History > 2008 > UK > Economy (III)

http://digital.guardian.co.uk/guardian/2008/09/30/pdfs/gdn_080930_ber_1_20824169.pdf

UK nationalises Bradford & Bingley

Published: September 26 2008
22:44
Last updated: September 29 2008
14:46
The Financial Times
By Jane Croft and Kate Burgess
in London and George Parker in Birmingham


The government on Monday confirmed it was nationalising Bradford & Bingley after hammering out a deal with the Spanish bank Santander, which will buy the embattled UK mortgage lender’s £21bn deposit book and branch network for about £600m.

The bank was taken into public ownership on Monday after B&B saw retail savers withdraw “tens of millions of pounds” in recent days as uncertainty grew.

In a statement, the Treasury said it had taken the decision in order “to maintain financial stability and protect depositors, while minimising the exposure to taxpayers. [The government] has worked over the weekend to bring about the part public, part private solution which best meets those objectives. “

It said the Financial Services Authority, the regulator, had determined on Saturday that B&B “no longer met its threshold conditions for operating as a deposit taker”. That triggered the Financial Services Compensation Scheme, which steps in to pay compensation to people who lose money as a result of a financial services group failing.

The FSCS, which is funded by the financial services industry, is paying about £14bn to enable retail deposits held in B&B and covered by the scheme to be transferred to Santander.

The Treasury has made a payment to Abbey Santander for retail deposit amounts not covered by the FSCS – about £4bn. In return, the FSCS and the Treasury have acquired rights in respects of the proceeds of the wind-down and realisation of the assets of the remaining business of Bradford & Bingley in public ownership.

The FSCS is financing its £14bn payout through a short-term loan from the Bank of England, which it is intended will soon be replaced with a government loan. The banks behind the FSCS will pay the interest on the loan, with the first payment – estimated at £450m – due in September 2009.

Alistair Darling, chancellor of the exchequer, told GMTV: “My priority was to protect savers and depositors but also to ensure we got a good deal for the taxpayer. We had to stabilise the situation in order to protect the banking system as a whole, just as we have done on previous occasions.’’

On Saturday, the government invited bids for B&B’s £21bn retail deposit base and branches as well as inviting offers for its head office and its mortgage loan book.

After 12 hours of talks, Santander on Sunday night agreed to buy the network of 197 branches and 140 agency outlets as well as the retail deposits.

Santander will immediately be able to recoup £200m of capital that supports the branch network, and so it is actually paying closer to £400m.

If completed, the deal would see Santander, which already owns Abbey and is taking over Alliance & Leicester, holding 1,200 branches in the UK. It will also be able to add £21bn of retail deposits to its existing £68bn of retail savings.

B&B said it would be business as usual for its customers. “Whatever channel they use – branch, telephone, internet or ATM – they will all be open and operating as normal,” it said in a statement on its website. The branches will remain branded as B&B for the foreseeable future.

The government is taking on B&B’s £42bn mortgage loan book, which consists of risky buy-to-let and self-certified mortgages with rising arrears.

It will also control the bank’s Yorkshire head office which employs 1,400 people, and its mortgage processing operation.

Shares in B&B, which closed on Friday at a historic low of 20p, were suspended by the FSA on Monday.

Gordon Brown, the prime minister who recently arrived back from a two-day trip to the US, was briefed on the situation by Mr Darling and senior Treasury officials.

The officials worked through the weekend to hammer out the deal. They tried to find a way to “manage down the risk to the taxpayer” of taking on the bank’s loan book.

Mr Darling has made clear he will stand behind B&B depositors, but there are other creditors who could be put on risk, rather than leaving taxpayers to shoulder that burden.

One option is to bundle B&B’s mortgage business with Northern Rock to create a nationalised super bank, although that is described as “a second order” issue and no decision is expected imminently.

On Sunday, David Cameron, Conservative party leader, attacked the impending nationalisation and said it would leave the taxpayer with the “whole risk”, adding: “I’m not signing any blank cheques.”

The moves on Sunday night triggered concern from Peter Montagnon, director of investment affairs at the Association of British Insurers, representing the bank’s biggest investors. He pinpointed concerns that a bank with an apparently strong capital ratio should be on the brink of failing.

The government said on Monday that B&B’s senior management, led by chief executive Richard Pym, would remain in place during the initial phase of public ownership.

UK nationalises Bradford & Bingley,
FT,
29.9.2008,
http://www.ft.com/cms/s/0/1e5b888c-8c06-11dd-8a4c-0000779fd18c.html

Banking crisis:

Shares soar on US rescue plan

The dramatic rally in London
has added tens of billions
to the value of the UK's top 100 companies

Guardian.co.uk
Friday September 19 2008
13:00 BST
Richard Wray
This article was first published
on guardian.co.uk on Friday September 19 2008.
It was last updated at 13:09 on September 19 2008.
 

Share prices have soared across the world, with the FTSE 100 index at one point putting on its best performance since it was created in 1984, on hopes that the American government will ride to the rescue of distressed banks.

The mood was also lifted by a ban this side of the Atlantic on the practice of short-selling and hopes for a rescue of Wall Street's second largest investment bank Morgan Stanley.

The dramatic rally in the FTSE 100 index, which was up more than 400 points in late morning trading, has added tens of billions of pounds to the value of the UK's top 100 companies. But the sense of relief, after one of the most turbulent four days in stockmarket history, has been spreading across the world.

In France, the CAC-40 index of leading French companies has risen more than 250 points - or 6% - while in Germany the flagship DAX index has gained a similar number of points and is sporting a 4% rise.

Europe's rally came after Asian stock markets rose overnight following a rally on Wall Street of over 400 points. Japan's Nikkei 225 index rose 3.75% while Hong Kong's Hang Seng index was up almost 10%.

All eyes are now firmly set on Wall Street's opening this afternoon with the futures market suggesting it could rise more than 350 points at the opening. The Dow Jones Industrial Average (DJIA) rocketed in late trading last night as news emerged that the US Treasury and the country's central bank are trying to put together a government-sponsored firm - dubbed "bad bank" - which would take control of toxic financial assets and clean up the banking system.

Traders hope the move will stop the contagion which started with the collapse of Bear Stearns last year and reached a dramatic crescendo this week with the collapse of Lehman Brothers, Merrill Lynch's shotgun wedding with Bank of America and the bailout of America's largest insurer AIG.

Hopes are growing that another troubled bank, Morgan Stanley, could be rescued by a Chinese government-backed investment fund or clinch a deal with rival Wachovia. The China Investment Corp already has a 9.9% stake in Morgan Stanley, which it bought last December, and is in talks to raise that stake to 49%.

Morgan Stanley is also locked in talks about a potential merger with America's fourth largest retail bank, Wachovia, which is based in Charlotte, North Carolina. Such a deal would leave Goldman Sachs as the only remaining major independent American investment bank.

By lunchtime London's rally had sent the FTSE 100 index to 5238.8 points, up 358.8 points. The share price rise has added £85bn to the value of the index's constituents.

By lunchtime the index had risen 7.35%. If the market were to close at that level its would be the index's second biggest rise since it was created by the Financial Times and London Stock Exchange in 1984. Before the FTSE 100 was created, the Financial Times tracked a smaller basket of shares called the FT 30.

Earlier in the day the FTSE 100 had risen more than 400 points to stand up 8%. If it had closed at that level, the FTSE 100 would have beaten its best one-day performance to date, which was on October 21 1987 when it rose 7.89%, rallying after a two-day crash which had seen the index plunge 23%.

Rob Carnell at ING Financial Markets said the American government's plan for "bad bank" "is giving equity markets a rare chance to be far more optimistic". "What is being talked about is a vehicle for lancing the boil of bad property related assets that is causing banks to stop lending to one another – and leading to the aggressive shorting that has already claimed some high profile names."

"It could draw a line under what has been described by some as the worst financial crisis since the Great Depression."

The market was also pushed higher by last night's unprecedented move against short-sellers - people who sell shares they do not own on the hopes of pushing the price lower and buying them back at a profit.

New rules brought in by the Financial Services Authority which banned new so-called "short positions" being taken - or existing positions being increased - in financial services stocks, from midnight last night.

Anyone with an existing short position - essentially betting that a stock price will go down - has until next Tuesday to close down that position by buying shares, or they must disclose their positions to the regulator.

This rule opens the way to naming and shaming of short-sellers, who as a rule prefer to retain some degree of anonymity, and as a result many have been closing their positions by buying shares in the market this morning, which has helped boost stocks.

The Irish financial regulator also banned short positions being taken in Bank of Ireland, Allied Irish Banks, Irish Life and Permanent or Anglo Irish Bank.

In London, shares in the banking sector soared with Lloyds TSB and its proposed merger partner HBOS both rising strongly, up over 35%. The share price rise has pushed the value of Lloyds TSB's rescue takeover back above the original price it was worth when announced yesterday morning.

Share prices in London are also being boosted by the scheduled quarterly expiry of a number of futures and options contracts later today - a process known as "triple witching".

Triple witching takes its name from the residents of the heath in Shakespeare's Macbeth, because it involves three characters that can bring discord.

The characters are actually different classes of financial derivative which all come to the end of their trading period at the same time - stock index futures, index options and stock options. Their expiry can greatly increase volatility in the market. In fact it should be called quadruple witching, as the process now includes the expiration of single stock futures as well.

    Banking crisis: Shares soar on US rescue plan, G, 19.9.2008,
    http://www.guardian.co.uk/business/2008/sep/19/marketturmoil.stockmarkets

Sharp rise

in unemployment claimants

Wednesday September 17 2008
10:55 BST
Guardian.co.uk
Kathryn Hopkins
This article was first published
on guardian.co.uk on Wednesday September 17 2008.
It was last updated
at 11:17 on September 17 2008.

The number of people claiming unemployment benefit last month saw its biggest jump since 1992 when the UK was last in recession, official data out today showed.

The Office for National Statistics said that the claimant count level for August increased by 32,500 to reach 904,900.

On the wider Labour Force Survey measure, joblessness rose by 81,000 to 1.72 million between May and July, the largest increase since 1999. The jobless rate in Britain rose by 0.2% to 5.5% in the three months to July, again the worst level since 1992. The ONS said the trend on both the claimant count and the wider number of jobless was increasing.

The number of workers in manufacturing fell by 42,000 in the latest quarter to reach 2.87 million, the lowest figure since records began 30 years ago.

There was also the first fall for more than a year in the UK's employment level, which fell 16,000 to 29.54 million in the three months to July.

Howard Archer at Global Insight said: "It seems inevitable that extended very weak economic activity and deteriorating business confidence will exact an increasing toll on the labour market over the coming months. Furthermore, employment prospects in the financial sector look increasingly worrying, given the heightened turmoil."

The TUC warned today that the number of people out of work for at least a year could almost double to 700,000 by the end of 2009. It said that total unemployment could hit two million people by next year, partly as a result of the government's tougher benefits regime.

TUC general secretary Brendan Barber said: "Employment levels have remained high despite the recent economic turbulence and are nowhere near the dark days of 1992, when nearly three million people were unemployed.

"However, the TUC is concerned that unemployment has been sneaking up in the last few months and it's up to unions, employers and the Government to halt and reverse this trend as soon as possible."

"With unemployment rising, people are looking to the Government for a response and economic measures will be far more welcome than yet another round of welfare reforms."

Meanwhile, average earnings increased by 3.5% in the year to July, 0.1% up from the previous month but well below the 4.5% level that the inflation-conscious Bank of England considers compatible with low inflation.

"Although earning growth picked up modestly in July, it remained moderate and was broadly reassuring for the Bank of England. Headline annual earnings growth was limited to 3.7% in July itself and to 3.5% in the three months to July. The underlying rate was also contained at 3.8% and 3.7% respectively. This is well below the 4.5% level generally considered consistent with the Bank of England's 2.0% inflation target," said Archer.

"However, a key question for the Bank of England is will wage growth remain contained given sharply higher inflation and elevated inflation expectations?"

Sharp rise in unemployment claimants, G, 17.9.2008, http://www.guardian.co.uk/business/2008/sep/17/unemploymentdata.recession

New car sales

stall in worst August since 1966

The move towards smaller, more fuel-efficient cars
suggests buyers are becoming meaner and greener
in the face of the economic slowdown

Guardian.co.uk
Mark Milner
Thursday September 04 2008 16:03 BST
This article was first published on guardian.co.uk
on Thursday September 04 2008.
It was last updated at 16:06 on September 04 2008.

