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.

This week saw Citibank announce 52,000 job losses after reporting a £13.3 billion loss and 10,000 of those will be in London.

The world stock markets saw another turbulent week with the London FTSE 100 down by 10.6% this week and the Dow Jones by 5.3%, although the Dow was saved at the end of the week by a rally on Friday of 6.5% on the news of Barack Obama appointing his treasury secretary Timothy Geithner.

Do you fancy buying a household name for just £1!

This is the price that restructuring specialists Hilco were prepared to pay for Woolworths this week, as we see another household name in trouble. Woolworths is in discussion with its banks to avoid going into receivership after suffering huge losses with first quarter losses extending to over £90 million. Woolworths has been struggling for some time, but with recent economic events and a further downturn on the high street the company has arrived at a tipping point!

Tax cuts now for tax rises in the future!

The UK’s Chancellor, Alistair Darling, is about to announce his tax cutting and public spending increasing budget in order to boost the UK economy. Mr Darling is looking at spending his way out of economic gloom, but the tax cuts will be short-lived and with Government borrowing at extremely high levels and having risen by a further £1.4 billion in October.

Bucking the high street trend

There are two companies that have bucked the trend this week with Mothercare reporting a doubling on profits this week to £9.5 million over the same period last year and GAP have increased net income to $246 million, up from $238 million last year. GAP’s sales were down by 8% though and the net position was improved due to a cost cutting exercise.

Oil remains volatile

The barrel price of oil remains turbulent this week with the price dropping below $50 a barrel this week for the first time since 2005. Opec are looking to make further cuts in oil production in order to shore up the barrel price, as Opec member oil producers are feeling the pinch after seeing the price of oil fall by nearly 66%.

Inflation on its way down

This week saw some good news on the inflation front from the UK after it fell by more than expected to 4.5% from a high of 5.2%. The Bank of England have hinted at further interest rate cuts to the UK’s base rate though and Treasury Select Committee chairman, John McFall has said that banks must start lending or face nationalisation.

End of the week saw:
Stock exchanges:
FTSE 100: 3,781
DOW: 8,046
S&P: 800
Nikkei: 7,911

Currencies
UK Sterling £ to US Dollar $ 1.48129
UK Sterling £ to Euro € 1.18366
UK Sterling £ to Aus $ 2.36933
US Dollar $ to Euro € 0.799070

Commodities
Nymex Crude oil – $50.29
Gold – $801.80

This week saw the Eurozone slip into recession for the first time since its inception back in 1999.

This week also saw Hong Kong go into recession, with the UK heading for a long and painful recession too. The Pound too a hammering this week against the Dollar falling to a low of just below $1.48 this week. The UK government needs to be careful about how it tackles the present situation and it is not careful, too much borrowing to afford tax cuts and more government spending will cause further falls in the Sterling/Dollar rate. The shadow chancellor, George Osborne, has been criticising the Government and in particular Gordon Brown over his handling of the present situation, which has lead to a warning from Gordon Brown Gordon warning that his actions could lead to a sterling collapse.

So what do we have to look forward to? We have already seen world-wide interest rate cuts and we are to see government spending and tax cuts to help stimulate world economies. This weeks G20 summit has seen world leaders speaking about working together to solve the world financial crisis. The Brazilian President, Luiz Inacio Lula da Silva has voiced his views on the validity of G8 and has said that G20 is much more relevant to the world.

The world leaders at the G20 summit held in Washington have pledged to work together to restore global growth.

We have seen that the G20 leaders have been agreeing on banking reforms to change the financial system to help get the world through this present crisis and to put safety measures in place to prevent the same thing happening again in the future. One way that will help prevent such a situation is to put incentives in place to prevent banks from taking excessive risk.

Mortgage deals low on the ground

The type of deal that used to help first time buyers and others to move home are disappearing fast. Mortgage deals offering a 5% deposit are almost gone altogether and 10% deals are falling fast to around 66 on the market right now, whereas back in February this year were close to 1,200 deals. The other problem that mortgagees face is not having the 1.5% cut being passed on, which is more down to LIBOR being a high rate than base rates.

Pension payment reductions on the cards

AXA have warned about the consequences of people stopping or reducing their pension payments in the face of economic problems, their press release on 15th of November highlights:

“Urgent action needed to prevent £35 billion pension hole”

There are around 1.5 million people planning to stop pension contributions as recession bites and that a two-year pension payment break would cost a 35 year-old man £28,700 from his retirement fund!

