The Government’s Business Secretary Lord Mandelson has released details of his plan to help small to medium sized businesses with a new loan guarantee scheme of up to £20 billion.

If your business has a turnover of less than £500 million and in return for a fee the tax-payer will provide banks with a guarantee against companies defaulting on loans. This measure is hoped to help small to medium sized business survive the present down-turn and designed to encourage banks to lend. The Government will guarantee 50% of these loans and the loans must be new advances to businesses.

My main concern is that £20 billion does not sound a lot of money when you consider the number of small businesses in the UK. I think the Government will need to re-visit this figure in at some point in 2009!

The 2008 year ended with one of the biggest economic busts of all time and in the UK under a government that pledged “No more boom and bust”. I think that a government that even thinks like that is flawed from the start. If you look back through history economies always go through cycles of ups and downs and at certain points boom and inevitably then a bust.

The government could have see this coming and the Bank of England should have acted sooner. Admitely the scale of the present problem has taken every one by surprise, but there is no excuse for having an economy in such a bad state so that when the “Bust” happens the government has to borrow to such high levels that it puts the whole country in trouble.

So what else happened of significance in 2008…

America elected it’s first black president in 2008, Barack Obama, and as he takes office in a few days time he has one hell of an economic situation to sort out and a Middle East problem to resolve yet again.

One of the the UK’s oldest high street chains went into receivership, Woolworths which was first set up by Frank W. Woolworth in 1909 so it has just about survived 100 years of trading. Something I only learned recently was that Mr Woolworth paid for the building of the Woolworth Tower in New York, which was the highest building in the world up until 1930. What is even more unusual is that Mr Woolworth paid for this building in “cash” and at a cost of $13.5 million was quite unusual and in todays terms using the Consumer Price Index is worth over $300 million (£208 million), and using the relative share of GDP would be worth near $8 billion (£5 billion).

After the colapse of Sub-prime loans in the US a World banking crisis ensued with governments around the world pledging unpresidented amounts to shore-up the banking system. With the UK government topping the list at $725 billion and in second place the US government setting aside $700 billion, with Germany and France setting aside $360 billion and $250 billion respectfully. Fall-out from this crisis hit the 150-year-old investment bank Lehman Brothers, the fourth largest bank in the US which filed for bankruptcy in September 2008!

Low, low interest rates in 2008…

2008 saw deep cuts in interest rates with the lowest rate ever seen in the USA closing at 0.25% leaving the US treasury not much more room for movement in a difficult economic environment. The UK also saw the lowest interest rates it has seen for 57 years falling to 2% in December 2008, with the Bank of England commenting that these rates could fall lower still.

Stock markets in a turmoil…

World stock markets saw both huge losses and huge gains during 2008 ending the year at 4,434 in the UK with the FTSE 100 and in the US at 8,776 on the Dow Jones. In October 2008, just after Wall Street saw the worst week in the stock market’s history, the Dow Jones rose by a record 11% or 936 points on the day, which was the biggest one-day gain seen by the index since it began. Also, the UK’s FTSE 100 jumped by 9.84%, which is the highest jump it has seen in its history in November 2008.

Oil price volatility…

The price per barrel of oil has seen an all-time high of $147 per barrel in 2008 and has dipped to below $40 to the end of December 2008 and closed the year at $44.60, only rising slightly as a result of the unrest and fighting in the Middle East. There were predictions of the price per barrel falling to $25 and if Israel and Hamas can agree their differences in the short-term the price per barrel could quite easily fall to below $40 per barrel again soon.

End of the week saw:
Stock exchanges:
FTSE 100: 4,434
DOW: 8,776
S&P: 903.25
Nikkei: 8,860

Currencies
UK Sterling £ to US Dollar $ 1.44950
UK Sterling £ to Euro € 1.03739
UK Sterling £ to Japanese Yen 131.846
UK Sterling £ to Aus $ 2.05640
US Dollar $ to Euro € 0.715690
US Dollar $ to Japanese Yen 90.9783

Commodities
Nymex Crude oil – $44.60
Gold – $884.30

If you are a high earner then it could be down to you to pay for the mess that the UK economy is in right now.

