We have by no means seen the end to the banking crisis, as we see the UK government increase it’s steak in the Royal Bank of Scotland (RBS) to 70%! RBS has converted the preference dividends into ordinary shares to avoid paying the £600 million a year 12% fixed dividend so as to increase lending.

So the UK is at the point of having its very first nationalised bank, as Gordon Brown prepares for a new bank bail-out package to encourage further lending. Across the Irish see the Irish Government is looking to Nationalise the Anglo Irish Bank, as funding problems continue with this bank. So we are far from out of the woods and I might go as far as to suggest that we might even be still on the way into the woods!

The government also revealed a £20 billion loan guarantee scheme for small and medium businesses this week designed to limit the risk to banks that lend to businesses with a turnover of less than £500 million.

Mixed retail news

Matalan reported this week that its sales in its five weeks to 4 January were up by 5.9% over the same period last year. Matalan has 203 stores across the UK and sells discount clothing. Primark has also reported an increase in its Christmas sales which were up by and incredible 18% over the 16 weeks period to 3 January. In contrast to this Next reported a 7% drop in sales between July 2008 and Christmas and M & S have reported third quarter merchandise sales down by 8.9%.

Good news on the jobs front, as Waitrose is on an expansion push and intends to add 4,000 jobs, as the company prepares to buy 13 stores from the Co-op and open a further 9 stores across the country.

Computers sector in a down-turn

Although less than expected, Intel reported a staggering 90% fall in the last three months of 2008 falling to $234 million (£158 million) from £2.3 billion (£1.58 billion). Sales of computers have dropped as business owners delay spending money on buying new equipment as do domestic users pull back on their own spending on computers.

A change across the pond in America as Barack Obama prepares to take office next week he has pledged to spend $100 billion (£67.5 million) of the remaining bank bail-out fund on tackling the US mortgage crisis. The US senate has already given Mr Obama their approval to spend the balance of this fund, which amounts to $350 billion (£236 billion). The senate has also revealed plans for an $825 billion (£556 billion) package for tax cuts and spending to stimulate the US economy.

This week also saw America’s largest bank knocking on the US governments door yet again, as the Bank of America is to receive a further $20 billion (£14 billion) US government funds and a further $118 billion (£79.6 billion) of guarantees against bad assets. Bank of America had one of the strongest balance sheets of all American banks up to taking over Merrill Lynch, which has posted huge losses and there are reports that allegedly, the takeover by the Bank of America and the due diligence was not done properly.

Which car-makers will survive this crisis?

Third quarter car-sales saw a drop of 20% which led Guenter Verheugen the EU’s Industry Commissioner to warn that there are no guarantees that all European car-makers will survive the economic turn-down. The US carmakers are already having major problems and two of the mains ones, Chrysler and General Motors, would have gone to the wall if the US government had not bailed them out with spent billions of dollars.

End of the week saw:
Stock exchanges:
FTSE 100: 4,147
DOW: 8,281
S&P: 850.12
Nikkei: 8,230

Currencies
UK Sterling £ to US Dollar $ 1.48309
UK Sterling £ to Euro € 1.11306
UK Sterling £ to Japanese Yen 134.980
UK Sterling £ to Aus $ 2.19359
US Dollar $ to Euro € 0.750479
US Dollar $ to Japanese Yen 91.0150

Commodities
Nymex Crude oil – $36.51
Gold – $839.90

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

Gordon Brown is to go to Paris on Sunday for talks with Nicolas Sarkozy on the global financial crisis.

Downing Street said the prime minister would meet Mr Sarkozy, along with the head of the European Commission and governor of the European Central Bank.

Mr Brown will then attend a scheduled meeting of leaders from eurozone countries at Mr Sarkozy’s invitation.

Meanwhile, finance ministers from the G7 group of nations are continuing talks on the crisis in Washington.

Ministers, including Chancellor Alistair Darling, have pledged action to tackle the global financial meltdown, including a plan to unfreeze credit markets.

US President George W Bush said the serious global financial crisis demands a serious global response.

