The main financial new stories this week were of course the election of Democratic Senator, Barack Obama as the first black President of the United States, on Wednesday and the almost unprecedented announcement of a 1.5% cut in the Bank of England base rate at midday on Thursday. Both events were greeted with optimism by the financial community, although there were other indicators throughout the week of the fragile state of the economy in the United Kingdom and elsewhere.
Mr. Obama was confirmed as having reached the required target of 270 Electoral College votes at 0400 GMT on Thursday, and took 52.3% of the total vote, compared to 46.6% for his Republican rival, Senator John McCain. British Prime Minister Gordon Brown, led the tributes to Mr. Obama, declaring "This is a moment that will live in history as long as history books are written", according to the BBC website. The news was well received around the world, particularly in Asia, where stock markets rose sharply in response; the Hang Seng Index in Hong Kong and the Nikkei 225 Index in Japan initially rose by 5.2% and 4.5% respectively.
Speculation had been rife in the media, all week, about an impending cut by the Bank of England in its base rate following the cut from 5% to 4.5% in October. A further modest cut of 0.5% was expected in most quarters. The Bank of England had not in fact cut its base rate by more than 0.5% since 1993 – but some groups including the TUC (Trade Union Congress) had called for a bigger cut of 1.5% and that just as a starting point. Those groups received what they were asking for too – a full 1.5% cut in the base rate from 4.5% to 3% – much to the shock of the financial community as a whole. In light of the nervousness in the housing and mortgage industry and the unwillingness of lenders to pass on interest rate cuts in full, to consumers, the Chancellor of the Exchequer Alistair Darling met with leading bankers on Thursday in an effort to convince them to pass the cut on. According to the BBC website Mr. Brown said "We are determined to get banks to resume lending." He further added that the Treasury and the Bank of England had take action to help lenders and that they in turn should now help consumers. In response the CML (Council of Mortgage Lenders) announced that its members will pass on an interest rate cut of between 0.5% and the full 1.5%, but that the exact level of the cut is a "commercial decision" for each individual member.
Outside the top two stories the week was something of a "mixed bag" of welcome, and less welcome financial news. On Monday for example, Chancellor Alistair Darling announced the formation of UKFI (United Kingdom Financial Investments) Limited, a holding company responsible for the £37 billion of taxpayers' money used to "bail out" Royal Bank of Scotland, HBOS and Lloyds TSB, and for ensuring that banks continue lending to homeowners, small businesses, etc. The same day British Telecom (BT) announced talks with trustees and unions, to overhaul its final salary pension scheme – worth a total of £40 billion (€50 billion) – with a view to making it sustainable in the long-term.
On Tuesday the British Prime Minister returned from his four-day visit to the Gulf States, and was confident in his expectation that some of the $1 trillion (£637 billion) profit generated by rocketing oil prices would be used to supplement IMF (International Monetary Fund) rescue funds. The Gulf States and China are expected to present the cash at a financial reform summit, to be held in Washington on November 15th, and in return will receive greater influence on international bodies. The FTSE 100 Index climbed just over 78 points during morning trading, amid speculation that a counter offer or offers may be made for TSB, in addition to that tabled by Lloyds. British Airways, however, announced a 91% fall in half yearly profits to September 2008 – down to £52 million from £616 million compared to the same period last year. It was also announced that individual and corporate insolvencies increased by 8.8% and 10.5% respectively in the third quarter of 2008; these latter increases had been widely predicted because of the economic slowdown and the effects of the credit crunch.
Later in the week it was also announced that the crisis in the UK car industry continues, with new car registrations down by 23.5% in October 2008 compared to October 2007. This represents the biggest drop in new car sales since 1991 – when sales dropped by 31% in June of that year – and follows similarly sharp drops of 21% in September and 18.6% in August. Chairman of the SMMT (Society of Motor Manufacturers and Traders) Paul Everitt was quoted on the Sky News website, saying "Action is needed to help restore consumer confidence and encourage buyers back to the showrooms." It is hoped that a similar situation to that during the 1990s, when new car registrations dropped for fully 27 months in a row, can be averted. There was however, some better new for British business, in midweek when the Government pledged its opposition to the so-called "Working Time Directive" from the European Parliament, which aims to limit the working week to a maximum of 48 hours. Union officials, on the one hand argued that adoption of the Directive would be a significant blow against the culture of long working hours in the United Kingdom, while business groups on the other, argued that to constrain firms still further in times of economic downturn would be foolish.