Weekly Financial News Roundup
Unusually, some sporting news to start the week, as Barclays Premier League football clubs Chelsea, Liverpool and Manchester United – all heavily indebted – were criticised by the All Party Football Group for what it described as "ludicrous levels of borrowing", according to the BBC website. The parliamentary committee has no power, legally, to enforce its recommendations but, nevertheless, urged the Football Association (FA) and the British government to embrace the ideas suggested by the international governing body, Fédération Internationale de Football Association (FIFA). These include detailed scrutiny of business plans prior to takeovers at club level, and the so-called, "six-plus-five" rule, which would limit the number of foreign players a team could field, and has been dismissed, as illegal, by the European Commission.
Elsewhere, it was announced that The Juice Doctor Hydration Fix range of isotonic drinks – backed by 5 times Olympic rowing gold medallist, Sir Steve Redgrave – is expected to double its sales by the end of the year, having reached agreement for the range to be stocked by Asda, Morrisons and Tesco.
In other retail news, Burberry, the 153-year-old manufacturer of luxury raincoats, handbags, etc., was expected to report a slowdown in revenue in the second half of its financial year, although it still expected to meet market expectations for full-year profit, at around £1.2 billion. Investors were watching the fashion group for any indication that recession in the retail sector was bottoming out.
Continuing the retail theme, on Tuesday supermarket giant Tesco announced the highest underlying profits ever for a British retailer, at just over £3 billion in 2008. Tesco has performed well, across the globe, both last year and this. Revenue grew to just over £54 million, excluding VAT from just over £47 million in 2008, and like-for-like sales are up 3.4% in the UK in the first six weeks of trading in the new financial year. International sales grew nearly 12%, at a constant exchange rate, although its fledgling "Fresh & Easy" operation in the US did make a trading loss of £123 million, despite like-for-like growth of 20%.
Wednesday, of course, was all about the Budget, with Chancellor Alistair Darling expected to confirm that Britain was in its worst recession since World War II, and to unveil tax increases and public spending cuts. Indeed, figures released by the Office of National Statistics (ONS) on Wednesday revealed that falling tax revenues and higher social security spending, due to recession, have pushed government borrowing to £90 billion this year. This figure is £12 billion higher than the £78 million forecast by the Chancellor in November, and £55 billion higher than the previous year. The total net debt now stands at over £743 billion, or more than half of the UK GDP ("Gross Domestic Product").
The ONS also released the last UK unemployment figures, which showed that the number of people out of work rose by a further 177,000, to 2.1 million, in the three months to February, an increase of 0.6% compared with the previous quarter.
Elsewhere, the International Monetary Fund (IMF) admitted that its figure of £200 billion for the bill facing the UK for the bank bailout was issued in error and withdrawn. No immediate explanation of the error, or indication of what the true figure should be, was immediately forthcoming, however.
Alistair Darling did, in fact, predict that the UK economy would shrink by 3.5% this year, but was optimistic that growth, of 1.25%, would return in 2010. This was at odds with John Varley, Chief Executive of Barclays, who was quoted on the BBC website, ahead of Barclays' AGM, saying "It seems likely that we're going to be living in difficult times, at least for another year." Mr. Varley was also expected to tell shareholders that Barclays would be increasing its lending by £11 billion in 2009, in an effort to ease the pressure on household and businesses.
The Budget was also used by Her Majesty's Revenue & Customs (HMRC) to announce what it described as a new "offshore disclosure opportunity". Essentially, this is a new campaign – following others in 2007 and 2008, which targeted High Street banks, and smaller banks and building societies – whereby anyone with money in an offshore account has until March 2010 to declare unpaid tax on interest. The campaign could raise tens of millions of pounds in unpaid tax, if the previous campaigns are anything to go by. The first campaign in 2007, for example, raised a total of £450 million from 45,000 investors.
In other news, Northern Rock – the bank nationalised in February 2008, at a cost of £55 billion to the British taxpayer – reported that the number of new mortgage applications it received had increased by 70% from February to March. The bank has plans to lend an extra £14 billion over the next two years, although, on a note of caution, the proportion of Northern Rock borrowers with arrears of three months or more did increase from 2.92% in December to 3.67% in March.
The end of the week was much like the rest of it, in financial terms, with few causes for optimism. Following the Chancellor's predictions for the economy on Wednesday and the announcement of 2.1 million unemployed, analysts were predicting on Friday that the GDP had already dropped by 1.5% in the first quarter of 2009, having dropped 1.6% in the final quarter of 2008. Simon Hayes, Chief Economist for Barclays Capital in the UK, was quoted on the BBC website, saying, "The sharpest falls in GDP may have already happened, but we are still talking about contracting GDP and rising unemployment for the rest of the year." In fact, figures released by the ONS revealed that GDP actually fell by 1.9% in the first three months of 2009 – the fastest rate of decline for 30 years, and the first time output has dropped by more than 1% in successive quarters for over 60 years – indicating that the recession has deepened since December.