Weekly Financial News Roundup
The last week of 2008 provided further evidence, if any were necessary, of the gulf in confidence between the British Government and British consumers regarding the economic outlook for the New Year, and beyond. According to a Harris poll, conducted on behalf of the Financial Times, less than 20% of those questioned agreed with the optimistic outlook of Chancellor of the Exchequer, Alistair Darling; Mr. Darling has suggested that positive growth in the British economy may return in the second half of 2009, as a result of the weakness in Sterling, plummeting oil prices and fiscal stimuli already in place, or proposed by the Treasury. Nearly 40% of those questioned took a more pessimistic view, anticipating recession to continue throughout 2009 and 2010, and the vast majority expected no recovery at all until 2010.
In other news, opinion canvassed during the first three shopping days since Christmas appeared to suggest that the discounts available on the High Street were failing to entice many shoppers to part with their cash. Shopper numbers were, nevertheless, up 12.5%, compared with Boxing Day, and John Lewis, for example, reported that sales on Saturday, 27th December, were up 7%, at just over £21 million, compared with the corresponding day in 2007. Continuing the January sales theme, a survey carried out by Halifax Financial Services revealed that 85% of the British public overestimated the amount that they will be able to invest in pension funds, before retirement, and the bank advised shoppers to review their pension arrangements, and finances, generally, at what it called "the ideal time" to do so; this is, of course, at odds with the tradition of spending early in the New Year.
The rest of the week involved, inevitably, looking back at the "annus horribilis" that was 2008, and looking forward to what 2009 has in store, financially. Forecasts for the direction of the housing market, for example, range from the market remaining subdued for the first half of the New Year, but recovering slowly thereafter, to a further fall of between 10% and 20% in house during the year, depending on whose figures you choose to believe. In fact, the level of economic uncertainty is such that the likes of Halifax and Nationwide have declined to release housing price forecasts, at all. The FTSE 100 index, too, performed as poorly as it has ever done during 2008, losing over 31% during the year – the steepest fall in the index since its creation, 23 years ago – but in a financial maelstrom that included the collapse of institutions such as Northern Rock, Landsbanki, in Iceland, and Bear Stearns and Lehman Brothers, in the United States, this was hardly surprising. According to the British Chambers of Commerce, the British economy could contract by nearly 3% during 2009 – more than during the recession of the early Nineties – and unemployment could rise to 10% of workforce, at just over 3 million. The manufacturing, retail and service industries are all expected to experience the full brunt of recession, with public spending rising by just over 2% a year, on average, over the next three years; the budget deficit is likely to reach a figure of around £120 billion during 2009.
On Wednesday, details of a speech to be delivered by German Chancellor, Angela Merkel, on 31st January were revealed. Frau Merkel was due to announce increased pressure by the German Government for stronger financial controls and greater transparency, internationally, together with increased spending on education, and infrastructure, by way of stimulating the German economy, itself. Frau Merkel has, in the past, indirectly criticised the administration of the United Kingdom, and the United States, for lack of control; this time, however, she was expected to face criticism, herself, from European Union leaders. Several leaders have expressed a wish for a package of heavyweight fiscal stimuli, but Frau Markel has, so far, refused to be coerced.
British Prime Minister, Gordon Brown, was in optimistic mood on Thursday, and said that 2008 would be remembered as a year in which "the old era of unbridled free market dogma was finally ushered out", according to the Independent website. Now, while his sentiment is unlikely to be echoed by the majority of the British public, the Prime Minister did seem confident that his administration was equipped to cope with the effects of recession, now, and in the future. He said, "The failure of previous governments in previous global downturns was to succumb to political expediency and to cut back investment across the board, thereby stunting our ability to grow and strangling hope during the upturn. This will not happen on my watch." Mr. Brown also promised, during his traditional New Year message, to work closely with Barack Obama, when he officially takes office as President of the United States, on 20th January, to build what Mr. Brown called "a global coalition for change."
Friday – the first day of trading in the New Year – saw stock markets in the United Kingdom, Europe and elsewhere open on a positive note, despite the record falls in 2008. The FTSE 100 index rose just over 0.7% in early trading, and the indices in France and Germany rose over 1%. Financial analysts were quick to point out, however, that trading is light during the holiday period, so early gains may not be sustainable; indeed, the general consensus amongst investment strategists is that the outlook for company earnings in the first half of 2009 is bleak, and the market is unlikely to stage any real recovery during that period. The Monetary Policy Committee of the Bank of England is due to hold its next meeting later this week, in which it is widely anticipated to propose of further cut of 0.5%, or even 0.75%, in the Bank Rate; in anticipation, the Nationwide Building Society announced, on Friday, that it would be not be passing on any further rate cuts to the majority of customers with tracker mortgages. A cut of 0.5%, for example, would, if passed on, result in a saving of £40 per month on a typical £150,000 mortgage, but, for the protection of its savers, Nationwide intends to invoke a clause that allows it not to pass on reductions once the Bank Rate falls below 2%.