The press release comments – “Around half (53%) of those planning a pension break said they were doing so to offset the increased cost of living or to clear debts, with a further 13% blaming increased mortgage payments.”

To see the whole press release click here.

Oil prices down to a low

Oil prices dipped again this week with Brent Crude falling to just over $50 a barrel. Opec are looking to reduce production yet again as we see Iran calling for reduced output as the price of oil drops amid the world economic slowdown. The dramatic falls in the oil barrel price has have major effects on the Russian economy where their economy has become accustomed to high oil prices and with the reduced income has put pressure on their financial systems.

Government support for the car industry

This week also saw the US government in discussion and looking to vote on a bill to pledge $25 billion ($17 billion) to the three major car manufacturers, Ford, Chrysler and General Motors. I am not quite sure whether this is quite what represents a free capital market, but unions of the major car-makers have warned of the dire consequences if any one of the big three went bust.

End of the week saw:
Stock exchanges:
FTSE 100: 4,233
DOW: 8,497
S&P: 873
Nikkei: 8,462

Currencies
UK Sterling £ to US Dollar $ 1.4854
UK Sterling £ to Euro € 1.17167
UK Sterling £ to Aus $ 2.29331
US Dollar $ to Euro € 0.788795

Commodities
Nymex Crude oil – $56.43
Gold – $742.90

Great news this week for business owners and property owners with the Bank of England base rate cut by a massive 1.5% to 3%. Eurozone interest rates also saw a cut to 3.25% this week.

It’s funny, I received a local newspaper yesterday which had a house for sale at a price of £495,000. This is a house where I grew up for my early years of my life and my parents sold some 35-36 years ago for £8,700. So looking on the positive side of things, we may be staring a recession in the face and a burst property bubble, however, give the UK economy time and the worlds economies time for that matter and things will always recover, they always do. In those 30 odd years the UK economy has gone through some very tough times and a number of recessions, but that has not stopped that house rising by 5,689%!

Admittedly, what we are seeing right now is the worst financial crisis in a long time, but we will get through it and in 10 years time it will probably be a distant memory and property prices will start to rise again etc. etc.

The first black US president

America voted this week and we now have the very first black president in the USA or we will do when he comes to power on the 20 January next year. I imagine though that this is the first president in a long while that will truly have to hit the ground running with the present economic crisis facing the US and the world.

Whilst Obama is being careful not to step on the toes of Mr Bush, he has already said that he will implement a stimulus package to boost the economy. He has also said this week that he intends to crackdown on tax havens in order to raise around $50 billion (£32 billion) in tax revenues and this includes the likes of the Isle of Man and Jersey.

The president elect will become the president at a time when the US jobless is rising significantly, as the US Labor Department disclosed that US employers cut jobs by 240,000! This has put the jobless rate up to 6.5% and this is expected to rise by a lot more than this next year. This data in the same week that saw US manufacturing hit a 26-year low!

End of the week saw:
Stock exchanges:
FTSE 100: 4,365
DOW: 8,944
S&P: 931
Nikkei: 8,583

Currencies
UK Sterling £ to US Dollar $ 1.58182
UK Sterling £ to Euro € 1.23359
UK Sterling £ to Aus $ 2.30757
US Dollar $ to Euro € 0.779635

Commodities
Crude oil – $61.04
Gold – $734.20

In a move to stimulate the UK economy the Bank of England has cut interest rates a massive one and a half percent to 3%.

This move was bigger than expected – shock treatment or panic?

This news is certainly welcomed by businesses and property owners across the UK and will hopefully spark some confidence into the economy. This rate is the lowest it has been since May of 1954 and is certainly more than was expected by most experts and economists, but certainly a welcome move.

The cut in interest rates last month from 5% to 4.5% which was inline with other World Bank cuts was not enough where we have seen other central banks, like America slash rates to 1% to help stimulate the US economy. The European Central Bank (ECB) has cut Eurozone interest rates to 3.25% on the same day, representing a half point cut, as the ECB responds to the region’s rapid plunge into recession. There has been speculation that the ECB would have made a larger cut, but it seems they have decided that a larger percentage cut might have appeared to be panic reaction.

Deepening recession

With a deepening recession looming and with companies in receivership and liquidation on the rise together with redundancies increasing the Bank of England need to show commitment to helping industry. There have been widespread calls from industry leaders for a major cut and we will wait to see what this move by the Bank of England will do for confidence in the UK economy.

