Weekly Financial News Roundup
The latest figures from the Confederation of British Industry (CBI), released on Monday, suggested that the U.K. will contract by 3.9% during 2009, as a whole, before returning to growth of 0.7% in 2010. This was a more pessimistic forecast than that issued by Chancellor of the Exchequer, Alistair Darling, who predicted a contraction of 3.5% in 2009, followed by expansion of 1.25% in 2010 in the Budget in April. Nevertheless, Director-General of the CBI, Richard Lambert, was quoted on the BBC website, saying, "The harshest period of the recession looks to be behind us." Mr. Lambert was keen to add, however, "Green shoots are starting to appear across the economy. But they have shallow roots, and there are plenty of dark clouds on the horizon."
Meanwhile, the latest Government figures revealed that more than 60,000 orders for new cars had been placed under the scrappage subsidy scheme, between its announcement at the end of April and 7th June. Business Secretary, Lord Mandelson, said that the scheme – whereby car buyers receive a discount of £2,000 on a new car, if they scrap a vehicle that is at least 10 years old – had given the car manufacturing industry the boost it needed.
On Tuesday, the latest figures from the Office of National Statistics (ONS) revealed that U.K. inflation, as measured by the Consumer Prices Index (CPI), fell again in May, to 2.2%, from 2.3% the previous month. The fall was less than expected, and means that the CPI reading is still above the Bank of England's target rate of 2%, where it has been for the last 20 months. The reading is, nevertheless, the lowest recorded since January, 2008, and the Bank of England expects inflation to fall to 1%, or lower, by the end of the year. A slight rise in average mortgage interest repayments was reflected by the Retail Prices Index (RPI) – which includes mortgage interest payments and housing costs, and if often used as a starting point for corporate wage bargaining – which rose to -1.1% from -1.2%.
Elsewhere, supermarket giant, Tesco, reported that a strong response to it relaunched "Clubcard" loyalty card, and like-for-like sales that rose 4.3% in the U.K. in the first three months of 2009, had contributed to a "solid" start to its financial year. Although the rise in sales was lower than that reported by other supermarket chains, it was still higher than the 3.7% reported by Tesco in the previous quarter. Chief Executive Officer, Sir Terry Leahy, was quoted on the BBC website, saying that Tesco was maintaining, "momentum in a challenging economic climate."
The latest U.K. unemployment figures were released by the ONS on Wednesday, and made grim reading, with the number of people out of work rising to 2.261 million in the three months to April, the highest for nearly 13 years, and the rate of unemployment rising to 7.2%, the highest for nearly 12 years. The unemployment rate amongst young people is worst of all, with 16.6% of the 18 to 24-year-old age group out of work. The number of people claiming Jobseekers' Allowance rose by a further 39,000 in May, which, although less than the 60,000 predicted, lifted the claimant count rate to 4.8%, again the highest for nearly 12 years.
Elsewhere on Wednesday, Chancellor Alistair Darling said that the tripartite system regulatory system for financial institutions in the U.K. – that is, the Treasury, the Bank of England and the Financial Services Authority (FSA) – was not to blame for the financial crisis, and that no fundamental reform of the system was planned. He laid the blame firmly at the feet of those in charge of financial institutions, and said that, rather than change the structure put in place by his predecessor at No. 11, Gordon Brown, he was looking to improve the quality of the regulators, and those in charge. Mr. Darling's comments appeared at odds with those of Governor of the Bank of England, Mervyn King, who later called for greater powers to allow the Bank to fulfil its role in promoting financial stability.
Thursday saw the release of more figures from the ONS, this time in relation to public sector borrowing in the U.K. Borrowing in May reached £19.9 billion in May, double that a year ago, taking the total to £30 billion in the first two months of the fiscal year. Alistair Darling, of course, forecast that public sector borrowing would reach £175 billion this year in his Budget speech, and Government debt now stands at 54.7% of the GDP ("Gross Domestic Product") of the U.K., at just under £775 billion.
Speculation continued to surround Irish sports broadcaster, Setanta, on Friday, as the deadline for the next instalment of the £30 million it owes the English Premier League for 46 live matches next season approached. Setanta, which is losing an estimated £100 million per year, has been struggling to meet its commitments to sporting bodies, including the Scottish Football League in recent weeks, is currently in talks regarding outside investment. If it fails to raise sufficient cash by Friday, however, the English Premier League has threatened to sell the matches to the highest bidder. Last week, U.S. based Russian billionaire, Len Blavatanik, estimated to be worth $4 billion, tabled a £20 million rescue bid for a 51% stake in Setanta, though Access Industries, which controls a wide portfolio of companies. He, and other investors had since been carrying out a thorough examination of Setanta's accounts – a.k.a. "due diligence" – and were expected to complete the process by some time on Friday.
Ultimately, however, the potential deal with Access Industries collapsed, and Setanta was unable to meet its £10 million payment deadline, leaving the company on the brink of administration. Interested parties were given until Monday, 22nd June, to lodge bids for the 46 English Premier League games, but BSkyB is expected to buy Monday nighy Premier League matches, having already won the rights to these for the 2010/2011 season, with U.S. broadcaster ESPN likely to buy the remainder.