Weekly Financial News Roundup
Prime Minister Gordon Brown opened the week with a speech in which, according to the BBC website, he described the recession – in which Britain finds itself, officially, for the first time since the early Nineties – as "the difficult birth pangs of a new global order." Mr. Brown also warned of the dangers of "pessimism" and "muddling through". Later in the day, on Monday, it was revealed that Mr. Brown, and Chancellor of the Exchequer, Alistair Darling are intending to postpone the Budget from March to the start of the new financial year, in April. This will allow the effects of the £600 billion fiscal stimulus package proposed by new U.S. President, Barack Obama to be assessed, and allow Mr. Brown to focus on two important G20 meetings which are scheduled to take place on March 14th and April 2nd respectively. The news came on the same day that steelmaker Corus – now a subsidiary of Tata Steel, in India – announced that it is to shed 2,500 of its 24,000 workforce in the United Kingdom, as the result of the fall in demand for steel. Llanwern steelworks, near Newport, in south Wales, is to be mothballed, and a majority stake in the Corus facility on Teesside is also for sale.
Corus' announcement was put into global context, on Tuesday, when several major corporations – including Philips, ING and Caterpillar in the United States – announced a total of over 70,000 job losses in a single day. Caterpillar, alone, announced 20,000 job cuts, by way of underlining the extent, and depth, of the global economic crisis. Back in the UK, the role of hedge fund managers in the crisis came under scrutiny, as four leading financiers – including Douglas Shaw of BlackRock, and Christopher Hohn, of The Children's Investment Fund – appeared before the Treasury Select Committee. Short-selling – the practice of "borrowing" shares, for a fee, and selling them with a view to buying them back at a lower price later – was the principal topic of discussion. Short-selling was the cause, according to some, of the destabilisation of HBOS last year, and, ultimately, of its merger with Lloyds TSB to form the Lloyds Banking Group. Coincidentally, it was also revealed, on Tuesday, than U.S. hedge fund manager Paulson & Co. had made profits in excess of £270 million from the short-selling of Royal Bank of Scotland (RBS) shares in recent months.
On Wednesday, Business Secretary, Lord Mandelson unveiled a rescue package, worth £2.4 billion, for the British motor industry, although he vehemently denied that it was a "bailout". He argued, instead, that the investment would help the industry to become "greener, more innovative and more productive", according to the Independent website. Lord Mandelson was criticised by trade unions, who demanded £13 billion in aid, in light of the collapse in car sales, reduced working and the prospect of redundancies within the industry, and by the new shadow Business Secretary, Kenneth Clarke, who dismissed the proposals as "small beer". Some better news on the employment front, however, with supermarket giant, Asda, announcing that it is to open 14 new stores, and expand 15 existing stores, in the UK, creating 7,000 new jobs in the process. Ironically, the day after a total of 8,300 job losses in the UK were announced, broadcaster BskyB also announced a 31% increase in half yearly profits and the creation of a further 1,000 jobs, including positions for engineers, managers, staff trainers and call centre staff.
Mixed news for business, and for the economy in general, towards the end of the week. Royal Dutch Shell, for example, announced that its profits for the final quarter of 2008 fell by 28%, compared with the final quarter of 2007, and 56%, compared with the final quarter of 2006. The company, nevertheless, announced a record annual profit – up 14%, at just over $31 billion – any European company, largely as a result of the increase in oil prices earlier in the year. Soft drinks manufacturer, Britvic, announced that it is to shed 145 jobs from its operation in Ireland, and that further restructuring in Britain – and hence job losses amongst its British workforce – is likely; the company aims to reduce its costs by £3 million in 2009, and by a further £9 million in 2010.
There was some better news on Friday, however, with the release of figures by the Bank of England that showed the number of mortgage approvals rose from 27,000 in November, 2008, to 31,000 in December. Although this is, clearly, a step in the right direction as far as the British housing market is concerned – HM Revenue & Customs also reported that property sales were on the rise – it should be remembered that the November figure is still the second lowest on record, and that mortgage lending for 2008, as a whole, was down nearly 60% year-on-year. Despite measures taken, or promised, by the British Gvernment with a view to kick-starting mortgage lending, banks remain short of money, and mortgage lending is likely to remain depressed for some time to come, according to most experts within the industry.
As if British industry, and the Government, does not have enough to contend with at present, the mains news on Friday was an industrial dispute which broke out at the Lindsey Oil Refinery in Lincolnshire. A new plant, costing £200 million, is under construction, and the decision to employ Italian, and Portuguese, contractors led to the walkout of British contractors – in support of the "British jobs for British workers" philosophy, as espoused by Gordon Brown, himself, back in 2007 – on Wednesday. The unofficial dispute had intensified, however, and industrial action had spread to other parts of the UK, with a number of "wildcat" strikes called. 3,000 oil and gas workers have already walked out in sympathy with the Lindsey contractors, and they are expected to be joined by nuclear power workers, and possibly others, next week.