Sales of new cars in the UK slumped by almost a fifth last month to produce the worst August for the industry since 1966.

Top marques were among those hardest hit, with sales of BMWs down almost 40% compared with the same month in 2007, Jaguar down 41%, Land Rover almost 58% lower and Mercedes-Benz recording a drop of 35%, according to figures from the Society of Motor Manufacturers and Traders.

Sales of small cars held up better, with cars such as the Vauxhall Corsa (the month's top seller), the Ford Fiesta and the Mini increasing that segment's share of the market from just under 30% to almost 34%.

Sales in the mini segment - usually cars with two doors and engines of less than one litre - increased, doubling the sector's market share.

The move towards smaller, more fuel-efficient cars suggests that buyers are becoming meaner and greener in the face of the economic slowdown.

New car sales so far this year are down 3.8% overall but have fallen by more than 10% over the past three months.

Commenting on the 18.6% fall in new car registrations in August, Paul Everitt, the chief executive of the SMMT, said: "August is one of the quietest months for the new car market but this year was the lowest since 1966 with only 63,225 registrations. The slowdown mirrors the difficult conditions being experienced across the main European markets.

"The industry is encouraged by the growing interest in lower carbon cars but is concerned by the reluctance of consumers to commit to major purchases. There is a clear need for sustained action by government to boost the economy and restore confidence."

The SMMT said it expected sales to fall by around 10% - some 85,000 vehicles - over the final four months of the year. It has cut its forecast for sales in 2008 from 2.31 million to 2.26 million and from 2.23 million to 2.16 million for 2009.

Demand from private buyers continued to fall sharply - down by almost a quarter last month - as the impact of economic uncertainty continues to bite.

Howard Archer, chief UK and European economist at Global Insight, said: "Sharply deteriorating car sales is a further clear sign that consumers are increasingly cutting back on their spending.

"Many consumers are doing this out of necessity due to squeezed purchasing power but it is also likely that many are retrenching out of choice, reflecting serious concerns about the economic situation and outlook."

    New car sales stall in worst August since 1966, G, 4.9.2008, http://www.guardian.co.uk/business/2008/sep/04/creditcrunch.retail

Economic slowdown:

Unemployment soars

to a 16-year high

· Number of jobless has risen by 70,000 this year
· KPMG warns that skilled workers will emigrate

Wednesday September 3 2008
The Guardian
Kathryn Hopkins
This article appeared in the Guardian
on Wednesday September 03 2008 on p22 of the Financial section.
It was last updated at 02:27 on September 03 2008.


Britain's jobs market is suffering from the slowdown in the economy as a new report out today shows the number of permanent jobs available has plunged to its lowest level since 2001.

Unemployment had been falling for 15 years to its lowest level for three decades, but has risen by about 70,000 this year. Economists say tumbling house prices and stagnant economic growth are likely to push unemployment up sharply over the next year or more.

The Recruitment & Employment Confederation's latest survey today says permanent placements contracted for the fifth consecutive month in August while temporary jobs fell for the first time since May 2003.

"The slide in the UK economy continues to hit the jobs market hard - with yet another sharp drop in recruitment," said Alan Nolan, director at KPMG, which sponsors the report. "UK employers are continuing to control payroll costs through redundancies - and by refusing to take advantage of a growing (but increasingly unused) pool of skilled labour."

He warned that skilled workers are starting to move abroad in search of employment, which could result in a labour shortage when the market picks up again.

Thousands of jobs have been shed in the construction sector as the housing and commercial property markets have collapsed. Figures out yesterday showed that Britain's construction sector shrank for a sixth consecutive month in August.

The Chartered Institute of Purchasing and Supply/Market construction index picked up slightly to 40.5 last month from a low of 36.7 in July, but remains in difficulties. A figure below 50 signifies contraction.

David Blanchflower, a member of the Bank of England's monetary policy committee, said last week that there was a risk of unemployment rising by 60,000 a month and hitting 2 million by the turn of the year.

"We are going to see much more dramatic drops in output," said Blanchflower, who has been a lone voice on the nine-member MPC in calling for lower interest rates in recent months.

In an interview with Reuters, he said: "The fears that I have expressed over the past six months have started to come to fruition. I've obviously voted on quite a number of occasions now for small [quarter-point] cuts but we need to act and we probably need to act in larger amounts than that. We need to get ahead of the game and it appears that we are now behind."

The Bank begins its two-day meeting today to deliberate on the level of interest rates. Borrowing costs have been unchanged at 5% since April as the MPC remains concerned about rising inflation.

But many analysts believe that the Bank must cut rates this week to prevent a recession. The Organisation for Economic Cooperation and Development said yesterday that Britain will enter recession this year with contractions of economic output in the third and fourth quarters.

The OECD predicted that the British economy will shrink by 0.3% this quarter and by 0.4% in the October to December period as the credit crunch and the housing market downturn worsen. Therefore, this would be two consecutive quarters of negative growth, which is commonly used as the definition of recession. The OECD said Britain would fare worst among the group of seven leading economies.

Shadow chancellor George Osborne said: "Not only is the British economy predicted to shrink in the next two quarters, but it is also the only economy not predicted by the OECD to see a recovery this year. All of our major competitors are predicted to see at least some growth by the end of the year."

The Liberal Democrat Treasury spokesman, Lord Oakeshott, said: "Other big economies are forecast to recover but the OECD says Britain is worst placed of all because of falling house prices.

"British families are now paying through the nose for Gordon Brown's complacency, which has allowed house prices and debt to get out of hand."

    Economic slowdown: Unemployment soars to a 16-year high, G, 3.9.2008, http://www.guardian.co.uk/business/2008/sep/03/unemploymentdata.economics1

Pound drops

to record low against euro

Published: September 1 2008 10:40
Last updated: September 1 2008 18:42
The Financial Times
By Peter Garnham in London


The pound dropped to a record low against the euro on Monday after Alistair Darling, the UK’s finance minister, gave a candid assessment of the economy’s prospects in an interview over the weekend.

In the interview with the Guardian newspaper Mr Darling argued that the economic times facing Britain were “arguably the worst in 60 years”.

The comments added to pressure on sterling, which has sold off sharply in recent weeks amid growing evidence that the UK economy was headed for a recession.

Indeed, last month the pound notched up its biggest fall against the dollar since its ejection from the European Exchange Rate Mechanism in 1992 as figures showed the UK economy ground to a halt in the second quarter and the country’s housing market was experiencing its sharpest collapse since the early 1990s.

“The current weakness of sterling accurately reflects the present situation of the British economy,” said Lutz Karpowitz at Commerzbank.

“All indicators seem to suggest that the economy will unavoidably slide into recession.”

This has heightened expectations that the Bank of England, which holds it monetary policy committee meeting this week, would start cutting UK interest rates before the end of the year despite rising inflationary pressures within the UK economy.

Analysts said reports of displeasure at Mr Darling’s comments from Gordon Brown, the UK prime minister, were also undermining sentiment.

Simon Derrick at Bank of New York Mellon said coming at a time when the pound was already under intense pressure, this apparent sign of division in the political leadership has only served to sour sentiment against the pound further.

“With these tensions likely to overhang the much talked about “relaunch” of Gordon Brown’s premiership and the possibility that the autumn will be dogged by political uncertainty, it also seems likely that investors will continue to shun sterling for some time to come,” he said.

“We are reminded once again that when the pound falls, it falls hard.”

Meanwhile, more gloomy economic data also piled the pressure on the pound.

Figures from the Bank of England that showed UK mortgage approval dropped to a record low of 33,000 in July.

Analysts said the data heightened concerns over the potential depth and length of the UK housing market correction.

Elsewhere, the UK purchasing managers’ index suggested that the manufacturing sector continued to contract in July.

The pound fell to a record low of £0.8139 against the euro, before recovering some ground to stand down 0.1 per cent at £0.8115.

Sterling also dropped to a fresh two-year low against the dollar, dropping 0.5 per cent to $1.8040, and lost 1 per cent to Y194.32 against the yen.

    Pound drops to record low against euro, FT, 1.9.2008, http://www.ft.com/cms/s/0/75677c7c-7805-11dd-acc3-0000779fd18c.html

Darling’s dire UK diagnosis

Published: August 31 2008 19:46

Last updated: August 31 2008 19:46

The Financial Times

Alistair Darling, the chancellor, publicly fretted at the weekend about the state of the UK economy and the performance of the Labour government. On the economy, his prognosis is too bleak. On Labour, his prognosis is nowhere near bleak enough. As the new political year begins, Labour finds itself 20 percentage points behind the Conservatives. But the government will only make matters worse politically and economically if it overreacts to the downturn.

Mr Darling noted in an interview this weekend that the government was “not doing OK”. Quite an understatement. Gordon Brown, the prime minister, has had a dreadful summer. Losing one of the safest Labour seats in the country – Glasgow East – to the Scottish National party on a swing of 22 per cent had been the nadir. But another by-election in another formerly safe Scottish seat – Glenrothes – looms. A date has yet to be set, but the parties are already campaigning. The SNP may well win again.

Late in September, the prime minister must face the Labour party conference in Manchester. Unions will meet MPs and activists to worry about the party’s imminent return to the political wilderness. Unlike the Conservatives, the Labour party has no tradition of dropping its leaders but, if the mood is bleak enough, someone may force the prime minister out.

Even if they were to manage that feat without too much bloodshed – which is rather unlikely – the process of a leadership election could only hurt the party. The sight of ministers debating niceties of the party constitution when their minds should be on the credit squeeze will not endear them to the public.

Mr Brown’s central problem is that he is still missing a narrative. Attempts to relaunch himself with stunts or reshuffles will not work so long as no one knows what he wants to do. A year into his government, this is rather damning. This lack of direction would be less of an electoral bind if the party could plausibly describe itself as a party of competence. But, after a string of mistakes over the past year, it cannot claim that mantle any longer.

On tax, in particular, the government has been unforgivably indecisive. There is still damaging uncertainty around windfall taxes on energy companies and “holidays” on stamp duty. Both are populist sops and both should have been immediately rejected by Mr Darling.

The chancellor also claimed this weekend that the economic times facing Britain were arguably the worst in 60 years. His precise meaning has been in dispute but it would certainly be nonsense to suggest the UK faces the worst downturn in six decades. It is true that in specific areas – trust among financial institutions, in particular – the UK is in very bad shape by historical standards. But, more generally, the assertion is untrue.

A single quarter without economic growth is not a catastrophe. Unemployment and inflation are both still low. Coping with the slowdown may well mean breaking the fiscal rules. But so be it. There is no prospect of needing to move to a three-day working week or to seek a bail-out from the International Monetary Fund. These are not desperate times; desperate measures are not required.

Mr Brown does have a few options for easing the slowdown, however. Giving councils the ability to prevent a small number of foreclosures – rather than waiting for families to become homeless and paying to rehouse them – could help cushion the blow of the housing market correction for a small number of families. The terms of such schemes would need to be strict, however, to protect the taxpayer and to avoid the government becoming an insurer for speculative house-buyers. Using the benefit system might be a better way of achieving this goal without creating serious moral hazard problems.

The UK’s economic circumstances are by no means the worst in 60 years. But the same, however, may not be true of the Labour party.

    Darling’s dire UK diagnosis, FT, 31.8.2008, http://www.ft.com/cms/s/0/7d40b8d8-778c-11dd-be24-0000779fd18c.html

Mortgage hopes hit by Darling

August 31, 2008
From The Sunday Times
David Smith and Iain Dey

THE TREASURY has snubbed calls from Britain’s lenders for direct government intervention to kick-start the mortgage market.

This week’s package of measures intended to stabilise the housing market will not meet a key demand from banks, building societies and housing-market lobby groups.

The Council of Mortgage Lenders has said that without government intervention in the market for mortgage-backed securities, the lending famine that has resulted in a 65% drop in new approvals over the past year will continue.

But the Treasury, which is awaiting final recommendations from former HBOS chief executive Sir James Crosby, remains unpersuaded.

Mortgage lenders said they were left with an uphill struggle after comments by Mervyn King earlier this month, when the Bank of England governor expressed scepticism about extending the Bank’s special liquidity scheme to take in new mortgage-backed securities.

