Firms ‘feel worst’ for 16 years
July 2, 2008
UK business confidence has fallen to its lowest level since 1992 in June, according to BDO Stoy Hayward.
Its Business Trends Report showed confidence about the next three months fell to 97.7 in June from 98.3 in May.
It is the lowest figure since Black Wednesday, when the pound was removed from the Exchange Rate Mechanism.
The report comes as consumer confidence levels were seen to be near record lows, buffered by falling house prices, a slowing economy and a credit crunch.
BDO said that the low business confidence figures would suggest that companies were expecting annualised economic growth of 1.3% in the next three months.
That would be less than the chancellor’s forecast of between 1.75% and 2.25% for 2008.
“UK businesses are struggling to see any light at the end of the tunnel,” said Peter Hemington from BDO Stoy Hayward.
“An interest rate rise next week aimed at curbing inflation could be crippling for business and could worsen the effects of the economic slowdown,” he warned.
Source: BBC News (Internet)
US rates expected to stay at 2%
June 25, 2008
US interest rates are expected to remain at 2% amid further signs of problems in the housing market and falling consumer confidence.
Analysts suggest the Federal Reserve faces a difficult balancing act as it tries to cope with rising prices and a slowing economy.
US consumer confidence is reportedly at its lowest level in 16 years.
Meanwhile, a survey suggested house prices were substantially lower in April compared with a year earlier.
Higher oil prices, high commodity prices and higher fuel prices are causing an inflation headache for the Central Bank, according to the BBC’s Michelle Fleury in New York.
Analysts suggest the next move in rates could be upwards in an attempt to tackle inflation.
But that could worsen the economic slowdown caused by crises in the credit and housing markets, economists suggest.
It is a situation that the head of the IMF recently described as being caught between “fire and ice”.
Although no change in rates is expected on Wednesday, investors will watch closely for any accompanying statements from the Fed for an indication of what its future interest rate policy might be, our correspondent says.
Housing slump
In the housing market, property prices fell by their fastest rate since 2000, according to the Case-Schiller home price index released on Tuesday.
Prices in the 20 cities it monitors were 15.3% lower in April compared to the year before.
The narrower 10-city index was 16.3% down, its biggest decline in its more than two-decade history.
Las Vegas and Miami experienced falls of more than 25%, while the declines in Denver, Chicago and Cleveland were less severe than in the previous month.
Economic gloom
The latest reading of US consumer sentiment also showed a worsening situation.
Higher food and fuel prices and fears over the economy, jobs and wages mean that US consumers’ expectations for the next six months are at an all-time low, according to the Conference Board which polls 5000 households monthly.
The percentage of consumers expecting business conditions to get worse over the next six months jumped to 33.9% in June from 32.9% the previous month.
And the percentage of those expecting fewer jobs to be created in the months ahead rose to 35.5% from 32.3%.
“They feel purchasing power is diminishing. They’ve got rising gas and food prices and they don’t feel wages are keeping pace with it and that is really taking a bite out of consumer confidence,” Lynn Franco from the Conference Board told BBC News.
Darling calls for pay restraint
June 22, 2008
Chancellor Alistair Darling says pay rises for people “from the boardroom to the shopfloor” need to be “consistent” with the 2% inflation target.
He told BBC One’s Andrew Marr show the need to keep inflation under control “applies to each and every one of us”.
He said above-inflation pay increases would be “extremely damaging”.
Mr Darling said the UK economy was “far better equipped” than in the 1970s, 1980s and 1990s, but “despite that we are in for a tough time”.
The government’s preferred inflation measure, the Consumer Prices Index rose, to 3.3% in May, with the Bank of England warning it may reach 4%.
The wider Retail Prices Index measure of inflation - the one used for many pay negotiations - is already at 4.3%.
Asked if people should accept their living standards were going to fall this year - as they get pay rises below the level of inflation - Mr Darling said that everyone “had a vested interest” in not allowing inflation to take hold.
He said: “We’ve got to make sure that we keep inflation under control because if we don’t what will happen is that people may get a pay increase but every penny of it will be eaten up by rising prices in the shops.
“Now none of us want to see that happen, it’s in no-one’s interest and that applies from the top to the bottom, public and private sector alike.”
The chancellor was speaking as BPIX opinion poll for the Mail on Sunday suggested Labour was trailing the Conservative Party by 49% to 26% -with the Lib Dems on 14%.
The poll - which saw 2,385 people questioned online between 18 and 20 June - comes ahead of Gordon Brown’s first anniversary as prime minister, on Friday.
Asked about Mr Brown’s position, Mr Darling told the programme: “I have always taken the view that we can turn this round.
