come after the eurozone economies recorded their first contraction since 1999.

Between April and June, the area’s economy shrank by 0.2%, adding to concerns that a recession could be imminent.

The eurozone’s slowdown has stemmed from a fall in exports and lower consumer spending.

News reported by The BBC

It might be tempting from a UK perspective to crow about the latest economic growth indicators.

British growth, at 0.2% for the second quarter (announced a few weeks ago) may have been paltry but it compares favourably with other leading European economies.

Spain registered growth at a snail’s pace of just 0.1% over the three month period. Germany’s economy contracted by 0.5%, while France and Italy chalked up a decline of 0.3%.

But any hubris is misplaced. Margins for error are small and there could be subsequent revisions of the figures. And few economists would predict that the UK is strongly placed to avoid negative growth at some stage over the next year.

Implications

Most alarming for British policymakers is the effect a eurozone slowdown will have on UK companies. Only yesterday, the Governor of the Bank of England, at his quarterly Inflation Report media conference, was citing export led growth as a positive factor for the economy next year.

Whatever happened to consumer demand in the wake of the housing market slowdown, he seemed to suggest, exporters could take up the strain.

But export driven expansion will be hard to achieve if Britain’s biggest trading partner is in recession. Half of the UK’s overseas sales of goods and services go to the eurozone. So a slowdown there will have significant implications for order books and jobs.

Consultancy Capital Economics has already run a slide rule across the trade numbers. It believes that total goods and services exports in the UK could be cut by 5% as a result of the European downturn. This might reduce UK GDP growth by as much as 1.2%.

All this assumes that exporters wont get a boost from the weaker pound.

Stark conclusion

Even so there is a stark conclusion to be drawn here – that a stagnant British economy could be pushed into recession by a continued slide in the major economies across Europe.

British exporters are aware of these harsh headwinds from across the Channel.

The outdoor clothing manufacturer Barbour, for example, told the BBC they were having to work hard to hold sales levels in Germany and knew things would get harder.

They were concerned about the German economic downturn and knew they were in for a tough winter.

All in all the British economy is in for a rough enough ride as it is, without being dragged down further by the eurozone’s problems.

News reported by The BBC

The 15 economies of the eurozone contracted by 0.2% between April and June, heightening fears that the euro area is sliding towards recession.

The eurozone’s first decline since it was created in 1999 was driven by a slowdown in exports and consumer spending.

The German economy, Europe’s largest, shrank by 0.5% in the second quarter compared with the previous quarter.

And in both France and Italy GDP shrank by 0.3% in the second quarter.

The slowdown was less pronounced in the wider European community of 27 nations including the UK, which contracted by 0.1%.

“The possibility that the European Central Bank is cutting interest rates in 2008 to support the sickening economy is remote” Economist Jörg Radeke

However Estonia, where the economy contracted for the second consecutive quarter, is now considered to be in recession.

Ireland, whose economy contracted in the first quarter of the year, has not yet released its second quarter growth figures.

Compared to the second quarter of 2007, the eurozone economies grew by 1.5% and the 27 European Union countries grew by 1.7%.

The news weakened the euro, which was already well down from its recent highs against the dollar.

But high eurozone inflation, which was unchanged on the month, made it unlikely that the European Central Bank, which raised interest rates last month, will reverse its stance.

‘Deterioration’

The figures reflect the way in which exporters have been affected by the strength of the euro, which makes their products more expensive overseas, and a more general slowdown in global demand.

French finance minister Christine Lagarde, said the decline in the French economy in the second quarter “mostly reflects the deterioration of our international context, which particularly weighed on our exports and which is common to all European countries”.

“The fundamentals of the French economy are healthy,” she added.

Meanwhile a German finance minister said its economy could contract again in the next quarter which would mean Germany was officially in recession.

“At the moment that cannot be ruled out,” said deputy economy minister Walther Otremba.

‘Orders down’

Germany was once seen as the main driver of growth in the eurozone.

Send us your commentsHowever exporting companies, such as Berlin-based manufacturer Witels Albert, are cutting back after seeing orders decline in the last few months, especially from the US.

“There is a slowdown in the industry and one of the main reason is the rise in oil price,” chief executive Horst Schneidersreit, told BBC News.

“We have seen this in our own company. Our orders have slowed down.”

Despite the sharp slowdown in the second quarter in Germany, the government said it still expected GDP growth of 1.7% this year.

Spain was the only one of the major eurozone economies to see its economy expand between April and June. It grew by 0.1% compared with the previous quarter.

Inflation steady

Figures also released on Thursday showed that prices across the euro area rose by 4% in July compared to a year earlier.