This week’s package will include measures to step up housing association purchases of unsold homes and an expanded shared-equity scheme for first-time buyers. Other options include doubling the allowance for cash Isas to £7,200 for those saving for a home. Another proposal would create a new regular saver scheme with tax benefits similar to Isas.

The Bank is preparing the ground for an informal extension of its special liquidity scheme specifically for building societies. Although some are rumoured to have borrowed more than £1 billion from the £50 billion scheme, most do not have the legal structures in place to access the cash.

Societies currently setting up covered bond vehicles to let them use the Bank facility will be permitted to access the loans even if their preparations slip past the October 20 cut-off date.

The Bank’s monetary policy committee (MPC) meets this week. Analysts see little chance of a cut in rates, despite a gloomy assessment last week from David Blanchflower, one of its members.

Two members of the “shadow” MPC, which meets under the auspices of the Institute of Economic Affairs, back Blanchflower’s call for a sharp cut. Both Patrick Minford and Peter Warburton think there should be a half-point cut this week. The other seven members said it was too soon for a reduction.

The Engineering Employers’ Federation releases its quarterly trends survey tomorrow and is expected to say there has been a sharp deterioration in the economic outlook.

Despite this, it is cautious about calling for a cut ahead of the expected inflation peak over the next two months.

Steve Radley, its chief economist, said: “With a tough pay round looming, business understands the need to rein in inflation. But with evidence that the economy is stagnating, the case for a cut is growing.”

    Mortgage hopes hit by Darling, STs, 31.8.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article4641145.ece

Exclusive interview

Economy at 60-year low,$

says Darling.

And it will get worse

Chancellor says Labour failing to communicate with voters

Saturday August 30 2008
The Guardian
Nicholas Watt, chief political correspondent
This article appeared in the Guardian
on Saturday August 30 2008 on p1 of the Top stories section.
It was last updated at 02:07 on August 30 2008.



Britain is facing "arguably the worst" economic downturn in 60 years which will be "more profound and long-lasting" than people had expected, Alistair Darling, the chancellor, tells the Guardian today.

In the government's gravest assessment of the economy, which follows a warning from a Bank of England policymaker that 2 million people could be out of work by Christmas, Darling admits he had no idea how serious the credit crunch would become.

His blunt remarks lay bare the unease in the highest ranks of the cabinet that the downturn is making it all but impossible for Gordon Brown to recover momentum after a series of setbacks.

His language is much starker than the tone adopted by the prime minister, who aims to revive his premiership this autumn by explaining how he will help struggling families through the downturn.

The chancellor, who says that Labour faces its toughest challenge in a generation, admits that Brown and the cabinet are partly to blame for Labour's woes because they have "patently" failed to explain the party's central mission to the country, leaving voters "pissed off".

In a candid interview in today's Guardian Weekend magazine, Darling warns that the economic times faced by Britain and the rest of the world "are arguably the worst they've been in 60 years". To deepen the sense of gloom, he adds: "And I think it's going to be more profound and long-lasting than people thought."

The economic backdrop presents Labour with its toughest challenge since the 1980s. "We've got our work cut out. This coming 12 months will be the most difficult 12 months the Labour party has had in a generation," he says. But Labour has been lacklustre. "We've got to rediscover that zeal which won three elections, and that is a huge problem for us at the moment. People are pissed off with us.

"We really have to make our minds up; are we ready to try and persuade this country to support us for another term? Because the next 12 months are critical. It's still there to play for."

Darling was given a personal taste of the austere climate when ticked off by a waiter for ordering a second bottle of wine during a meal with his wife, Maggie, and another couple. "The waiter came over and said 'too much wine' in a loud voice. So we stuck to one bottle for the entire meal."

Darling admits that he was recently challenged at a petrol station by a motorist struggling with the rising cost of petrol. "I was at a filling station recently and a chap said: 'I know it's to do with oil prices - but what are you going to do about it?' People think, well surely you can do something, you are responsible - so of course it reflects on me."

But he has some words of comfort for Brown when he predicts there will be no leadership challenge against the prime minister. He also reveals that Brown has no plans to carry out an imminent cabinet reshuffle as he delivers a defiant put-down to critics who have said that he could be replaced as chancellor.

"You can't be chopping and changing people that often," he says. "I mean, undoubtedly before the end of the parliament he will want to do a reshuffle, but I'm not expecting one imminently. I do not think there will be a reshuffle."

Darling does not name names, but says some people want his job and have been trying to undermine him. Many in the Treasury believe that Ed Balls, the schools secretary, has been less than supportive. "There's lots of people who'd like to do my job. And no doubt," he adds, half under his breath, "actively trying to do it."

The chancellor's remarks about the economy - in an interview conducted over two days at his family croft on the Isle of Lewis - highlight the nerves at the top of the government after the loss of Labour's 25th safest seat in Britain in the Glasgow East byelection in July. The Tories are comfortably ahead in polls as leaders return on Monday after the holiday.

Darling, who speaks about how the prime minister is one of his oldest friends in politics, admits Brown has struggled to connect with voters. Asked whether Brown can communicate Labour's mission, he says: "Yes, I do think he can."

Asked why Brown has not done so, Darling falters as he says: "Er, well. Well, it's always difficult, you know ... But Gordon in September, up to party conference, has got the opportunity to do that. And he will do that. It's absolutely imperative."

Darling even describes himself as "not a great politician". Saying how he usually avoids personal interviews and photographs, he says maybe "that's why I'm not a great politician. You know, I'm not very good at looking at pictures and subjecting them to the equivalent of textual analysis".

Today's interview was designed to show the chancellor in a more personal light after a year in which he faced criticism over Northern Rock and the loss of discs with details of half the population. He says nothing of tensions with No 10 after he was reportedly rebuffed by Brown when he pointed out the dangers of abolishing the 10p tax rate.

His press adviser tells Darling, whose relations with Downing Street have been tense over the past year, to speak his mind in the interview. "Now Alistair," the adviser tells the chancellor as Decca Aitkenhead begins the interview. "Tell her everything. Make sure you tell her everything."

    Economy at 60-year low, says Darling. And it will get worse, G, 30.8.2008, http://www.guardian.co.uk/politics/2008/aug/30/economy.alistairdarling

Millions more

face big energy price increases

· Up to 34% rise as last two big suppliers get into line

· Government urged to act as more face fuel poverty

Saturday August 30 2008
The Guardian
Mark Milner, industrial editor

This summer's misery for energy consumers reached a climax yesterday when the last two of the big six suppliers raised prices for millions of household customers.

ScottishPower, which has just over 5 million customers, said gas bills would rise by 34% from the beginning of next month, and electricity by 9%. Npower said it was putting up gas prices by 26% and electricity by 14% for its 6.6 million customers with immediate effect.

The latest increases come amid growing calls for a windfall tax on energy companies to help the increasing numbers of households struggling to cope with rising energy bills at a time when food and fuel costs are also increasing.

Yesterday a coalition of Age Concern, Child Poverty Action Group and National Energy Action increased the pressure for government action by demanding measures to make social tariffs for energy fairer and more effective. The coalition said that 5.5 million households were likely to face fuel poverty - defined as spending more than 10% of income on heating and lighting - this winter.

Age Concern's director general, Gordon Lishman, said: "Many pensioners already worrying about whether they can afford to heat their homes this winter will be outraged by news of yet more colossal price hikes.

"It is a huge worry that one in three pensioner households are likely to be living in fuel poverty by the end of 2008 and many are already feeling forced to cut back on essential food or fuel."

Tim Wolfenden, head of home services at uSwitch.com, a price comparison and switching service, said: "All the major suppliers have increased prices for a second time this year. This is a heavy blow and few households will emerge unscathed or unconcerned about the future affordability of their energy."

The government is expected to respond to the calls for help for people struggling with rising fuel bills within the next few days, though it remains unclear how any further help will be funded. An extra £225m from companies for social programmes for poorer customers over the next three years was announced earlier this year but the companies face demands to go further. The government is said to be wary of a windfall tax on the sector when the industry is facing the challenge of finding more than £100bn to invest in renewable generation and the replacement of ageing nuclear power plants, and coal-fired stations that will have to close under European legislation.

Earlier this summer EDF Energy, British Gas and more recently E.ON and Scottish and Southern Energy all raised prices. The second round of increases by the big six takes the average household bill on standard plans for gas and electricity combined into a range of £1,200 to more than £1,300, depending on the supplier, according to uSwitch.com. At the beginning of the year average dual fuel bills for all six were well below £1,000.

The companies blame the rising cost of wholesale gas and power prices for the increases for residential customers. Gas prices are linked to oil prices because of the UK's increasing dependence on imports from continental Europe where gas contracts are often indexed to the price of oil. International coal prices have also risen sharply.

Yesterday ScottishPower, which is owned by Iberdrola of Spain, said coal prices had risen by 45% since February, while wholesale gas prices had climbed 65% and electricity by 55% over the same period. By contrast, it said, its own prices for dual fuel users would rise an average of 25%.

Willie MacDiarmid, ScottishPower's director of energy retail, said: "These are difficult times and we understand the financial impact this announcement will have on our customers. Although we're one of the last companies to announce increases we're sorry we couldn't hold on any longer. However we have worked very hard to protect people for as long as possible from these considerable increases in the wholesale market."

Giuseppe Di Vita, managing director of npower, part of German utility RWE, said the decision had been taken "extremely reluctantly, especially as household budgets are being squeezed so much".

    Millions more face big energy price increases, G, 30.8.2008, http://www.guardian.co.uk/business/2008/aug/30/utilities.energy

Retail sales fall amid consumer gloom

Published: August 28 2008 12:31
Last updated: August 28 2008 12:31
The Financial Times
By Delphine Strauss

Most retailers are reporting falling sales as consumers grow more despondent about the economic outlook, and more are cutting jobs in preparation for even tougher times, according to a survey released on Thursday.

The CBI employers organisation said 60 per cent of respondents to its August distributive trades survey said sales were lower than a year earlier, while only 13 per cent thought they were higher.

The rounded balance of 46 per cent saying business had deteriorated was the weakest since the survey began in 1983. In some sectors the gloom was universal: all retailers of durable household goods and furniture said sales were down.

“This has been a summer that many retailers would rather forget,” said Andy Clarke, chairman of the CBI distributive trades panel and Asda’s retail director.

A net 31 per cent of retailers said their headcount was lower than a year ago – a worrying development for UK regional cities where retail has been an important driver of employment growth in recent years.

The report matches other evidence from industry surveys and trading updates, but is in sharp contrast with official retail sales data that suggest a trend of relatively healthy sales growth – straining the credulity of analysts and Bank of England policymakers.

Vicky Redwood, an analyst at Capital Economics said the survey gave “more reason... not to read too much into July’s fairly strong official sales figures,” and added, “even a near-term cut in interest rates won’t bail out the economy over the next few months”.

Alan Clarke at BNP Paribas noted that the survey suggested price pressures on the high street had eased slightly – the balance of retailers reporting higher average selling prices edged down from 56 per cent to 48 per cent.

But the CBI noted that the proportion raising prices was well above the long-term average and set to continue in September – offering little hope of immediate relief from rising inflation.

Beyond the retail sector, the overwhelming majority of motor traders said sales volumes had fallen for the last two months, and a balance of wholesalers also said sales had deteriorated.

    Retail sales fall amid consumer gloom, FT, 28.8.2008, http://www.ft.com/cms/s/0/17816aca-74ed-11dd-ab30-0000779fd18c.html

Travel industry suffers

as downturn widens

Published: August 26 2008 02:23
Last updated: August 26 2008 02:23
The Financial Times
By Delphine Strauss


The UK’s travel industry endured a dismal summer season as British and overseas holidaymakers reined in spending, according to a survey that shows the economic downturn has spread to almost all parts of the services sector.

The CBI employers organisation, which releases its quarterly service sector survey on Tuesday, said business and professional services, as well as consumer services, faced steep falls in profitability.

Travel services suffered the steepest drop in business volumes for five years, even though a net balance of 21 per cent of companies said they had cut selling prices.

“Profitability in the service sector is clearly under pressure,” said Ian McCafferty, the CBI’s chief economic adviser. Consumer-facing businesses had been suffering for some months, but pressures had now spread into previously resilient areas, he added.

The report recorded a sudden drop in business volumes in marketing, property services and, reflecting a softening labour market, office and personnel services.

Conducted in late July and early August, the survey corroborates official data showing economic growth came to a standstill in the second quarter.