“We have had a difficult year, whether it’s the economy or other political issues as well, but I believe we are doing the right thing.”
Source: BBC News (Internet)
Economy is slowing, says Darling
June 18, 2008
Chancellor Alistair Darling has said that there is “no doubt” the UK economy is slowing and has warned it will be a “difficult year” ahead.
Rising food and fuel prices were hitting consumers, he told the BBC.
Speaking a day after consumer inflation jumped to the highest level in 10 years, he also called for restraint in pay demands.
Mr Darling said it would be “disastrous” if the UK “allowed inflation to take hold”.
“There is no doubt our economy is slowing down,” he told the BBC’s Today programme.
The government has predicted that the UK economy will grow by between 1.75% and 2.25% this year.
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The chancellor has forecast that the economy will grow by between 2.5% and 3% next year.
However, economists are predicting the rate of growth will be closer to 1.3%.
Asked about the difference in the two forecasts, Mr Darling said he would be looking again at his growth figures in the pre-Budget report in the autumn.
‘Vigilant’
The governor of the Bank of England warned on Tuesday that inflation would top 4% this year before dropping back as the economy slows.
In order to combat inflationary pressures, the chancellor said workers would have to be realistic in their pay demands.
“We have got to be vigilant in relation to all pay settlements, public and private,” Mr Darling told Radio 4’s Today programme.
“If we get back into that [inflationary] spiral, it will take years to get out of it,” he said.
It could even herald a return to the high level of inflation experienced in the 1970s and 1980s, he said.
The chancellor blamed the rise in inflation on global factors pushing up the price of oil and foodstuffs.
But he said countries needed to work together to tackle the problem.
“You need to make sure you don’t allow inflation to become entrenched here at home and you also need to make sure we work together in relation to oil and food [prices]“, he said.
The chancellor will further examine the state of the economy when he delivers his first Mansion House speech to the City of London later.
Eurozone inflation at record 3.7%
June 17, 2008
Inflation in the eurozone has a climbed to a record level amid higher food and fuel costs, official figures show.
The annual rate of inflation in the 15 state zone hit 3.7% in May, according to the Eurostat statistical office.
The figure is the highest since 1996, when Eurostat started using the current methodology for calculating inflation.
There are concerns that price growth will keep accelerating, and the European Central Bank warned it will raise interest rates to slow inflation.
The rate of inflation was up from 3.3% in April, and compares with a 1.9% figure in May 2007.
Eurostat said that the main driver of inflation last month was an increase in food prices, which were up 6.4%, and transport costs, which were 5.9% higher.
Monday’s figures are for the 15 nations that use the euro.
Across the European Union as a whole, the rate of inflation climbed to 3.9% in May.
Global problem
Central banks around the world have been struggling to keep inflation under control as food and oil prices rise.
This has led to growing pressure to increase interest rates to counteract the rise of inflation.
Earlier this month the ECB decided to hold interest rates for the Euro bloc at 4%, but ECB President Jean-Claude Trichet hinted an increase in interest rates was “possible” at its next meeting.
“We considered - it is not excluded - that after having carefully examined the situation, we could decide to move our rates [by] a small amount in our next meeting in order to secure the solid anchoring of inflation expectations”, said Mr Trichet at the time.
But despite the high inflation in the eurozone, the ECB has been reluctant to increase rates - which have been steady since July 2007 - as there are growing signs that the bloc’s economy is weakening.
In May the NTC Research Institute’s purchasing managers’ index slumped to its lowest level since July 2003, and official EU data showed that retail sales fell in April.
Howard Archer, economist at Global Insight, said: “The May eurozone consumer price data are likely to seal an interest rate hike from 4% to 4.25% at the ECB’s 3 July meeting.”
Meanwhile, the US Federal Reserve has effected a series of aggressive interest rate cuts - from 5.25% to 2% since last September.
However with US inflation rising the next move in rates may be upwards.
The Bank of England has also trimmed UK rates, which are now at 5%.
The combination of ECB holding rates steady and UK and US central banks cutting rates has sent the euro to record highs against the dollar and sterling since the beginning of the year.
This has made eurozone exports more expensive and sparked criticism from some leading exporters, such as plane maker Airbus.
Some analysts have predicted rates will come down in order to boost the eurozone economy.
Source: BBC News
Fuel costs push up US inflation
June 14, 2008
US inflation rose at its fastest pace for six months in May because of sharply higher energy costs.
Consumer prices rose 0.6% last month, government figures showed, the steepest monthly increase since last November.