‘No resignations’

Mr Sarkozy said he planned to meet the British prime minister in order to “maximise” efforts by European leaders to deal with the global financial crisis, which has seen global equity markets go into freefall and the collapse of several leading international banks.

Mr Brown had not been due to take part in the meeting of eurozone leaders, but a Downing Street spokesman said the French PM had invited him to attend part of it.

Separately, the deputy chairman of the Conservative Party, John Maples, said leading bankers involved in the credit crisis should resign.

Mr Maples told the BBC the major banks in Britain had “got away with no resignations”, despite the announcement earlier this week of a £500bn government rescue plan for the financial sector.

“In America people are being fired all over the place, here the chairmen and chief executives of half a dozen banks really ought to do the honourable thing and resign,” he said.

A Treasury delegation is in Reykjavik for talks to resolve the dispute over frozen UK investments held in failed Icelandic banks.

The group wants to establish a claims procedure for British depositors to get their money back as soon as possible.

Mr Brown met his counterparts from France, Germany and Italy for emergency talks last weekend, but they failed to agree on a common plan beyond a cut in interest rates.

News reported by The BBC

Gordon Brown has called for the recent falls in the price of oil to be passed on to UK consumers.

The price of oil has plummeted – from a high of $147 a barrel for US light crude this summer to $77.99 on Friday.

The prime minister said: “I want these price cuts passed onto the consumer, and passed on as quickly as possible.”

The price of oil has been falling due to increasing concerns that the economic slowdown will lead to a fall in global demand for the commodity.

Price cuts

Already, some supermarkets – from whom other fuel retailers take their lead – have cut prices.

Tesco announced on Friday it was cutting petrol and diesel prices by 3 pence a litre, with immediate effect. Asda cut its prices by a penny last week.

Morrisons has cut prices by five times since July, with the latest drop just last week, a spokesperson said. “When the cost of crude oil and refined product falls, we pass the benefits on to our customers as quickly as possible,” the company said.

“Asda has been the real trail blazer [in reducing prices], with Morrisons to a lesser degree,” said Luke Bosdet, spokesman for the AA, adding: “Reductions in the price of oil are not passed on as quickly as they could be.”

Ray Holloway, director of the RMI Petrol Retailers Association, suggested that it is the prime minister himself who makes the real difference to prices. “Gordon Brown always has the ability to reduce fuel prices through a fuel tax reduction, but avoids it,” he said.

Demand ‘slow’

The prime minister’s statement comes on the same day that the International Energy Agency (IEA) cut its forecast for oil demand growth to its lowest level for 15 years.

“Although non-OECD slowdown is also likely, it is by no means certain that growth will be choked off altogether” International Energy Agency

It cited economic weakness and “a liquidity crisis” as the reasons.

The IEA has reduced its 2008 forecast by 250,000 barrels per day, to 440,000 barrels, and its 2009 estimate by 190,000, to 690,000 barrels per day.

US light crude was down $4.09 at $82.53 a barrel on the news while London Brent crude fell $3.84 to $79.18 a barrel.

Lack of liquidity

The Paris-based agency blamed global economic weakness and, in particular, the lack of liquidity in world markets resulting from the current financial crisis, for the drop in demand.

The impact of this weakness, it said, was being felt most acutely in developed countries, with developing economies showing “a degree of resilience”.

“Although non-OECD slowdown is also likely, it is by no means certain that growth will be choked off altogether. We have yet to see unambiguous evidence of a sharp slowdown in China, while Middle Eastern demand growth remains robust,” the agency said.

Falling demand among developed economies has seen the price of oil fall dramatically from its summer highs. US light crude hit a June high of $147 a barrel.

Supply lines

The IEA said the credit crisis was also hitting supply, as it made it difficult for companies to raise money to invest in the industry.

“Credit shortages are rapidly becoming yet another in a long line of impediments to industry investment,” the agency said.

Oil producing cartel Opec agreed in September to strict output targets that have so far reduced output by 300,000 barrels a day, “largely due to unplanned outages”, according to the IEA.