Cost pressures are still leading some businesses – especially hotels and restaurants – to raise selling prices, the survey showed.

But a net balance of business and professional services companies now think demand is so weak they will have to cut prices over the next three months – a sign the downturn may be cooling inflationary pressures.

    Travel industry suffers as downturn widens, FT, 26.8.2008, http://www.ft.com/cms/s/0/640c3dc4-72c3-11dd-983b-0000779fd18c.html

Credit crunch

takes toll on world’s rich

Published: August 24 2008 17:41
Last updated: August 24 2008 17:41
The Financial Times
By Tom Braithwaite and Lara Ellington-Brown


From shotguns to bespoke suits, lingerie to leather goods, the purveyors of luxury goods to the world’s rich are supposed to be immune from the credit crunch.

But on London’s Savile Row, Bond Street and the Royal Exchange, most stores admit that there are signs of change. Nothing as stark as the middle class switching from Sainsbury to Aldi, but indicators, nonetheless, that even the very well-heeled are altering their behaviour.

“Some customers have smaller budgets than they did last year and are going for lower-priced pieces,” notes Claire Pendleton, assistant manager of Wint & Kidd, the fine diamond and bespoke jewellery specialist at the Royal Exchange.

Ms Pendleton said that Wint & Kidd, whose average transaction is usually between £7,000 and £15,000, is now making more sales below £7,000. Profits are still healthy but there has been a distinct move.

Luca Solca, analyst at Bernstein Research, believes the idea that the high-end luxury market is immune to the economic cycle is a myth, saying there is a clear correlation between sales of “luxury toys for the super rich” and the stock market.

Mr Solca argues that what has come to the rescue of some luxury goods companies is the growing appetite from emerging markets. In the UK, too, the spending of visiting tourists looks likely to keep the sector afloat – especially given the weakness of sterling.

Tourist spending in the UK from Middle Eastern consumers was up by 77 per cent in July compared with July last year, according to Global Refund, which administers tax refunds for overseas shoppers. Russian tourists increased their spending by 22 per cent and Chinese visitors by 49 per cent, offsetting a fall in US spending.

“Obviously, at this time of year we see a lot of tourists,” says Anita Gulparvar, manager of Longchamp on Bond Street. “We have had a lot of Americans and a lot of Arabs visit the store but we have especially seen a lot of customers from Asia.”

“While we are doing well, customers are more concerned about how much they are spending, especially with the bags becoming more expensive. People are tending to just buy the handbag and not the accessories.”

Marc Cohen, director of Ledbury Research, points to the Swiss Watch exports distribution index as another useful indicator of where demand lies. While exports to the UK decreased by 8.3 per cent in July, those to the UAE and China rose by 34.9 per cent and 64.3 per cent.

But not all Britons are reining in their purchasing. Patrick Grant, director of Norton & Sons, the Savile Row tailor, says his clientele remains “solidly British” – and he has been pleasantly surprised by trading in the last few months.

“When times are hard I think there is a return to a more formal business wardrobe,” he says. “When money is tight there are two ways to go: you either buy very inexpensive things or buy something that you won’t have to buy twice.”

Having just altered a pair of trousers for the Duke of Edinburgh, bought decades ago, Norton & Sons claims that a bespoke suit – starting at £3,000 – can prove the long-term economic option.

“I expect our clients will probably jettison the more frivolous purchases,” Mr Grant predicts. “They might go on one fewer holiday or have a few less expensive bottles of wine.”

    Credit crunch takes toll on world’s rich, FT, 24.8.2008, http://www.ft.com/cms/s/0/2d652126-71f8-11dd-a44a-0000779fd18c.html

British economy shudders to a halt

Published: August 22 2008 20:22
Last updated: August 22 2008 20:22
The Financial Times
By Norma Cohen, Delphine Strauss and Krishna Guha


The UK economy shuddered to a halt in the second quarter, data showed on Friday, ending a 16-year run of unbroken growth that the Labour government had trumpeted as proof of its economic competence.

Sterling slid to its lowest level for more than 11 years against a basket of currencies and hit a two-year low against the dollar as the Office for National Statistics revised its initial estimate of second quarter growth down from 0.2 per cent to zero.

The pound’s fall will heighten pressure on the Bank of England to ease monetary policy, in spite of signs that the peak in inflation still lies ahead.

In the US Ben Bernanke, chairman of the US Federal Reserve, said the fall in oil prices and the rally in the dollar was “encouraging”, suggesting that the Fed thinks global inflationary pressures could be starting to ease.

Speaking at the start of the Fed’s annual retreat in Jackson Hole, Wyoming, Mr Bernanke said the shift in currency and oil prices, as well as weak growth, “should lead inflation to moderate this year and next”.

As recession fears loom over the world’s advanced economies, many economists in the UK think the economy is already contracting and are forecasting negative growth over the third quarter and perhaps the fourth as well.

Two quarters of negative growth meet one technical definition of a recession, although to the average consumer, the distinction between a stagnant and slightly shrinking economy is negligible. “Mostly it has a psychological impact,” said Karen Ward, an economist at HSBC.

The Conservative opposition attacked the prime minister’s economic management, saying that after years of boasting about consecutive quarters of growth, Gordon Brown’s “bubble has burst”.

“All good things come to an end,” said Martin Weale, director of the National Institute for Economic and Social Research. “It was bound to come to an end, but that’s a reason for not boasting about it.”

Additional reporting by Shyamantha Asokan in London

    British economy shudders to a halt, FT, 22.8.2008, http://www.ft.com/cms/s/0/b89539de-707c-11dd-b514-0000779fd18c.html

Sterling tumbles

as UK economy grinds to a halt

Published: August 22 2008 10:05
Last updated: August 22 2008 12:17
The Financial Times
By Delphine Strauss
and Shyamantha Asokan in London


Sterling tumbled on Friday as official figures showed UK economic growth ground to a halt in the second quarter of this year, strengthening fears the economy is already contracting.

The Office for National Statistics revised its first estimate of second quarter growth by more than expected as it said output had been flat quarter on quarter, the lowest figure since the second quarter of 1992.

Gross domestic product was 1.4 per cent higher than in the second quarter of 2007, the lowest year-on-year growth rate since the end of 1992.

Economists had anticipated a smaller downwards revision to the ONS’ initial estimate of 0.2 per cent quarter on quarter growth, and its scale and broad-based nature may raise hopes of an eventual cut in interest rates.

However, the Bank of England had already forecast output would stagnate for the next year, and minutes of the monetary policy committee’s last meeting suggested fears of persistently high inflation could keep rates on hold for some time.

“Even in our gloomy scenario for growth, we would have not expected such an abrupt loss of momentum – and we think the Bank of England would be also surprised,” said Chiara Corsa at Unicredit.

“We have so far bet for a Bank of England on hold until the end of the year, however, following today’s weak growth number, we think that the UK economy will hardly escape the technical recession, “ said Ms Corsa.

Sterling dropped 0.9 per cent to $1.8600 against the dollar and lost 0.5 per cent to £0.7974 against the euro. The pound also fell 0.3 per cent to Y203.02 against the yen. On a trade-weighted basis sterling fell to its lowest level in 11½ years. Against a basket of currencies the pound fell to 90.60, the lowest level since late 1996.

Gilts remained steady in spite of the revised estimates. Prices of the benchmark two-year and 10-year gilts both rose marginally while yields fell a fraction. The yield on the two-year fell 1 basis point, while the yield on the 10-year fell 1.25bps.

The ONS said household expenditure fell by 0.1 per cent quarter on quarter - a surprising contraction given the relative strength of official data on retail sales - which the Bank thinks may be overstating the strength of consumer spending.

Business investment also fell abruptly by 5.3 per cent quarter on quarter, partly reflecting the sharp drop in housebuilding activity.

“Both of these components are likely to weaken much further,” said Jonathan Loynes at Capital Economics, adding, “growth would have been even weaker were it not for a big jump in stockbuilding.”

The ONS revised its estimate of quarter-on-quarter growth in service sector output down from 0.4 per cent to 0.2 per cent, the weakest reading since the end of 1995.

Net trade made a positive contribution to growth, but this was due as much to a drop in imports as to the boost manufacturers received from the weaker pound.

The normal quarterly rate of growth for the UK has averaged a little under 0.7 per cent in the past 15 years. But many economists now expect the UK to follow the eurozone economy into contraction in the second half of the year.

Geoffrey Dicks, economist at the Royal Bank of Scotland, said there would be a “mountain to climb” for output growth to reach positive territory in the third quarter

Sterling tumbles as UK economy grinds to a halt, FT, 22.8.2008,
http://www.ft.com/cms/s/0/dc13627c-7028-11dd-b514-0000779fd18c.html

£100-a-month fuel bill

to become a reality

as British Gas increases prices

British Gas increases prices by up to 44%

July 31, 2008
From The Times
Robin Pagnamenta and Carl Mortished

The £100-a-month fuel bill is to become a reality for millions more families after record energy price rises were announced yesterday.

The increases of up to 44 per cent for ten million British Gas customers were branded “indecent” last night as MPs stepped up the pressure for a windfall tax on energy companies.

The biggest rises will hit families in London, the Midlands and southern England as the company, which is expected to announce multimillion-pound profits today, introduces a new regional pricing structure.

Gas bills rise by an average of 35 per cent and electricity by 9 per cent, pushing the annual energy bill for a British Gas dual-fuel customer up £263 to £1,314, a rise of 25 per cent.

MPs and campaigners said that British Gas was being greedy. “These rises are indecent,” said Lindsay Hoyle, a member of the Commons Business and Enterprise Committee. “If anything underlines the urgent need for a windfall tax on greedy energy companies, it’s rises like these.”

The company made a profit of £571 million last year. Its embarrassment is likely to worsen after it emerged that the wholesale gas price collapsed a day before its announcement.

The bill increases are expected to add a million households to the 4.5 million already facing fuel poverty – defined as having to spend more than 10 per cent of income on energy.

The country’s four other main power suppliers – ScottishPower, E.ON, npower and Scottish and Southern Energy – are expected to announce their own increases within days. Centrica, the owner of British Gas, said that it had taken the step because it was being forced to pay an extra £2 billion this year to meet the soaring wholesale cost of gas, which it said had risen 89 per cent over the past year.

British Gas can expect to pay less for its fuel in the short term, however, because the price of gas for delivery the following day has plummeted. It decreased by almost 50 per cent on Tuesday on the back of falling oil prices and weakening demand.

The firm’s announcement, which follows a similar rise by EDF last Friday, will add to the economic misery for millions of people struggling with spiralling bills for mortgages, food, council tax and insurance.

Phil Bentley, the managing director of British Gas, said that he regretted the increase but the business was operating “at a significant loss” and would otherwise dip hundreds of millions of pounds into the red.

Mark Todd, of energyhelpline.com, called it the “biggest energy price rise in history”, a claim that Centrica did not deny. Gordon Lishman, of Age Concern, said that the increases were a “hammer blow” for vulnerable groups such as the elderly.

Charles Hendry, the Shadow Energy Minister, said that people faced a desperate winter. “These increases will come as a shock to every home in the country. Britain is being hit especially hard as the Government has utterly failed to prepare for rising fuel prices during the years of relatively low bills.”

Nick Clegg, the Liberal Democrat leader, said the rises were unacceptable. “Energy companies are benefiting from a £9 billion windfall yet continue to hike up their prices on the Government’s watch.”

The consumer group Energywatch blamed the rises on a lack of competition in Britain’s energy market, but Mr Bentley pointed to global factors. “The simple fact is that we have entered an era of unprecedented high world energy prices. We can’t absorb the impact of such high wholesale prices.”

For the first six months of the year British Gas profits fell 69 per cent to £166 million against £533 million for the first half of 2007. Centrica blamed rising wholesale gas prices, linked to the price of oil, on the depletion of North Sea supplies. Britain will import 40 per cent of its gas this year, up from 27 per cent last year. The figure is expected to hit 75 per cent by 2015.

British Gas, the country’s biggest energy supplier, has ten million gas and six million electricity customers. About 2.7 million will be unaffected by the rises because they are either locked into fixed-rate contracts or are one of 340,000 vulnerable customers whose prices have been frozen until 2009.