Petrol costs surged by 5.7% last month, driven by the soaring global cost of oil which recently reached more than $139 a barrel.
Rising inflation is a worry for the Federal Reserve, which has cut rates aggressively to stimulate growth.
Above expectations
May’s figure topped market expectations and represented a jump from April’s 0.2% rate.
On an annual basis, inflation touched 4.2% in May, again above analysts’ expectations.
Gasoline prices rose at their fastest monthly rate this year while food prices rose 0.3%.
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 We know oil is flying through the roof. Consumers are forced to eat the price 
Lindsey Piegza, FTN Financial
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Excluding both fuel and food costs, so-called core inflation was up 0.2% on a monthly basis and 2.3% compared with a year ago.
The figures increase the prospect that the next move in US interest rates could be up.
The Fed has slashed rates in the past eight months as the economy has slowed dramatically but it will be mindful of evidence of growing inflationary pressures.
But analysts said price inflation was largely confined to energy at this stage.
“It is not as bad as it looks,” Lindsey Piegza, from FTN Financial, said of the numbers.
“We know oil is flying through the roof. Consumers are forced to eat the price. There is nothing they can do.”
Most of the US ’sees weak growth’
June 12, 2008
Much of the US saw weak economic growth in April and May while living costs increased, the Federal Reserve says in its closely monitored “Beige Book”.
The US central bank’s regular snapshot of business activity across the country describes weak consumer spending and job cuts linked to falling home sales.
The report knocked US shares, with the Dow Jones index of biggest shares down 206 points. The S&P 500 fell too.
Fed boss Ben Bernanke said earlier this week that risks to growth had faded.
The remarks were a strong signal that there would be no more US interest rate cuts.
Many analysts predict that US rates will remain at 2%, a four-year low, when policy makers next meet, and some believe they could even rise later in the year.
The Dow Jones index of largest shares ended 1.7% lower at 12,083.8, while the S&P 500 index dropped 1.7% and the technology-dominated Nasdaq fell more than 2%.
Price rises
The report appears to back Mr Bernanke’s view that inflation risks will remain a problem due to higher energy and food costs.
“Business contacts in most districts reported increases in input prices since the last report, especially prices for energy, petroleum derivatives, metals, plastics, chemicals, and food,” the report says.
But there are concerns that the price rises will derail the already fragile economy, which has been battered by problems in the banking sector and a housing slump.
Firms have been cutting jobs for months and the unemployment rate shot up to 5.5% from 5% in May - its fastest pace in more than two decades.
But on Monday, Mr Bernanke played down the unemployment figures, insisting that a series of reductions in interest rates in the last nine months, combined with tax rebates and other measures worth $168bn (£85.6bn), would help to offset the risks threatening the economy.
Oil eases but price unrest grows
June 9, 2008
The cost of oil has eased slightly after Friday’s record-breaking price surge but analysts have warned that prices could soon start to rise again.
US light, sweet crude slid 74 cents to $137.8 after Friday’s unparalleled $11 jump to $139.12. Brent fell $1.41 to 136.28, down from a record of $137.69.
Some G8 nations have called for output to increase to curb price inflation.
But Nigeria’s oil minister said Opec would only fuel panic by calling an emergency meeting to discuss quotas.
‘Market dysfunction’
Most Opec members are reluctant to increase production, arguing that the market is already adequately supplied with oil.
But critics argue that supplies are failing to keep pace with the growth in demand and that prices are set to head towards $200 a barrel in the next 18 months.
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It is anybody’s guess where the oil prices will go
Gul Tekchandani, investment adviser
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Stock markets across Asia fell sharply on Monday amid concerns about the impact of escalating oil prices on the region’s economic prospects.
Japan’s benchmark Nikkei index fell 2% while in India, where the government is under pressure over fuel subsides, the main Sensex index fell more than 4%.
“It is anybody’s guess where the oil prices will go,” said Gul Tekchandani, an investment adviser in Mumbai.
“Clearly nobody will venture close to the market.”
Speaking at an industry conference in Malaysia, BP chief executive Tony Hayward said it was clear the oil market was not “functioning” as it should.
“Where prices are high, they show that supply is not responding adequately to rising demand,” he said.
G8 pressure
Friday’s 8%, or $11, rise in prices - the largest daily increase in history - was triggered by weak US employment figures and comments that a military strike on Iran’s nuclear facilities was “inevitable” in the future.
Meeting in Japan over the weekend, ministers from the G8 group of industrialised nations expressed concern about price rises and called for increased investment in new technology and alternative power sources.
The US, UK, China, Japan, India and South Korea have all called on oil producers to increase output to try to control the soaring prices.