World stock market volatility continues

We have seen yet more volatility on world stock markets with the Nikki falling by more than 6.5% over night and with the FTSE initially falling by more than 160 points this morning (over 3.5% fall). Also, reality has hit home for Barack Obama in the US, with the Dow Jones falling by 486 points yesterday on the back of his election to be the 44th US president. Barely has the dust settled and the posters for the election run been taken down, when Obama needs to dig in and get to work on sorting out the financial crisis in his country.

This week Alistair Darling is asking banks to support business customers in these difficult times and not just when times are good. The Chancellor has said that it is vital to support small businesses through the downturn and announcing an extra £4 billion of support.

As a part of the multi-billion pound bailout deal put forward to the UK’s leading banks by the government was a condition that they restore the level of funds available to small businesses to those of 2007 levels.

World interest rates

This week also saw the Chancellor Alistair Darling re-stating his support for the Bank of England, despite criticism that it had been focusing too much on inflation. The Chancellor confirmed that there is no reason to change the Bank’s main goal of keeping inflation to close to the 2% target. The change in words or in the way the message has been sent to the Bank of England is about the discretion over the horizon over which inflation is brought back to this target level.

We watch and wait to see what the Bank of England does next week with interest rates where we see countries around the world have again been cutting their rates. We saw the US Federal Reserve cut interest rates from 1.5% to 1% on Wednesday of this week and Japan cut their rates from 0.5% to 0.3%.

It is of no surprise that the US is cutting interest rates when it was confirmed by figures from the Commerce Department that the US economy shrank at an annualised rate of 0.3% between July and September. Consumer spending, which makes up two-thirds of the US economy, also shrank by 3.1%, which is the first contraction since 1991.

The chance of a interest rate cut in Europe is more likely where inflation for October across the 15 nations that share the euro fell to an annual rate of just 3.2%. The rates presently sit at 3.75% and are expected to be cut by a half-point to 3.25%.

The motor industry

It is good to recognise the good news out there with Volkswagen going against the economic slowdown and reported increased profits. VW’s net profit rose 28% to €1.2 billion ($1.6 billion; £950 million) in the period July to September. Their sales have been boosted by three out of the four BRIC emerging market economies, China, Russia and India, which has off-set lower demand in Europe and the US.

As a contrast to this Japanese carmaker Suzuki issued a profit warning this week and the company blamed the fall in sales down to India, which is one of their key market. The strong yen and higher material costs have not helped their figures where they have said that their net profits will probably fall 25% to 60 billion yen ($612 million; £379 million) in the year to the end of March.

Trouble for pension fund trustees

There is a double whammy for pension funds right now with falling stock markets reducing fund values. But pension scheme trustees are being warned that they should not be too quick to start demanding extra cash from companies at this time which might put too much pressure on those companies at a very difficult time. A longer term view is needed and when the economy is straining with a huge turn-down if pension trustees were to start asking for extra funds might be enough to tip some companies over the edge.

News on the banks front – Barclays bank has secured £7.3 billion of extra investment cash from the Middle East this week. The money is being raised on the whole from state investment funds and royal families of Qatar and Abu Dhabi and unlike some of the other top banks of the UK, Barclays will not be accepting a cash injection from the government. A bank that has been troubled by the world banking crisis HBOS has been approached by a mystery bidder at a time when the UK government has given the green-light for the takeover of the company by Lloyds TSB.

Alitalia appears to be near to a rescue deal being agreed, but as with all the rescue deals posed so far the unions have been putting obstacles in the way. In this latest deal five out of the nine unions are still not backing this new deal, which does seem bizarre because unless the company can secure additional finance, should this deal not go through, the company will go bankrupt. Investment group Cai has said that the deal will still go ahead, despite the lack of agreement with the trade unions.

More on oil price volatile

Oil prices finished the week slightly higher on the week ending at $67.59, as we see results from the oil giants at record levels. For example, US oil group Chevron has seen its latest profits more than double when it reported its third-quarter results to September showing a net profit of $7.89 billion (£4.9 billion), which is up from $3.72 billion for the same period last year.

Exxon Mobil has also made record profits after reporting that it made a profit of $14.83 billion (£8.97 billion) between July and September, representing a rise of 58% on the same period last year. Oil firm Royal Dutch Shell has also reported excellent profits as a result of record oil prices with a jump of 71% in its third-quarter profits to $10.9 billion (£6.6 billion). BP reported earlier that its profits during this same period more than doubled to $10bn.