    £100-a-month fuel bill to become a reality as British Gas increases prices, Ts, 31.7.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4432628.ece

Housing crisis:

One in seven homeowners

could be victims of negative equity

· Drop in property prices could be as sharp as 35%
· Credit agency warns of return to crisis of early 90s

Thursday July 31 2008
The Guardian
Larry Elliott, economics editor

Britain is on course for a repeat of the negative equity crisis of the early 1990s as a further year of tumbling house prices leaves one in seven homeowners in a property worth less than their mortgage, the ratings agency Standard & Poor's warned yesterday.

In a report on the state of the housing market, the company punctured optimism about a soft landing when it predicted that a further 17% drop in the cost of the average home would prompt a rise from 70,000 to 1.7 million in negative equity cases - equalling the peak of the housing market meltdown of the early 1990s.

Andrew South, a credit analyst at S&P, said: "The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term."

The rapid increase in house prices during the decade-long upswing has meant that only a fraction of mortgage payers - 0.6% - are currently in negative equity. But in recent months house prices have been falling at the sharpest rate on record and S&P said that for every further percentage point fall in the cost of property, 0.5%-1.5% of borrowers (between 60,000 and 180,000) could enter negative equity. Noting that the trough in the cycle would not be reached until 2009, S&P said: "At this point, we expect 1.7 million borrowers - around 14% - would be in negative equity."

Other forecasters are even gloomier than S&P, with the consultancy firm Capital Economics predicting a 35% drop in house prices from their peak last year.

Liberal Democrat Treasury spokesman Vince Cable said: "When I warned of this degree of negative equity a few months ago I was accused of excessive scaremongering. But the idea of nearly two million homeowners facing negative equity is now regarded as mainstream by many experts."

A return to the negative equity levels of the early 1990s would put additional pressure on the government to help homeowners. Alistair Darling received an interim report this week on the mortgage market from the former HBOS chief Sir James Crosby, and is expected to come up with proposals in the autumn pre-budget report.

Some mortgage providers have been taking advantage of more stable conditions in the City's money markets to reduce home loan costs marginally over the past few weeks, but a cut in the bank rate from the Bank of England is considered highly unlikely while inflation is rising.

It discussed raising interest rates at its meeting this month and cheaper borrowing costs are seen as off the agenda until late 2008 at the earliest.

S&P said borrowers in the buy-to-let and sub-prime sectors were most at risk from negative equity. "A further 17% decline in house prices could put around 24% of non-conforming borrowers into negative equity, compared with only 13% of prime borrowers."

The predictions by S&P came as the British Bankers' Association (BBA) published statistics suggesting that the industry was not returning to the record level of repossessions of 1992, when 75,500 homes were taken back by lenders.

The statistics, which cover 25 years of banking to the end of last year, showed that 27,000 homes were repossessed last year.

There are predictions that repossessions could reach 45,000 by the end of this year, which would represent 12 out of every 10,000 properties that have a mortgage outstanding.

The BBA statistics reflect the impact of the credit crunch. By the end of 2007, mortgage lending had fallen by 17%, although the average value of a loan had increased by 10% to £153,900.

Back to the 90s?

14%
of owners may be in negative equity by 2009, says Standard & Poor's

1.7m
Number of people this would affect, the same as in the early 1990s

75,500
Number of homes repossessed in 1992, when the crash was at its height

45,000
Number predicted for 2008, 12 out of every 10,000 mortgaged properties

Housing crisis: One in seven homeowners could be victims of negative equity, G, 31.7.2008, http://www.guardian.co.uk/money/2008/jul/31/houseprices.creditcrunch

10.30am BST update

Lloyds TSB profits plunge 70%

Wednesday July 30 2008
Guardian.co.uk
Julia Kollewe
This article was first published on guardian.co.uk
on Wednesday July 30 2008.
It was last updated
at 10:34 on July 30 2008.

Lloyds TSB suffered a 70% plunge in first-half profits as it took another £585m credit crunch hit, and warned that house prices could fall by up to 15% this year.

The bank today reported profits before tax of £599m for the first six months of the year against £1.99bn a year ago. Excluding the impact of turbulent markets, profits were up 11% to £2.16bn.

The shares fell by 4% to 308p in early trading. They were down 9p at 312p, a fall of 2.8%, by 10am.

Lloyds, the first UK bank to report half-year results, posted a sharp drop in the value of its insurance arm's investment portfolio in the wake of market turbulence. It has also written down the value of mortgage-backed collateralised debt obligations but stressed it has no direct exposure to the troubled US sub-prime mortgage market. The new write-downs take the total credit crunch impact on Lloyds to £865m, but it has been affected less than rivals.

"Lloyds is trying to grow in a slowing market, and we expect it will get harder to do so," said Sandy Chen at Panmure Gordon. He said credit quality was deteriorating in both retail and wholesale and he expected this to get worse through 2009. He noted that the bank's overall impairment charge of £1.1bn was up 31% on a year ago.

The bank expects house prices to fall by 10-15% this year and another 5% next year. If, for example, house prices fell by 12.5%, this would wipe £100m off the value of its mortgage loans in the second half.

Chief executive Eric Daniels said it had been a good half for Lloyds. "We feel pretty good that the market dislocation impact has not been that profound for Lloyds TSB," he said. "Excluding market dislocation, each of our three divisions has performed strongly, which has allowed us to further increase market share and profitability in our key product areas."

"We are actively lending where others aren't," he added. "We never went in for buy-to-lets ... we never went in for seven times income multiples. Those are the areas where there there's going to be greater trouble."

The retail banking arm posted a 15% rise in underlying profits to £911m. It won 24% of all new mortgage lending, though Daniels predicted competition would increase in the second half. "We expect to see other lenders taking a slightly more aggressive stance." The bank also opened nearly half a million new current accounts.

Daniels was upbeat about the future, though "not complacent". While he said the risk of Britain slipping into recession had increased, he thinks on balance that the economy will escape a severe downturn and grow by 1.6-1.8% this year and by 1.3% next year.

He stressed the bank's capital position was "very robust". Lloyds sees no need to follow rivals Barclays, HBOS and Royal Bank of Scotland in raising new funds from investors.

Lloyds lifted its interim dividend by 2% to 11.4p a share, confounding expectations of a cut. Daniels said the bank has a progressive dividend policy but added he could give "no ironclad guarantees" that it would raise its full-year dividend.

    Lloyds TSB profits plunge 70%, G, 30.7.2008, http://www.guardian.co.uk/business/2008/jul/30/lloydstsbgroup.creditcrunch

BP profits soar on record oil price

Published: July 29 2008 08:33
Last updated: July 29 2008 08:33
The Financial Times
By Sylvia Pfeifer

Record crude prices and soaring natural gas prices helped BP on Tuesday to report a 28 per cent rise in second-quarter profits to $9.46bn (£4.74bn), from $7.37bn a year ago.

Replacement cost profit, which excludes gains from the value of the company’s crude oil inventories, was up 6 per cent to $6.85bn for the quarter. It rose 23 per cent to $13.44bn for the second half.

The strong results helped lift BP’s shares nearly 2 per cent to 528½p in early morning trading in London.

The company has been locked in a bitter battle for control of its Russian joint venture, TNK-BP, which accounts for almost a quarter of BP’s worldwide production.

BP’s Russian partners have demanded the dismissal of Robert Dudley, who heads up TNK-BP, who they say is treating the venture as a subsidiary of BP. Mr Dudley fled Russia last week to run the business from a secret location abroad.

In its results statement, BP warned that while it continued to work to resolve these matters, “currently it is not possible to predict the ultimate outcome if these matters remain unresolved”.

Meanwhile, the company said production for the second quarter was broadly flat compared with the same period in 2007, at 3.83m barrels of oil equivalent per day. BP is counting on the start-up of the long-delayed Thunder Horse field in the Gulf of Mexico to boost output in the coming months.

Profits at the company’s refining division collapsed from $2.7bn to $539m. The company said higher energy costs continued to hit the division’s profits, especially in the US.

BP said it would pay a dividend of 14 cents a share for the quarter, up from 10.825 cents.

    BP profits soar on record oil price, FT, 29.7.2008, http://www.ft.com/cms/s/0/ae695a68-5d3e-11dd-8129-000077b07658.html

8am BST

Ryanair profits plunge 85%

Monday July 28 2008
Guardian.co.uk
Press Association
This article was first published on guardian.co.uk
on Monday July 28 2008.
It was last updated at 08:09 on July 28 2008.

Budget airline Ryanair warned today that it could make a loss this year as a result of spiralling fuel costs.

The Dublin-based operator reported an 85% fall in first quarter pre-tax profits to €21m (£16.6m) and said it expected to record a full-year result of between break-even and a loss of €60m.

Chief executive Michael O'Leary said the company's fuel bill rose 93% to €367m in the first quarter, representing almost 50% of its operating costs, compared with 36% last year. Despite the oil price pressure, O'Leary said the airline remained committed to its guarantee of no fuel surcharges.

He added: "We will continue to absorb higher oil costs, even if it means short-term losses, while we continue to deliver Europe's guaranteed lowest fares to our 58 million passengers."

Oil prices hit $147 a barrel this month, but Ryanair recently took advantage of a fall in the price to fix 90% of its fuel requirement at $129 a barrel for September and 80% of the October to December period at $124. However, it is unhedged for the fourth quarter to the end of March.

Ryanair said its forecast of a possible loss for the full year was based on fourth-quarter oil prices of $130 and a 5% decline in average fares.

It said it would look to maintain "aggressive pricing" in order to maintain high plane usage.

O'Leary added: "We now believe that our average fares for the year may fall by as much as 5% if European airfares plunge this winter.

"Ryanair will lead this downward pricing at a time when most of our competitors are hoping to raise fares and fuel surcharges."

The airline said this month that it planned to cut its number of weekly flights from more than 1,850 to just under 1,600 this winter. That includes a 14% reduction in the number of weekly flights at Stansted airport in Essex.

    Ryanair profits plunge 85%, G, 28.7.2008, http://www.guardian.co.uk/business/2008/jul/28/ryanair.theairlineindustry1

9am BST

Supermarkets in petrol price war

Tuesday July 22, 2008
Guardian.co.uk
Angela Balakrishnan and agencies
This article was first published on guardian.co.uk
on Tuesday July 22 2008.
It was last updated
at 09:56 on July 22 2008.

Millions of motorists will receive much-needed relief today after a petrol price war broke out on supermarket forecourts, slicing up to 5p a litre off the cost of unleaded petrol and diesel.

Three of Britain's biggest chains announced they would cut fuel prices, with Asda saying it would shave 3p a litre off the cost of unleaded and diesel and Morrisons cutting 4p.

Sainsbury's also stepped into the price war, saying it would cut petrol by 5p a litre from Thursday for customers who spend £50 or more in its stores. The promotion will run for two weeks.

Other supermarket chains are being urged to cut prices to help hard-pressed consumers. AA president Edmund King said: "Asda's petrol price drop is excellent news for UK motorists and we urge other fuel retailers to reduce their prices — and not only where they find themselves neighbouring an Asda petrol station.

"We have seen two drops in European wholesale fuel prices so far this summer, with the UK motorist seeing next to no benefit. Since mid-July the wholesale gasoline price has fallen 6% and the AA expects fuel suppliers to pass on, not pocket, the saving for the good of UK families, hauliers and the economy. We will watch price movements like a hawk, and should fuel suppliers and retailers appear to be dragging their feet we will seek to expose this."

Asda and Morrisons said they were responding to the recent drop in the price of oil, which has fallen from a peak of $147 (£73) a barrel to $130 in the past few weeks.

The price of fuel in Asda's 170 forecourts across the country is now 113.9p a litre for unleaded petrol and 128.9p a litre for diesel.

Asda trading director David Miles said: "We are seeing a more stable reduction in oil prices, allowing us to pass on the savings to customers. We urge other retailers to follow our lead at a time when customers need as much help as possible."

Morrisons' price cut came into effect from 6pm yesterday across all its 285 forecourts in the UK.

Morrisons group store operations director Mark Gunter said: "The cost of crude oil and refined product has fallen in the last few days and we are ensuring our customers reap the benefit by passing on the saving quickly, for cheaper prices at the pumps."

A spokeswoman for Sainsbury's said: "From Thursday our customers can reap an even bigger reward because we are running a 5p off per litre promotion when they spend £50 or more in-store, plus they will also earn Nectar points."

According to the price comparison site, petrolprices.com, the national average price for unleaded petrol at the start of this week was 119.5p, but some stations were charging as much as 132.9p.