The European Central Bank increased interest rates in July by 025% to 4.25% in a bid to combat rising prices.

The July figure is the same as June’s inflation rate, but although the rate of increase is not quickening, economists said rising prices were still a concern.

“Although inflation has been stable at 4.0 % in July, it is still way above target,” said Jörg Radeke from the Centre for Economics and Business Research.

“Hence, the possibility that the European Central Bank is cutting interest rates in 2008 to support the sickening economy is remote.”

News reported by The BBC

The European Central Bank (ECB) has kept interest rates unchanged at 4.25% amid signs of slowing economic growth.

ECB President Jean-Claude Trichet said growth in the 15-nation bloc had been “particularly weak” in mid-2008.

But he stressed that against the deteriorating outlook, the ECB’s priority is to maintain price stability as inflation reaches record levels.

Earlier on Thursday the Bank of England opted to keep rates unchanged at 5%. US interest rates are currently 2%.

Warning on wage demands

Mr Trichet said that eurozone inflation, which has surged above 4%, was likely to remain above the ECB’s 2% target for some times as a result of sharp increases in food and energy prices.

“Annual inflation rates are likely to remain well above levels consistent with price stability over a protracted period of time and risks to price stability in the medium term remain on the upside,” he said.

He warned that spiralling wages to cope with the high costs of food and fuel will only add to further inflationary pressures and said the ECB would monitor the situation.

Earlier this month, German airline Lufthansa agreed an inflation-busting 5.1% pay rise for ground staff to end a five-day strike over pay.

In a bid to persuade workers that the current high rate of inflation will pass, the ECB raised rates in July – the first increase in a year.

Policy dilemma

Central banks worldwide are facing the twin threats of accelerating inflation – caused by rising energy and food costs – and slowing economic growth.

While tackling inflation remains a key concern of the ECB, analysts have pointed to recent eurozone figures highlighting how much the area’s economy has slowed.

The eurozone’s services sector contracted at its fastest pace for five years in July, while separate figures showed retail sales for the region in June dropped by 3.1% year-on-year – the biggest fall since 1995.

At the same time, recent data has highlighted the extent of inflationary pressures facing policymakers.

Eurozone inflation increased to 4.1% in the year to July, the highest rate since the measurements began in 1997.

Jennifer McKeown, an economist at Capital Economics said: “With the eurozone economy already at risk of recession, we still expect rates to fall further than markets currently anticipate next year”.

News reported by The BBC

All major members of the Organisation for Economic Cooperation and Development (OECD) face economic slowdown, the Paris-based body says.

The 30-strong OECD said its research for June indicated “a continued weakening outlook for all the major seven economies”.

But it warned that the slowdown was likely to be deeper than expected in the eurozone and the UK.

In contrast, economic growth in China and Brazil was still strong.

The OECD comments are based on its composite index of leading indicators (CLI), which predicts economic conditions in six months’ time.

Its indicator for the OECD area fell to 96.8 in June, from 97.4 in May.

A similar indicator for the Group of Seven leading industrial nations fell to 97.0 from 97.4 over the same period.

OTHER OECD INDICATORS
UK down 0.8 in the month and 4.8 points over 12 months
Canada down 1.1 and 3.9 points
France down 0.9 and 5.1 points
Germany down 0.9 and 5.4 points
Italy down 0.7 points and 4.5 points.
Source:OECD

“The latest data for non-OECD member economies tentatively point to expansion in China and Brazil and a downturn in India and Russia,” the group added.

The eurozone indicator fell by 0.8 points in June for a 12-month fall of 5.2 points.

The figure for the US economy fell by 0.2 points and was 5.4 points down over 12 months. The June figure for Japan was unchanged but showed a fall of 4.1 points over a year.

China growth

The OECD said its indicator was “designed to provide early signals of turning points (peaks and troughs) between upswings and downswings in the growth cycle of economic activity”.

The indicator for China was steady in June and rose by 0.8 points on a 12-month basis. The figure for India fell by 1.5 points in May and was 4.4 points down from the May, 2007 level.

The indicator for Russia fell by 1.2 points in May, but showed a rise of 0.9 points over 12 months. And for Brazil the figure fell by 2.2 points in June but rose by 1.4 points from the level in June last year.

Revised projections

Both the OECD and IMF have steadily revised downwards their expectations for economic growth in 2009, although the IMF recently changed its mind for non-OECD countries.

The expectation of lower growth in Europe, which were reinforced by warnings from ECB president Jean-Claude Trichet on Thursday, have worried the markets and led to falls in the value of the euro against the dollar.

News reported by The BBC