Global oil supply fell by 1.1m barrels a day in September.

However, it is in the interests of Opec to cut supply in order to put upward pressure on the oil price. If supply falls sufficiently, then oil prices will stabilise.

Opec has called an extraordinary meeting on 18 November in Vienna to discuss “the global financial crisis, the world economic situation and the impacts on the oil market.”

News reported by The BBC

Chancellor Alistair Darling has pledged action to deal with the “extraordinary turbulence” in the financial system in his speech to the Labour conference.

He said the UK economy was going through “difficult times” but said he was “confident” it would emerge from the current downturn stronger.

He promised to avoid “knee-jerk” actions, saying his main priority was to stabilise the banking system.

Mr Darling also said Gordon Brown was the best man to deal with the crisis.

Uncertain times

Mr Darling sought to reassure Labour delegates that although the UK was facing “unprecedented economic challenges”, the government had the right policies to deal with them.

“One thing I am certain about is that we have the right prime minister, the right team and the right policies” Alistair Darling

BBC political editor Nick Robinson said that in his speech Mr Darling had sought to put the fact he was a “low key” speaker to his advantage, delivering a reassuring message about the economic situation.

“These are very uncertain times,” he said.

“But one thing I am certain about is that we have the right prime minister, the right team and the right policies to help the country through them.”

Alhough the economy was facing a “bumpy” period ahead, Mr Darling said its fundamental strength “means we can be confident about the future”.

Mr Darling said the action the government had taken to support the troubled banking system in recent days contrasted with the attitude of the Conservatives who had “walked away” from tough decisions over Northern Rock and other key issues.

“They may well claim to be committed to financial stability but people should be judged on what they do not what they say,” he said.

Mr Darling said he was committed to taking whatever steps were necessary to tackle market turmoil, including introducing new legislation on bank deposits and regulation within weeks.

He said regulators would look at the issue of excessive City bonuses with the Financial Services Authority (FSA) saying it could punish firms for encouraging too much risk-taking.

“How extraordinary that a Chancellor could give a speech in the middle of an economic crisis and provide no plan about how the government is going to handle it” George Osborne, Shadow Chancellor

But he warned that solutions to the problems of globalisation will not be found by one government alone.

The Conservatives said it was “extraordinary” that Mr Darling ad “no plan” to deal with the current financial crisis while the Lib Dems said the chancellor was “complacent” about the worsening state of the economy.

Tax question

Mr Darling said the government would be “disciplined” in its attitude to the public finances and would have “to live within its means”.

Many experts have said taxes will have to rise to cope with the shortfall in revenue as the economy slows.

When asked earlier by the BBC if income tax would go up Mr Darling declined to answer “yes” or “no”, instead saying “it is not the time to take money out of the economy”.

When asked again, Mr Darling told the BBC that the time to pay back debt was when the economy was doing better.

He also said that at the moment, rather than increasing taxes, basic rate tax payers were paying less tax this month.

He rejected calls from union leaders and MPs on the left of the party for tax rises for the wealthy and also for a “Robin Hood” energy tax.

Darling is saying he will tackle faults in the economic system, what is the purpose of a chancellor?Confusus, Wales

Send us your commentsHis speech followed a debate during which unions and some Labour MPs demanded a windfall tax on energy firms to help impoverished households pay their gas and electricity bills.

The demands for a levy, which was rejected by Mr Brown earlier this month, were spearheaded by Unite’s joint general secretary, Tony Woodley.

Addressing the same issue, Business Secretary John Hutton said a tax would deter potential investors.

The windfall tax and other fuel poverty calls were backed by delegates at the party conference.

However the result is largely symbolic – it means the party’s National Policy Forum will have to discuss the issue, rather than actually making the issue official party policy.

‘City excess’

Under pressure to curb the culture of excessive City bonuses, Mr Darling said banks should not behave “recklessly” or do anything that could hurt the wider economy.