Supermarkets in petrol price war, G, 22.7.2008, http://www.guardian.co.uk/business/2008/jul/22/supermarkets.oil

Economy:

80% fear we are heading for recession

- ICM poll

Tuesday July 22, 2008
The Guardian
Julian Glover
This article appeared in the Guardian
on Tuesday July 22 2008 on p1 of the Top stories section.
It was last updated at 09:09 on July 22 2008.

The scale of public alarm about the economy is revealed today by a Guardian/ICM poll that shows an overwhelming majority of voters think Britain is heading into recession. As a result, 60% are trying to spend less, with clothes and fuel costs heading the list of cutbacks.

Consumer confidence has dropped sharply since the Guardian's April survey, which revealed that 43% of voters were worried about their financial position. Three months later, the figure is 61%.

Asked if Britain is heading for recession, 80% say yes.

Most people, 60%, say that they are cutting back spending. Poorer voters, hit hardest by the downturn, are the most likely to be trying to economise.

Overall, 72% say they are spending less on clothes; 71% on food; 70% on driving and petrol; 70% on bills; and 68% on big household items such as furniture.

Carried out last weekend after reports that the chancellor may have to rewrite his fiscal rules to cope with the budget deficit, the poll also shows a further big drop in public confidence in the government's economic management.

The Conservatives now lead Labour by 19 points as the party best able to deal with the situation, compared with an 11-point Labour lead in October last year.

But there is some comfort for Labour in a three-point rise in support, to 28%. Conservative support has fallen two points on last month's Guardian/ICM poll, to 43%.

The five-point narrowing of the Conservative lead from last month's 20 points may reassure Labour MPs that the worst is over, as parliament rises for the summer.

However, the improvement from last month's record low still leaves the Conservatives with the second-largest lead ever in the Guardian/ICM series, which began in 1984.

At a general election, the Conservatives would win a solid working majority on today's figures. Labour support is 10 points lower than in July last year, and Conservative support 11 points higher.

Liberal Democrat support stands at 19%, down one point on last month. Backing for other parties, including the Greens on 2%, is down one to 9%.

Today's poll shows that consumer confidence is falling fast. Last Christmas, a Guardian/ICM poll found that 55% of those surveyed were fairly or very confident about their finances and ability to keep up with the cost of living, against 44% who were not. That buoyant mood was largely unchanged until April this year.

Now only 38% say they are confident about their circumstances, against 61% who are not.

People at the bottom of the economic scale - many Labour voters - are by far the most worried. While 46% of people in the middle-class AB category remain confident about their finances, only 26% of people in the DE group say this.

Women are also more worried than men: only 34% of women remain confident, against 42% of men. Asked to look ahead, 80% now think Britain is headed for recession, and only 16% think not.

As a result, people no longer trust Gordon Brown and Alistair Darling to run the economy. Asked to compare them with David Cameron and George Osborne, 46% of voters pick the Tory team and just 27% the Labour one.

Labour's lead on economic competence, the bedrock of three election victories, has collapsed. ICM has tracked public attitudes since the prime minister pulled back from holding a general election last autumn. In October 2007, 47% thought Labour was best, 20 points higher than today and an 11 point lead over the Tories. In January that fell to 39%, a seven-point lead, and in March it dropped to 32%, an eight-point deficit. Now Labour is a dramatic 19 points behind the Tories.

· ICM Research interviewed a random sample of 1007 adults aged 18+ by telephone on July 18-20 2008. Interviews were conducted around the country and the results have been weighted to the profile of all adults.

    Economy: 80% fear we are heading for recession - ICM poll, G, 22.7.2008, http://www.guardian.co.uk/politics/2008/jul/22/polls.economicgrowth

UK economy heads

for ‘horror movie’


July 20, 2008
From The Sunday Times
David Smith and Dominic O’Connell

BRITAIN is facing an “economic horror movie” because of a “toxic mixture” of a moribund credit market and volatile oil prices, according to a leading forecasting group.

The Ernst & Young Item club, which uses the Treasury’s economic model, will argue in a report tomorrow that the economy will struggle to avoid recession. This comes as a survey by the Institute of Directors shows that business confidence has slumped to the lowest level ever recorded, with company chiefs increasingly gloomy about the investment climate.

These reports follow an interview with Alistair Darling in which the chancellor admitted the downturn would be more “profound” and last longer than he had expected.

Also, Sir Win Bischoff, chairman of Citigroup, the American financial giant, believes that house prices in Britain and America will keep falling for another two years.

The Ernst & Young Item club predicts growth of only 1.5% this year, slowing to 1% in 2009. It says consumer spending will slow to a standstill, rising by only 0.2%, and forecasts a two-year drop in investment.

It also warns that the chancellor’s budget strategy has been thrown into “turmoil” by the downturn and an unplanned £2.7 billion tax giveaway. It predicts the budget deficit will top £50 billion and the “current” budget deficit, used to determine the golden rule, will remain in the red for at least the next three years.

Peter Spencer, chief economist at the Item club, said: “Both on the high street and in the housing market it is going to get a great deal worse before it gets better. We have already seen a housing crisis that has morphed from a credit crunch to a general collapse in confidence as prices have tumbled.

“Our worry is that without the usual medication from the Bank of England - which would have nasty inflationary side-effects in this environment - consumers will follow suit, moving from their current state of denial into a state of despair.”

Meanwhile, the Institute of Directors’ quarterly business opinion survey shows business optimism at its lowest level since the survey began in 1996. The proportion of company directors “more versus less” optimistic about their company’s prospects fell to -25%, compared with -17% three months ago.

Two-thirds of bosses think their own business is still performing well, though this was down on 74% last time.

Graeme Leach, chief economist at the institute, said that while the fall in business confidence was worrying, the survey’s results were mixed.

“Company directors seem to be saying we are doing okay at present but ask us again in three to six months and it could be hell out there,” he said.

“There are real difficulties in interpreting business confidence at the moment because there is a record gap between actual performance and future perceptions.”

Among the more optimistic signs in the survey, a net 12% of firms plan to increase employment and a balance of 8% think profits will go up. Asked about their investment plans rather than the general climate, a net 11% planned a rise. There was also a small rise in pricing intentions, with a balance of 15% of firms intending rises, against 12% three months ago.

“The sharp fall in overall business optimism is very worrying and points towards a recession,” said Leach. “Other results in the survey suggest we can still escape with a sharp slowdown over 2008-9. The survey suggests the pressure on the corporate sector for a labour shake-out is muted. Whether this situation will hold is the key uncertainty.”

The credit crunch is forcing more businesses into difficulty, according to research by the insolvency specialist Begbies Traynor. It monitors the number of firms reporting “critical” problems - those facing winding-up petitions or more than £5,000 in county-court judgments against them. The figure ballooned in the second quarter to 4,258, nearly seven times more than in the same period last year. The figure is up 30% on the first quarter of this year, with retail, construction and IT firms hit hardest.

Mark Fry at Begbies said the figures reflected companies’ increased willingness to pursue money owed to them. “It shows the general increase in financial pressure. Anyone with a big exposure to property has been severely affected - it has gone into freefall,” he said.

The Federation of Small Businesses is tomorrow expected to say that large groups have extended payment terms to their suppliers in an effort to ease their financial difficulties.

One company likely to be singled out is Alliance Boots, which changed its payment terms at the start of the year. It now takes 75 days to settle invoices, and applies a 2.5% settlement fee. The move has infuriated suppliers.

Justine Thompson, director of MTA International, which supplies staff-training packages, said: “It says on the Boots website that they are committed to treating their suppliers ethically and fairly, but these bully-boy tactics amount to a kind of theft. I think it’s absolutely outrageous.”

    UK economy heads for ‘horror movie’, STs, 20.7.2008, http://business.timesonline.co.uk/tol/business/economics/article4363962.ece

Biggest jump

in dole claimants for 15 years

Wednesday, 16 July 2008
PA
The Independent


The number of people on unemployment benefit saw its biggest jump in more than 15 years during June, official figures showed today.

In a fresh sign of economic gloom, those claiming Jobseeker's Allowance rose by 15,500 to 840,100, according to the Office for National Statistics (ONS).


This was the biggest monthly rise since December 1992 and the fifth consecutive rise in the claimant count, the ONS said.


May's figures showing a 9,000 rise were also revised sharply higher, giving a total of 14,300 new claimants during the month.

The number of claimants as a percentage of the workforce also rose, to 2.6 per cent, the figures showed.
 

But today's statistics have yet to fully reflect growing numbers of redundancies as the UK economy slows.


In recent weeks, the UK's biggest housebuilders have cut around 5,000 jobs as the credit crunch grows.


In the three months to May, 118,000 people were made redundant, up 10,000 on the previous quarter.


According to the ONS data, the total number of unemployed was 1.62 million in the three months to May, up 12,000 on the previous quarter. The unemployment rate was unchanged at 5.2 per cent.


Total employment levels reached a record 29.59 million during the quarter - the highest since 1971, reflecting an increase in the working age population.


But the number of job vacancies fell in the three months to June as the slowdown hit home. Vacancies stood at 655,100, down 32,200 on the previous quarter.


Manufacturing jobs showed a further decline in the three months to May, falling 36,000 to 2.89 million compared with a year earlier, the lowest since records began in 1978.


There was better news for inflation-watchers warning against spiralling pay settlements after the rate of annual earnings growth slowed 0.1 per cent to 3.8 per cent in the year to May, although April's figure was revised slightly higher.


Many economists expect this figure to drop further still as public sector payment settlements fall and bonuses weaken despite the current spike in inflation, and fears over a possible recession limit wage demands.

    Biggest jump in dole claimants for 15 years, I, 16.7.2008, http://www.independent.co.uk/news/business/news/biggest-jump-in-dole-claimants-for-15-years-868984.html

Cost of a shopping basket soars

in the 'phoney' supermarket price war

Saturday, 12 July 2008
The Independent
By James Thompson and Sam Kriss


British supermarkets have introduced massive price hikes over the past year, shattering the myth of a so-called price war in which grocers are bending over backwards to help hard-pressed consumers.


Tesco, Asda and Sainsbury's have ramped up the price of many products by between 22 and 32 per cent over the past 13 months, hitting customers at a time when the cost of living is soaring, The Independent can reveal.

The soaring figures illustrate the level of food inflation heaped on consumers, as they face spiralling petrol prices, rising utility bills and stagnating house prices. The revelation comes at a time when grocers are as active as ever in claiming that they are delivering millions of pounds of price cuts to consumers.

On a sample of 17 products, Sainsbury's has hiked prices by 31.6 per cent, Tesco by 27.5 per cent and Asda by 21.6 per cent between 11 June 2007 and 11 July 2008, according to grocery price comparison site, mysupermarket.co.uk.

The Independent tracked 17 products including thick-sliced white bread (800g), six pints of semi-skimmed milk, English butter (250g) and garden peas (1kg).

Tesco has raised the price of white bread from 54p to 72p; Sainsbury's has hiked the price of Basmati rice (1kg) from 90p to £1.89p; and Asda has increased English butter from 58p to 94p, as have its other two rivals.

These figures dwarf the estimates of the British Retail Consortium, which this week said that food cost 7 per cent more in British supermarkets in June than it did in the same month last year.

Before the last weekend in June, Tesco said it would reduce the price of 3,000 items by up to 50 per cent, while Asda promised to sell 10 staple items, including bread, eggs and butter for only 50p until end of trading on 29 June. However, industry experts say the current activity on price does not compare to previous battles, and is more about PR than helping consumers.

Greg Lawless, an analyst at Blue Oar, says: "I don't think there is a price war. This is a price skirmish. The last proper price war we had was in the early 1990s ... It's not in Tesco and Asda's interests to launch a price war as it would suck profits out of the sector."

Retailers themselves agree. Malcolm Walker, chief executive of the frozen food specialist Iceland, said successful retailers would not do anything to jeopardise their profit margins. He said: "No retailer can afford to drop more than one point – one-tenth of 1 per cent – on the gross margin and anything they do on price is tactical." He added: "It is all marketing and spin."

Bryan Roberts, global research director at Planet Retail, made the point that price cuts and promotions were often funded by suppliers. He said: "Effectively, promotions cost the retailers nothing because it is the suppliers who are often asked to invest in these 'price promotions'."

