Weekly Financial News Roundup
Those mourning the passing of Woolworths received heartening news, at least to some extent on Monday, with the announcement that the Woolworths brand has been bought by the Barclays twins, Sir David and Sir Frederick, and is to be reincarnated – along with Woolworths' Ladybird childrens' clothing brand – as an online retailer. The brand will be owned by Shop Direct Group which also owns online retailers Great Universal and Marshall Ward. Of the nearly 30,000 employees laid off when Woolworths closed its doors for the final time a month ago only a small percentage are likely to be employed by the new company.
Elsewhere on a day when Sterling was weak, in anticipation of a further 0.5% cut in the Bank Rate to be announced on Thursday, it was revealed that the Purchasing Managers Index (PMI) – a measure of the level of confidence in the manufacturing industry – stood at 35.8 in January up 0.9 points on the December figure but, nevertheless, the third lowest figure since the PMI was introduced in the early Nineties.
Business Secretary, Lord Mandelson, also announced plans to extend the range of banking services available at the Post Office, in so doing creating a "People's Bank". Royal Mail Chief Executive, Adam Crozier, was quoted on the BBC website saying "Royal Mail has been very clear that we want to expand the range of banking services we provide through the Post Office network and there are a number of things in the pipeline." Lord Mandelson did not elaborate on the plan for post offices – of which there are 12,000 in the United Kingdom – and it is unclear as to whether or not investment in the so-called "People's Bank" would be guaranteed by the Government.
The heaviest snowfalls in 18 years were a major cause of disruption in many parts of the UK on Monday and Tuesday with thousands of schools closed. The estimated cost in terms of productivity was £1 billion in South East England alone on Monday as 20% of the workforce stayed at home, and snow spread to Wales, Northern England and Scotland on Tuesday, with further falls expected later in the week.
Prospective new car buyers got the cold shoulder too with the announcement that Ford and Vauxhall are to increase prices by roughly 5% across their range of new cars. The announcement came despite falling new car sales – sales fell by just over 21% in December 2008 compared with the same period in 2007 – and possible Government intervention to support the ailing industry.
Continuing the cold theme, Baugur Group – the international investment company with a stake in toy retailer Hamleys, House of Fraser and Iceland (the supermarket chain, that is) – applied for court protection from its creditors on Wednesday. The application came after talks with the company's main creditor, the Icelandic bank Landsbanki, failed, and the bank applied for the UK arm to be placed into administration. The effect on UK retailers in which Baugur has a stake may ultimately be minimal, but its interests will almost inevitably be sold.
There was also much speculation as to the result of the latest meeting of the Bank of England's Monetary Policy Committee, which began on Wednesday. Martin Weale, spokesman of the NIESR ("National Insititute of Economic and Social Research") for example, was quoted on the BBC website saying that there was "not very much point" to the latest Bank Rate cut and that the buying of corporate bonds by the Bank of England, amongst other measures, was preferable. The Bank was, however, widely expected to make a 0.5% cut in the Bank Rate to 1% on Thursday. This would be the fifth cut in as many months and take the Bank Rate, once again, to a new record low in the 315 year history of the Bank of England. Most analysts, however, echoed Mr. Weale's sentiment and said that they would prefer the Bank to take other measures to stimulate lending.
Apparently conflicting figures regarding house prices were released by the Halifax on Thursday, indicating a 1.9% increase in prices in January – as opposed to a 1.3% fall according to figures released by Nationwide last week – when compared to December. Chief Economist at the Halifax, Martin Ellis, was keen to point out, however, that the latest figures do not necessarily indicate the end of the downward spiral in house prices; prices have, nevertheless, dropped just over 17% year-on-year with the average domestic dwelling in the UK costing just under £164,000.
The possibilities for ending the week on an optimistic note were limited once again with the revelation that the number of corporate insolvencies in England and Wales increased by no less than 220% in the final quarter of 2008 compared with the same period in 2007. The total number of businesses entering administration or receivership in that period was nearly 2,500. The "world's favourite airline", British Airways, announced a loss of £70 million for April to December 2008, compared with a pre-tax profit in excess of £800 million in the same period a year earlier. BA blamed rising fuel prices – which are estimated to have increased operating costs by £1 billion – and the weakness of Sterling for the loss.
As a final note on an uninspiring week financially, Business Secretary, Lord Mandelson, asked banks to consider how what he described as "exorbitant" bonuses would be viewed by the general public after, as he put it "mistakes and losses have been made", according to the BBC website. Lord Mandelson's comments seem entirely justified in light of successive Government bailouts of British banks in a space of less than 6 months. Royal Bank of Scotland (RBS), for example, which incurred record annual losses of £28 billion and is nearly 70% owned by the Government (or the British taxpayer depending on your point of view) as a result, is reportedly paying six-figure bonuses to its key staff. A Downing Street spokesman was quoted on the Independent website saying "As the majority shareholder in RBS, UK Financial Investments is in discussions about possible approaches to remuneration. Any proposal would only be supported by UK FI if it is consistent with the taxpayers' interest."