British Prime Minister Gordon Brown has called for oil price stability and has made a special trip to the Middle East in order to ask the Gulf states to help stabilise prices with the aim to help tackle the global economic crisis. The UK prime minister held talks with Saudi ruler King Abdhullah at the King’s Palace in Riyadh being joined by his Energy Secretary Ed Miliband.

On the jobs front we see more redundancies

American Express has revealed plans to reduce its workforce by around 7,000, representing a cut of about 10%. This together with a freeze on some salaries to reduce costs and a suspension to pay rises for management next year are part of a $1.8 billion (£1.1 billion) cost cutting exercise.

On the housing sector

There has been a slight change on the number of mortgages approvals for house purchases in the UK in September. According to the Bank of England 33,000 home loans were approved in September representing a small rise of 1,000 compared with the record low of the previous month. It is thought that this rise in mortgage approvals is partly due to the government raising the stamp duty threshold to £175,000 in early September.

However, despite the above improvement there is trouble on the repossession front with the number of people losing their homes climbing sharply. The number of repossessions in the second quarter of the year was 11,054, which is up by 71% over the same period last year.

End of the week saw:
Stock exchanges:
FTSE 100: 4,377
DOW: 9,325
S&P: 967
Nikkei: 8,577

Currencies
UK Sterling £ to US Dollar $ 1.61620
UK Sterling £ to Euro € 1.2727
UK Sterling £ to Aus $ 2.44394
US Dollar $ to Euro € 0.787465

Commodities
Crude oil – $67.59
Gold – $725

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

Earlier this week I wrote an article to put a positive spin on things, as it seems right now that all we are hearing is bad news with the rest of the week being no different.

I think the story that made me realise just how bad things are out there is the Volvo story where there order book has plunged by 99.7%, where the truck manufacturer has seen lorry orders drop to 115 over the last three months from 41,970 for the same period last year. When I read this I stood up and made note!

Sterling has taken a pounding this week (no pun intended), as it has seen the biggest falls since 1992 as it has fallen to 1.59129 at the end of the week representing an 8% drop. This will be good news for exporters to the US, as prices of goods leaving the UK will be cheaper and could lead to more sales of British goods, but it is bad news for business and holiday travellers alike.

There is good news on the horizon as we would expect interest rate cuts, I can’t believe the Bank of England has not cut them sooner. It is difficult to understand quite why we still have interest rates at three times that of the US, where the base rate is just 1.5%. Signs are out there that the banks are expecting cuts though, when I received in the post this week an offer from The Bristol & West Building Society of a fixed rate for three years of 5.59% for one of my buy to let mortgages.

Nils Pratley of the Guardian is talking about “deep cuts in interest rates”, let’s hope he is right, especially when we see that retail sales for John Lewis, considered to be the barometer for the state of the high street, have fallen by 7.6%.

Microsoft is bucking the trend, as is The Royal Mail when the US software giant has posted profits and sales figures well above analysts’ expectations. Microsoft made a $4.37 billion profit during the first three months of its financial year, which is up from $4.29bn a year ago and turnover rose 9% to $15.06 billion. The Royal Mail has doubled its operating profits to £177m in the first half of 2008/09 from a year ago, helped by cost cuts and greater efficiency, not bad when the average daily postbag is now 79 million items, which is five million fewer letters than two years ago.

We have another week of big falls in oil prices, this despite the oil cartel Opec cutting output by 1.5 million barrels a day. The price of oil closed at $64.65 per barrel having started the week at $71.75, this is a fall of nearly 10%. Which of course is great news for consumers, petrol prices and provides more downward pressure on inflation. These falls have lead to a price war breaking out between the UK’s top four supermarkets as Asda, Sainsbury’s, Tesco and Morrisons announced cheaper petrol. Asda and Sainsbury’s said they would slash their petrol prices to as low as 94.9p a litre – about time too when you consider this latest fall in oil price represents a fall of nearly 56%.

It’s good to see Brazil doing well, which is one of the BRIC economies (Brazil, Russia, Indian and China, the worlds fastest growing economies). Although the Brazilian stock market, the Bovespa in São Paulo, has recently fallen by around 20%, it is still up by around 5% from the level it was at last year. This compares to the UK’s FTSE 100 which is down around 16.5% over the same period. 10 bourses have bucked the downturn, which is good to see some good news on some of the World Stock markets.