The big three grocers say that while the price of commodities, such as wheat, meat and dairy products, have risen sharply over the past year, they try to cut prices for products that are not affected by the same inflationary pressures.

A spokeswoman for Sainsbury's, which claimed last month that its food price inflation was about 3 per cent, said: "The increases in the cost of commodities such as wheat and dairy have had an impact on the price of foods." An Asda spokeswoman said: "We disagree that supermarkets are unfairly passing on costs to customers.

A Tesco spokeswoman said: "We know customers are tightening their belts and wherever possible we look at cutting prices to help them.

"The 7 per cent [price rise] figure from the BRC is realistic. It's easy to skew figures by only choosing a certain basket of items for price comparison."

    Cost of a shopping basket soars in the 'phoney' supermarket price war, I, 12.7.2008, http://www.independent.co.uk/news/uk/home-news/cost-of-a-shopping-basket-soars-in-the-phoney-supermarket-price-war-865803.html

House prices dive 6.1%

in worst fall since 1993

July 10, 2008
From Times Online
Dearbail Jordan, Grainne Gilmore

British house prices fell by 2 per cent between May and June, above expectations of a 1 per cent decline, adding to growing evidence the slowdown in the housing market is gathering pace.

According to Halifax, the UK's largest mortgage lender, house prices fell by 6.1 per cent year-on-year in the three months to June - the highest level since March 1993 and up from 3.8 per cent in the year to May.

The average price of a home is now £180,344, nearly 10 per cent lower than when house prices peaked in August last year, raising the spectre of negative equity of tens of thousands of homeowners who bought a home last year with little or no deposit.

However, Halifax said today that the average UK house price remains 2 per cent higher than in June two years ago and more than 10 per cent higher than in June 2005, indicating that the British housing sector still has some way to go before it reaches the bottom of the cycle.

Prices are being dragged down by a lack of activity in the market. First-time buyers without a hefty deposit can not get a mortgage, and sellers are being forced to cut their asking prices to secure a sale.

This morning, Barratt Developments became the latest housebuilder to release dire sales figures and announce 1,200 job cuts, as conditions in the mortgage market continue to tighten and make it more difficult for borrowers to secure home loans.

Later today, the Bank of England's Monetary Policy Committee will announce this month's decision on interest rates, when it is widely expected to keep the borrowing cost on hold at 5 per cent.

Howard Archer, chief UK and European economist at Global Insight, said: "We see extended downward pressure on house prices coming from serious buyer affordability constraints, limited and more expensive mortgages available due to ongoing tight lending conditions, a very weak economic outlook and little likelihood that the Bank of England will cut interest rates any time soon.

"Indeed, it is very possible that the Bank of England's next move could be to raise interest rates, which would clearly be very bad news for the housing market."

    House prices dive 6.1% in worst fall since 1993, TS Online, 10.7.2008, http://business.timesonline.co.uk/tol/business/economics/article4307465.ece

FTSE stays out

of bear market territory

Published: July 8 2008 08:35
Last updated: July 8 2008 17:12
The Financial Times
By Michael Hunter


London equities moved in and out of bear market territory with financial stocks suffering, but steady US trade helped the FTSE 100 index close above the 5,384-point level, which would have marked its fall into the bear market.

The FTSE 100 spent much of the session under the 5,384-point level, representing a 20 per cent decline from its June 2007 peak and its lowest level since November 2005. But the market found some support from a firmer Wall Street.

US stocks were lifted after the chairman of the Federal Reserve helped allay pressing concerns about the health of the US financial sector.

Speaking in the wake of a warning from analysts that government-sponsored mortgage providers Fannie Mae and Freddie Mac could be forced to raise extra capital by an accounting change, Ben Bernanke told a mortgage lending forum that the central bank may keep an emergency lending facility for big Wall Street firms open into 2009.

At midday, the Dow Jones Industrial Average was up 11.2 points, or 0.1 per cent, at 11,243, and the S&P 500 was 0.1 per cent higher at 1,253.74.

London’s banks remained weak, led lower by Royal Bank of Scotland, which shed 3 per cent to 194.9p. Lloyds TSB fell 3.3 per cent to 285.6p and HBOS lost 1.6per cent to 270¾p.

Wider financial stocks also fell, on growing concern about the lingering consequences of the credit crunch. London Stock Exchange retreated 7.1 per cent to 671.2p, the biggest single faller of the session. Interdealer broker Icap declined 4.2 per cent to 442½p and fund manager Schroders fell 2.7 per cent to 816½p.

“Credit woes across the Atlantic remain very much at the heart of traders’ concerns whilst the fact crude prices have refused to push below $140 a barrel is also clearly a worry for some”, said Paul Webb, chief dealer at CMC Markets.

Bradford & Bingley continued to tumble below the 55p price of its pending rights issue, losing a further 19.1 per cent to 34.2p after losing 16 per cent over the previous session.

Fellow mid-cap Alliance & Leicester slumped 13.6 per cent weaker at 221.6p, after analysts at Panmure Gordon cut its price target on the stock to 180p from 450p. “We now expect that A&L will report losses in 2008 and 2009. We also think that capital ratios will weaken considerably, “ said the broker.

The FTSE 250 declined 1.7 per cent to 8,480.1 with housebuilders once more in focus. Taylor Wimpey, which last week failed to raise £400m of fresh capital, shed 4.6 per cent to 25p.

Miners could not provide support, with worries about the outlook for global growth taking momentum from the sector against a background of easing commodities markets. Anglo American lost 4.9 per cent to £30.04 and ENRC fell 6.8 per cent to £10.27.

Stubborn and intensifying fears about the outlook for consumer spending continued to take a heavy toll. Enterprise Inns retreated 5 per cent lower at 345½p.

There was a measure of uncertainty about the likely direction of monetary policy ahead of the Bank of England’s decision on interest rates, due on Thursday, although most observers were expecting it to keep the cost of borrowing steady at 5 per cent.

“The Bank of England is currently facing by far the most challenging economic environment since it was granted operational independence in 1997, said Howard Archer, chief UK and European economist at Global Insight.

“Latest data and survey evidence are now pointing consistently to a deepening economic slowdown, and the risk of recession is now looking very real. At the same time though, inflation is well above-target and still rising, and there are serious risks that this could prove to be more than a temporary state of affairs.”

Andrew Smith, chief economist at KPMG in the UK, said ““It’s difficult to envisage anything other than no change. After the MPC’s recent warnings on inflation, a rate cut is unthinkable. But, equally, a hike would come as a bombshell in the face of weakening growth, tighter credit and a fast-deflating housing market.”

    FTSE stays out of bear market territory, FT, 8.7.2008, http://www.ft.com/cms/s/0/d1e0422e-4cb6-11dd-b527-000077b07658.html

Another day,

another blizzard

of bad economic news

Tuesday, 8 July 2008
By Russell Lynch, PA
The Independent


The UK reeled under the latest blizzard of dire news from the housing market today as business leaders warned the country was on the brink of recession.


The British Chambers of Commerce's (BCC) warning came as housebuilder Persimmon cut 1,100 jobs amid plummeting sales and Government figures showed house price growth falling for the seventh month in a row.

The growing pessimism spread to the stock market to push London's FTSE 100 Index into "bear market" territory - with shares at one point trading more than 20 per cent below last June's peak.

Prime minister Gordon Brown insisted at the G8 summit in Japan he was determined to lead Britain through the current economic downturn, but acknowledged the "very difficult times" faced by the country.

The BCC said the UK was "at serious risk" of recession as falling orders and rising costs tighten the squeeze on business, after its latest quarterly survey showed "alarming" declines.

But inflation pressures caused by high oil, food and electricity prices means that Bank of England policymakers are unlikely to offer relief to homeowners and businesses with an interest rate cut this week.

Most economists predict borrowing costs will be held at 5 per cent for the third month in a row because inflation is currently more than 1 per cent above the Bank's 2 per cent target at 3.3 per cent.

The BCC found that confidence among services firms - which account for almost three-quarters of the economy - is at its lowest ebb since 1990.

The organisation's economic adviser David Kern said the survey of almost 5,000 firms showed a "menacing deterioration" in UK prospects.

York-based housebuilder Persimmon today said it had axed 1,100 staff after the "most challenging period in its recent history". Sales have fallen 31 per cent in the past six months as banks hit by the crunch tighten up on mortgage lending.

The cuts follow nearly 2,000 redundancies at rivals Taylor Wimpey and Barratt Developments, with the industry warning of the worst downturn in 30 years.

Upmarket property group Savills also reported a 45 per cent drop in London sales and said the market downturn had begun to impact on prime country properties.

Only the "very top end" of the property market, where values exceed £5 million, were proving "relatively immune" to the downturn, Savills said.

According to the Department for Communities and Local Government, the average cost of a home in the UK dropped by 0.3 per cent during May to hit a 26-month low.

All of the major house price indexes are showing price falls, with Nationwide Building Society last week saying prices fell for the eight month in a row during June, with homes costing 6.3 per cent less than they did a year ago.

Although the Council of Mortgage Lenders reported a slight rise in home loans for people buying a new property during the month, the number of people remortgaging fell steeply as borrowers were put off by high mortgage rates and more expensive arrangement fees.

The crisis in the housing market has hit shares in buy-to-let mortgage lender Bradford & Bingley, which fell to a record low of just 30p during the day.

The FTSE 250 firm is attempting to shore up a balance sheet hit by the credit crunch and rising mortgage arrears by raising £400 million from its shareholders, but some analysts said the shares were virtually worthless.

The wider FTSE 100 Index was also under pressure as the economic concerns mounted, with losses on stock markets in the US and Asia.

Capital Economics' chief European economist Jonathan Loynes said: "The falls have brought UK equities more closely into line with the latest dreadful news on the UK economy.

"If we are right in expecting the downturn in the economy to be deeper and longer than most forecasters anticipate, the worst could still be to come for the UK stockmarket."

One of the few exceptions to the gloom was struggling retailer Marks & Spencer, whose share recovered some of the ground lost since last week's shock profit warning as rumours of a possible takeover swept through the market.

The firm's sales have fallen in the consumer squeeze with executive chairman Sir Stuart Rose likely to face the wrath of shareholders at the firm's annual meeting tomorrow.

    Another day, another blizzard of bad economic news, I, 8.7.2008, http://www.independent.co.uk/news/business/news/another-day-another-blizzard-of-bad-economic-news-862694.html

High street hit

by full force of credit crunch

July 3, 2008
From The Times
Steve Hawkes, Gary Duncan and Angela Jameson

The credit crunch hit the high street with a vengeance yesterday as shock figures from Marks & Spencer wiped £4 billion off the value of Britain’s leading retailers.

The grim news from Middle Britain’s favourite store marked a new phase in the economic downturn and threatens the high street with its worst slowdown in 20 years. Adding to the gloom, one of the country’s biggest housebuilders revealed that it was teetering on the brink of collapse. Taylor Wimpey’s value more than halved after it failed to secure rescue funding and said it would cut 900 jobs.

The surprise admission from M&S that its sales had fallen by 5 per cent in the past three months fuelled fears that the drop in consumer spending will deepen into a severe slump.

City experts took the news as a sign of the onset of deeper economic woes. Sir Stuart Rose, the M&S chairman, said he had never seen “such a sharp and continuous downturn” in his career. But he predicted worse to come. “Our customers are hurting. Their pockets are being squeezed,” he said.

He conceded that M&S and other retailers were facing their toughest test since the end of the last recession in the early 1990s as surging food and fuel costs pushed up the cost of living and put families under financial strain.

“People’s purses are being squeezed and they have to make decisions about what they can and cannot do or what they will and will not give up,” Sir Stuart said.

The danger that a house price slump will combine with rapid rises in living costs to undercut consumer spending was emphasised by the plight of Taylor Wimpey. It predicted that the housing downturn could last for 18 months as a key survey showed the toughest conditions in the construction industry for at least 11 years. The seven biggest listed homebuilders had 21 per cent wiped off their value yesterday. They have now lost 87 per cent of their value, £18.4 billion, over the past 18 months. Sums borrowed by homeowners against their properties, meanwhile, fell in the first quarter to a seven-year low of £5 billion.

Charlie Bean, the new Deputy Governor of the Bank of England, told MPs that the squeeze on living standards could last well into 2009. “It is determined by global factors. There is not very much that we can do about that as a nation,” he said.