Opec has said no new decision will be made until its meeting in Vienna on 9 September.
US unemployment rate reaches 5.5%
June 8, 2008
The US unemployment rate rose at its fastest pace in more than two decades in May, stoking fears of recession in the world’s biggest economy.
The surprise jump in May’s jobless rate to 5.5% from 5% is the most recent signal yet that US growth is stalling.
It shows US companies are more reluctant to hire as profits are squeezed by a consumer slowdown and soaring oil and raw material costs.
The US Labor Department said the economy lost 49,000 non-farm jobs.
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If you want to avoid a protracted recession, you have to make sure inflation doesn’t get out of control
Gilles Moec
Analyst, Bank of America |
It follows a 28,000 decline in April, and will fuel fears the US economy is sliding towards recession, analysts said.
The worry is that a weak labour market will see consumers rein in their spending, hurting corporate profits.
The poor data rattled the stock market, with the blue-chip Dow Jones index sliding 1.79%, or 225.70 points, to 12378.75 in afternoon trade in New York.
Cost of living
In recent months, the US Federal Reserve has been slashing interest rates in an attempt to stoke growth.
But analysts believe the rising cost of living, rather than interest rates, should be the US central bank’s chief concern now.
“If you want to avoid a protracted recession, you have to make sure inflation doesn’t get out of control,” said Gilles Moec, an analyst at Bank of America.
“Otherwise, you’re going to have a loss of purchasing power meaning consumer spending is going to slow down even more.”
Consumer spending is the engine of the US economy, and the latest jobless data is another set-back for Americans who are struggling with falling house prices, a credit squeeze and rising fuel bills.
Analysts said the figures came as a surprise:
“The unemployment rate is the shocker,” said Bert Macintosh, chief economist at Eaton Vance Management.
“The unemployment rate gives you a much weaker economic outlook than the payrolls number,” he added.
Analysts had expected between 30,000 and 58,000 jobs to go.
In April, 28,000 non-farm jobs were lost, fewer than than expected.
Interest rates kept on hold at 5%
June 5, 2008
UK interest rates have been left unchanged at 5% following the latest meeting of the Bank of England’s Monetary Policy Committee (MPC).
The decision to hold rates had been widely expected amid concerns about the pace of inflation.
Rising food and fuel prices pushed inflation to 3% in April, well above the government target of 2%.
The MPC has already cut interest rates three times since December 2007 in an attempt to help the slowing economy.
However, the economic slowdown and falling house prices had led some to call for another cut in rates to boost spending.
Businesses squeezed
Many economists feel that the MPC needs to wait and see whether higher food and fuel prices lead to higher wages or lower spending in other areas before changing rates.
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The necessity to write a letter to the chancellor should not be the overriding consideration for the MPC
David Kern, British Chambers of Commerce
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If inflation rises above 3% then Bank of England governor Mervyn King must write to the chancellor to explain why.
At the MPC’s last meeting in May, only one of its nine members voted to cut rates.
“The Bank had little option this month other than to leave interest rates on hold,” said Ian McCafferty, chief economic adviser to the employers’ group, the CBI.
“Oil and commodity prices are still of great concern and businesses are having to raise prices as profit margins get squeezed further.”
Slowdown predicted
House prices are falling as the credit crunch makes lenders reluctant to provide mortgages.
The latest figures from the biggest mortgage lender, the Halifax, showed a 2.4% fall in house prices during May.
This week, the Organisation for Economic Co-operation and Development predicted that UK growth would slow to 1.8% this year and to 1.4% in 2009. It said the global credit crisis, the high costs of commodities such as oil and slowing property markets were all hurting the UK economy.
On Wednesday, the Home Builders Federation called for a half-point cut in interest rates 4.5%, saying a cut was “imperative” to avoid a severe housing market slowdown.
Also on Wednesday, figures from the Chartered Institute for Purchasing and Supply indicated that the UK service sector shrank in May for the first time in five years, as costs rose and confidence in business prospects fell.
Threats to growth
The British Chambers of Commerce (BCC) said that the MPC should be considering the whole economic outlook and not just inflation.
“We understand the critical need for the MPC to maintain credibility, but the MPC cannot disregard the worsening threats to growth,” said BCC economic adviser David Kern.
“The necessity to write a letter to the chancellor should not be the overriding consideration for the MPC.”
But the British Retail Consortium supported the decision to keep rates unchanged.
“Struggling customers and retailers certainly need a boost but, with rising oil and commodity prices stoking inflation to well above the 2% target, leaving rates unchanged was the wise option,” said its director general Stephen Robertson.