End of the week saw:
Stock exchanges:
FTSE 100: 3,883
DOW: 8,379
S&P: 877
Nikkei: 7,649

Currencies
UK Sterling £ to US Dollar $ 1.59129
UK Sterling £ to Euro € 1.25299
UK Sterling £ to Aus $ 2.56787
US Dollar $ to Euro € 0.787405

Commodities
Crude oil – $64.65
Gold – $736.00

Charles Bean, deputy governor of the Bank of England, took the prize for the most apocalyptic vision yesterday. The economic slump is still in its early stages, he said, as a result of “possibly the largest financial crisis of its kind in human history”.

This is quite a statement from a senior Bank official and surely means that the monetary policy committee (MPC) – finally – has got the message about the severity of the coming recession. Get ready for deep cuts in interest rates. In the US they have been cut to 1.5%. In Britain, where the economic crisis suddenly looks more serious than in the US, rates still stand at 4.5%. The two figures should now close, rapidly.

Many of us watched in disbelief during the summer as the MPC declined to cut interest rates. Before this month’s half-point reduction, taken in coordination with all the world’s major central banks, the last cut in UK rates was in April. That is another era in the context of the financial crisis. As recently as August, one member, Tim Besley, actually voted for a quarter-point increase in rates.

The mistake made by most members of the MPC – David Blanchflower is the honourable exception – was to be dazzled by the prospect of inflation at 5%. That level, reached this month, will soon look a quirk. The price of every major commodity has been falling since the early summer (and a lot earlier in the case of wheat and many foodstuffs) and the greater danger now is deflation.

Read those MPC minutes from the summer again and you see members were worried that weakening the pound by cutting rates would import more inflation.

Well, sterling has weakened anyway, falling 10% against the dollar this week. The financial markets are now expecting – and, in a sense, forcing – the rate cuts that should have come earlier.

Failure to cut rates soon might weaken sterling further: it would be taken as sign that the UK was still not accepting reality. So will it be a half-point cut or a full-point on November 6? The City’s economists are divided. Either way, 3% by Christmas is a possibility.

Inflation hawks will regard the idea as heresy. The problem is not the price of credit but its availability, they argue. It is true that one effect of cutting rates could be a serious bout of inflation two years from now. But that is tomorrow’s problem, to be addressed at the time.

The immediate task is to limit the duration and depth of the recession. That means helping borrowers and consumers to repay their debts. A dose of wage inflation, or tax cuts for the low-paid, could be precisely what the economy needs. It is unfair on savers, but, sadly, this won’t be the first or last time that the thrifty have been tricked.

Simon Ward, economist at fund management group New Star, has crunched the numbers on the “average” path of recessions using data from 1974-75, 1979-81 and 1990-91. If the current recession follows that path, we would see contraction of 2%-2.5% between the second quarters of 2008 and 2009. The economy would then move sideways for a year, recover in the second quarter of 2010 and finally regain its peak level of output in 2011.

The danger is that even these gloomy forecasts prove too optimistic.

The difference with this recession is that it is complicated by the banking crisis and the disruption in the flow of credit to small businesses.

Much is riding on the banks’ behaviour. Appealing to their sense of public duty is one way. Cutting interest rates is more likely to be effective.

>News reported by The Guardian, Nils Pratley

Britain’s services sector shrank in September at its fastest rate since records began 12 years ago, new figures suggest, adding to the economic gloom.

The Chartered Institute for Purchasing and Supply (CIPS) said its index of service sector activity fell to 46.

A figure of less than 50 indicates contraction. It was 49.2 in August.

New business crumbled, confidence slid and the pace of job cutting was stepped up. Data earlier this week showed a contraction in manufacturing.

On Thursday CIPS said the UK’s manufacturing sector shrank in September at the fastest rate for 17 years.

‘Deteriorating activity’

The service sector represents about 75% of the UK economy. Hotels and restaurants were among those hardest hit, the institute said.

Service sector employers have been cutting jobs for the past five months, it said.

CIPS director Roy Ayliffe said: “Operating conditions were marked by what are now real fears of recession as levels of employment continued to plummet as a result of dwindling demand.

“Lack of client confidence drove a significant reduction in new business as the global financial crisis gathered pace.”

Paul Smith, senior economist at Markit Economics, said: “Following on from the shocking manufacturing figures and a further considerable reduction in construction sector output for September, the services data provide more evidence of rapidly deteriorating activity in the real economy.”

He said the new figures suggested the UK economy was in, or close to, recession.

Next week the Bank of England will weigh up whether to change interest rates. The Monetary Policy Committee (MPC) will make its decision against a background of rising inflation and a slowing economy.

News reported by The BBC