Speaking on the same issue, Mr Hutton said “curbing excesses” in the City may be necessary to ensure the integrity of the financial system was not “undermined”.

The chancellor and Mr Brown will fly from the conference to New York to seek international agreement on tighter regulation of the financial sector.

Other ministers who spoke on the third day of the conference included Foreign Secretary David Miliband, Defence Secretary Des Browne and Business Secretary John Hutton.

News reported by The BBC

Gordon Brown has defended a decision to postpone a 2p rise in fuel duty after David Cameron suggested it was timed to coincide with next week’s by-election.

The increase has been put off from October until at least next March.

In the Commons, the Tory leader asked if this had “anything to do with the Glasgow East by-election”.

But the prime minister said the move, coming just before MPs’ summer break and amid rising oil prices, would help people facing high food and fuel bills.

Pressure

The increase in fuel duty – originally planned for last March – had already been postponed until this October.

But the government says it will now not make any changes until the Budget next March at the earliest.

The price of unleaded petrol has risen 25% over the past year and pressure has been mounting for duty to be cut.

“Can you tell us whether this decision had anything to do with the Glasgow East by-election?” David Cameron Tory leader

The announcement of a further delay to the planned rise was made by Chancellor Alistair Darling ahead of a Conservative-called debate on fuel duty now taking place in the Commons.

At prime minister’s question time, Mr Cameron said: “The government announced today that after months of dithering it is scrapping the 2p tax rise on fuel.

“Can you tell us whether this decision had anything to do with the Glasgow East by-election?”

Mr Brown replied: “It is right to announce, as we have done previously, a decision before the House rises (for the summer break).”

He said the government would “continue to help hard-pressed families who are facing high fuel bills and high food prices because of what is happening in every country in the world….

“And in recognition of the problems that people face with petrol, we are freezing the duty of petrol for the full year. And we will bring forward further measures to help families in due course.”

‘Winter of discontent’

The prime minister’s spokesman said there were “lots of precedents” for announcements on fuel duty to be made before the parliamentary summer recess.

He said Mr Darling had “decided to do it now because he wanted to end any uncertainty”.

Mr Brown said he was working to overcome a difficult economic situation
But Liberal Democrat leader Nick Clegg warned a “winter of discontent” was “just around the corner” with jobs at risk and families coping with rising food and energy prices.

“You promised to abolish boom and bust. But now we’ve got both – inflation’s booming, the economy’s bust,” he told the prime minister.

Mr Brown said employment was at its “highest level ever” according to labour force statistics published on Wednesday and inflation was lower than the rest of Europe and the US.

“We are taking action to help people through these difficult circumstances,” he said and urged Mr Clegg to “see the economy in its proper context”.

“This is good news but it does not go anywhere near giving the UK road haulage industry a level playing field to compete with foreign truckers” Peter Carroll, haulier and fuel protester

But Lib Dem Treasury spokesman Vincent Cable said: “There’s absolutely no reason why the chancellor should have been stampeded into making this decision and we have no indication how it’s going to be paid for.”

The Institute for Fiscal Studies estimates the latest fuel duty decision leaves the Exchequer £550m worse off, and brings the total cost of freezing it this year to £1.1bn.

The decision to postpone the rise was disclosed in a response to a parliamentary question tabled by a Labour backbencher.

Budget consideration

Mr Darling told the BBC News Channel it was clear that oil prices were going to remain “high for some time yet”

“So I’ve reached the view that it’s right now, before the House of Commons goes away for the summer recess, to say that we’re going to postpone the increase that was due in October,” he said.

“I’ll look again at the matter again in the budget but I think that this is the right thing to do to help motorists and to help businesses.”

The decision follows a series of demonstrations by lorry drivers demanding cheaper diesel. Figures show petrol prices have risen nearly a quarter during the past year, and diesel 36%.

AA figures suggest the cost of a litre of unleaded petrol averaged 119.5p across the UK on Tuesday, with diesel averaging out at 133p.

Fuel duty increases have been postponed a number of times over recent years when oil prices have been high.

News reported by BBC