The Chancellor Alistair Darling is looking at reducing the VAT rate from the present 17.5% to 15% to give an immediate stimulus into the UK economy. However, moves like this along with extra government spending will need to be paid for and this is suggested to be from high income earners.

It has been suggested that UK Government borrowing could hit £100 billion and this will need to be repaid at some stage. The tax increases will likely be delayed until after the next election and the higher rate tax increase will not in itself be enough to recoup the “Tax Hole” caused by the proposed cuts.

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

This week has seen more turmoil on the financial markets and stress in the banking sector on both sides of the Atlantic!

Whilst the US government is battling to win over Congress to pass the $700 billion bank bail-out the UK Government is nationalising banks on this side of the Atlantic. Just this weekend a deal has been thrashed out with the Bradford & Bingley and the UK Government to secure its future. Whilst over in the US the biggest bank so far, The Washington Mutual to fail and be taken over by regulators as a result of the sub-prime lending fiasco!

With many economies moving closer or into recession, like The Republic of Ireland is now officially in recession and we have Japan now with a trade deficit!

In the UK the economy needs lower interest rates, but this is looking doubtful for HSBC customers where they are looking to raise interest rates due to a shortage of money. However, the World banks are putting yet more money into the banking sector, with the Bank of England lending an extra £30 Billion.

The problems are being reflected in the retail sector with Marks & spencer seeing a turn in their fortunes for the first time in a while and JJB sports has posted a £9.7 million loss for the first six months of the year – “blaming the “worst retail recession” it has ever known”. With the business Ted Baker also in problems and at a point of calling in receivers, the economy is not looking too healthy.

All this is at a time when the present government see it fit to fight amoungst themselves over their leadership, whilst world economies are going into economic meltdown – it is a worry where this is all going to end!

But there is good news for low paid workers! The National minimum wage has been increased by the Government – great for business owers, just what they need when things are tough already – lets add more problems and increased costs.

End of the week saw:
Stock exchanges:
FTSE 100: 5,088
DOW: 11,143
S&P: 1,213
Nikkei: 11,893

Currencies
UK Sterling £ to US Dollar $ 1.83301
UK Sterling £ to Euro € 1.25915
UK Sterling £ to Aus $ 2.20458
US Dollar $ to Euro € 0.68769

A shake-up in mobile phone charges by the European Commission (EC) may have unintended consequences for consumers, according to the UK telecoms regulator.

European plans to cut phone bills could hurt those on low incomes, particularly people on pay-as-you go tariffs, Ofcom and the UK Government said.

Brussels wants the fees that mobile phone operators charge for handling each other’s calls to be cut by 70%.

But regulators said phone firms may recoup lost income from customers.

Ofcom and the Department for Business, Enterprise and Regulatory Reform (BERR) published the joint statement in response to the EC’s proposals.

They said the aim of cutting the price of calls for consumers should be applauded.

However, it warned that plans to change the tariff structure could result in lower bills for the caller, but higher costs for the person receiving the call.

“The Commission has been unduly optimistic in assuming that the fundamental changes it has proposed should take effect by 2011″ Joint statement, Ofcom and BERR

This could disadvantage lower spending customers, it argued, particularly those on pay-as-you-go tariffs.

In June, EU telecoms commissioner Viviane Reding said the current disparity in call termination rates between different countries meant that consumers were being ripped off.

‘Regulatory plumber’

She said call termination markets in the EU needed a “regulatory plumber” to increase competition.

The UK regulator also said that it has already agreed mobile phone termination rates in the UK until March 2011, and it is reluctant to alter those rates now.

“It therefore appears that the Commission has been unduly optimistic in assuming that the fundamental changes it has proposed should take effect by 2011,” it said.

Mobile firms, for whom termination fees account for up to 20% of annual revenues, are lobbying for more gradual reductions.

Earlier this month, Vodafone said it accepted the cost of termination rates would continue to fall, but took issue with the speed at which Brussels was seeking the cuts.

On Tuesday, the EC is expected to announce further measures to cut the cost of using a mobile phone abroad.

The proposals are thought to include a reduction in the cost of text messaging and a price cap on downloading data such as TV shows.

News reported by The BBC