Worries that the economy could be dragged into a downward spiral were underlined by the Organisation for Economic Cooperation and Development, which forecast 100,000 job losses in Britain in the next two years.

    High street hit by full force of credit crunch, Ts, 3.7.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article4258748.ece

8.05am BST

House prices falling

at fastest rate for 16 years

Tuesday July 1, 2008
Guardian.co.uk
Hilary Osborne


House prices in the UK fell by 0.9% in June, Nationwide building society said today, and are dropping at their fastest rate in 16 years.

The average price of a home in the UK has fallen by 6.3%, or £11,500, since last June, and by 7.5%, or £13,629, since reaching a peak last October, according to the figures. It now stands at £172,415.

The year-on-year fall is the biggest recorded by the society since December 1992.

Although the pace of decline slowed last month after May's 2.5% fall in prices, this is the eighth month running they have fallen, and a continued slowdown in the mortgage market suggests there are further falls to come.

Yesterday, the Bank of England said the number of mortgages approved for house purchases had fallen by 64% over the year to May to reach a record low of just 42,000.

Recent figures from the government showed the number of sales was down 37% compared with the figure for May 2007, while the latest Land Registry figures on house sales showed that they were running at half last year's level.

Nationwide's chief economist, Fionnuala Earley, said: "With house purchase transactions so far below their long-term trend it seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months.

"However, as prices continue to fall affordability measures become more favourable for those in a well-financed position to be able to buy."

Regional figures from the society showed prices were down year-on-year in 12 out of 13 areas of the UK in the second quarter of the year, and had fallen in all areas since the first three months of the year.

It said Scotland had proved most resilient to the market downturn so far, with prices falling 1.8% over the quarter but up 0.6% on the same period last year.

Earley said the reason that this correction in prices was "less drastic" than elsewhere was that housing affordability had remained better in Scotland than in many other regions of the UK.

Northern Ireland saw the biggest fall in prices over the quarter, with the average cost of a home falling by 9% between April and June.

However, despite falling 18% over the past year prices in the region are still above the UK average at £183,476.

The city which saw the biggest decline in prices over the quarter was Sheffield, where 17% was knocked off the value of a home between April and June.

Prices have been falling steeply since the end of last year as a lack of mortgages, affordability problems and concerns about the market have deterred potential buyers.

Howard Archer, chief UK economist at Global Insight, said the data did "little to dilute concerns that we are headed for a sharp correction in house prices".

"The marked deterioration in sentiment over the housing market also heightens the risk that house prices will fall sharply over the next couple of years," he warned.

"On top of this, unemployment is now starting to rise, which along with a substantial number of homeowners having to remortgage at higher rates, is increasing the likelihood that people will have to sell their house for 'distressed' reasons."

    House prices falling at fastest rate for 16 years, G, 1.7.2008, http://www.guardian.co.uk/money/2008/jul/01/houseprices.property

House sales fall by 50%

Friday June 27, 2008
Hilary Osborne
Guardian.co.uk
This article was first published on guardian.co.uk
on Friday June 27 2008.
It was last updated at 14:38 on June 27 2008.

The number of completed house sales in England and Wales fell by 50% in the year to March, official figures showed today.

The Land Registry data, which includes details of all properties sold - not just those bought with a mortgage - showed 53,080 homes were bought over the month.

This compares with 106,047 in March 2007 and is 14% below the previous three-month average of 61,950.

The number of homes sold for more than £1m dropped by 45% over the year, from 646 to 357.

These figures look set to fall further in the coming months, as recent data from lenders shows that approvals for new mortgages continue to decline.

Earlier this week, the British Bankers' Association said its members had approved just 28,000 home loans for house purchases in May. http://www.guardian.co.uk/money/2008/jun/25/mortgages.debt

Although the Land Registry figures include non-mortgaged purchases, they are likely to reflect the sharp drop off in lending activity.

The figures showed that house prices remained flat in May, taking the annual rate of inflation to its lowest level since records began in April 2001.

The average price of a property in England and Wales stayed at £183,266, just 1.8% higher than in May last year.

The annual rate of growth has now been falling for ninth months.

Four regions saw prices fall year-on-year, with the north-east of England experiencing the largest drop at 1.3%.

The region saw a 2.4% drop in prices in May alone, bringing the average price of a property down to £127,581.

Despite concerns about the market and the withdrawal of some of the cheapest mortgage deals, the Land Registry figures show price rises over the course of the month in six regions.

In London, the average cost of a home increased by 0.8% to £354,714, and the annual rate of inflation was up slightly from 6.8% in April to 6.9%.

    House sales fall by 50%, G, 27.6.2008, http://www.guardian.co.uk/money/2008/jun/27/houseprices.property


 

11.30am BST update

Inflation set to rise sharply this year,

Bank of England governor says

Tuesday June 17 2008
Guardian.co.uk
Larry Elliott
Economics editor
This article was first published on guardian.co.uk
on Tuesday June 17 2008.
It was last updated
at 12:31 on June 17 2008.

Mervyn King today blamed dearer oil, food, gas and electricity for Britain's rising cost of living as the governor penned the first of a series of letters to Alistair Darling explaining why the Bank of England had allowed inflation to move above 3%.

Within an hour of the release of official figures showing a sharp jump in food and drink prices pushing inflation up to 3.3% in May, King warned the chancellor that the government faced a long period of low growth and rising cost pressures.

"As things stand, inflation is likely to rise sharply in the second half of the year, to above 4%", the governor said.

Under the terms of the Bank's independence, King is obliged to write a letter to the chancellor if inflation as measured by the consumer prices index deviates by more than a percentage point from the government's 2% target. A missive from Threadneedle Street is required once a quarter for as long as inflation remains above 3%. According to the Office for National Statistics, the May inflation rate was the highest since the summer of 1992, triggering only the second letter from the Bank to the Treasury since Threadneedle Street was given day-to-day control of interest rates in 1997.

The governor said there were good reasons to expect the increase in the cost of living to be temporary, but admitted that oil prices, dearer domestic energy bills and weaker pound meant CPI inflation was "likely to remain markedly above the target until well into 2009. I expect, therefore, that this will be the first of a sequence of open letters over the next year or so."

City analysts had been expecting inflation to rise above 3% this month, but said that despite the worsening numbers the Bank's nine-strong monetary policy committee was likely to leave rates on hold at 5% for the time being.

King said it was necessary for the economy to slow this year in order to bring inflation back to target within two years. "A slowdown is already in train. Moreover, the prospective squeeze on real incomes associated with higher inflation, together with the reduced availability of credit, is likely to lead to further slowing in activity this year. This will reduce pressure on the supply capacity of the economy and dampen increases in prices and wages."

Paul Dales, of Capital Economics, said the King letter was "less hawkish" than it could have been. "Our sense is that this means interest rates are likely to stay on hold for now. The Bank does not seem to be in a rush to move in either direction."

Darling said he accepted King's explanation that 1.1 points of the 1.2 percentage point jump in CPI inflation since December had been due to rising global food and energy prices. "I agree with this assessment of why inflation has temporarily exceeded the upper range of the 1 percentage point band around the 2% target."

The chancellor added: "Faced with the recent sustained commodity price shocks in oil and food, the rise in inflation has been extremely moderate compared with the behaviour of the economy in the 1970s and 1980s."

    Inflation set to rise sharply this year, Bank of England governor says, G, 17.6.2008, http://www.guardian.co.uk/business/2008/jun/17/inflation.interestrates4

Fade to black:

Is this the end of oil?

For generations, we've taken it for granted.
But as prices soar and reserves dwindle,
the time is fast approaching
when mankind will have to live without oil.
Are we ready to confront some really inconvenient truths?
Michael Savage reports from the North Sea

Thursday, 12 June 2008
The Independent


Aberdeen heliport is heaving. Dozens of rig men are waiting to board helicopters and begin a two-week stint in the middle of the North Sea. It appears that business out on the rigs, known simply as "the job" in these parts, is booming. Eventually, it's our turn to board a cramped chopper, shoulder to shoulder with the solidly built workers who sit silently, psyching themselves up for a fortnight surrounded by cold, crashing waves.

Two hours later, we land at a rusting rig named Alwyn, 440 kilometres off the coast of Aberdeen. Ollie Bradshaw, the rig's burly production supervisor, meets the new arrivals.

"What's life like offshore? Busy. Very busy," he says. He's not joking. As we traipse around the rig's two platforms, perched 200 feet above the (thankfully) calm waters of the North Sea, we navigate between the numerous piles of scaffolding, timber and new equipment that take up almost every last square inch of space. The on-board population has swollen to 250 people lately. In some cases, three men are having to share a room, while new digs are built next to the rig's busy helipad, where several flights land and take off each day, delivering a conveyer belt of fresh workers – from painters and decorators to extra scaffolders and, of course, the men whose expertise lies in harvesting fossil fuels from beneath the sea bed.

Even in the common room, no one is standing idle – not around the television, nor the snooker table. The on-board gym is empty. In the canteen, a few men grab bacon rolls before heading off to start their 4pm shift. Those on an earlier shift have just had their lunch – there's been a run on lemon tart. Yet the hive of activity that Alwyn has become of late is not down to all the oil it is producing. Far from it.

"Alwyn started out as an oil well and platform more than two decades ago. As oil production has fallen, it has been adapted and changed," says Bradshaw, a man who seems devoted to his life here in the middle of nowhere. The rig's expanding team is having to work harder than ever to keep it going. A vast network of underground pipes has linked it to new pockets of oil and gas – some of the neighbouring platforms seem like they are just touching distance away. New techniques have been used to boost the quality of the last dregs of oil coming out of the ground. Empty reservoirs are being drained of natural gas. Now, a major discovery of a field of natural gas has meant that, after 21 years of work, Alwyn's creaking infrastructure is being given a facelift to keep going for another 20 years. But it will also mean its conversion from the oil platform it once was will be complete.

The end of Alwyn's oil well days is a familiar story in the North Sea. The rig men may be working as hard as ever, but UK oil production has been falling rapidly ever since 1999. In the past, that hasn't been such a problem – other producers around the world have always been able to produce more of the black stuff to keep the wheels of world industry lubricated. But according to some, that may be about to change. Oil prices are so high – $137 a barrel – and predicted by Alexey Miller, head of Gazprom, the Russian state energy giant, to rise as high as $250 a barrel – that social tensions have begun to emerge, while the world's leaders have been going cap in hand to oil producers, asking them to squeeze a few more barrels out of their wells. And as prices have kept on breaking records, an ever-growing worry looms in the background, the elephant in the room of the oil price rise: what if they can't produce any more? What if, this time, the oil taps really are running dry?

Worryingly, for a world reliant on the dirt-cheap energy that oil provided throughout the last century, the idea that oil production in all nations may soon start to decline just as in the North Sea has been seeping into the mainstream. The "peak oil" theory – that oil production has reached its maximum and will soon begin its decline, bringing potentially catastrophic consequences to the modern world – no longer just comes from internet crackpots and conspiracy theorists; now geologists, market analysts and oil prospectors believe that this scenario is becoming reality. And within the past year, there have been signs that the major oil companies are admitting this themselves. If they are right, high petrol prices could be the least of the world's problems.

The idea is simple enough. Those warning against an imminent peak oil crisis – the "peakists" – say that while the world will not totally run out of oil, all of the oil that is easy to reach has been all but used up, meaning that producing enough oil to meet the growing world demand is becoming an ever harder task. Worse, we now stand at the high water mark of oil production. That means that not only will we never be able to produce much more oil than the 87 million barrels a day we now consume, but world oil production will actually begin to fall very soon, causing not only ever higher prices, but also creating the prospect of shortages, industrial upheaval, battles over ever-depleting resources, and even an end to the modern world built upon the assumption of a plentiful supply of cheap oil.

"A lot of people keep talking about 'this peak oil theory' – but there's nothing theoretical about it. It's just a very obvious fact of nature," says Colin Campbell, a geologist who searched for oil on behalf of several oil companies, and is the high priest of the peakists. "Oil is formed in the geological past. That means it's a finite resource. That means production begins and ends, and passes a peak in between. So the fact that there is a peak is beyond dispute. We've had the first half of the age of oil, which has changed the world in every conceivable way. We now face a decline."

Campbell is in no doubt that the world's oil production is as high as it is ever going to get. "The result of the latest update I made using industry data was that the regular, conventional oil peaked in 2005 and if you put all the other types in – the heavy oils, the gas liquids, the Arctic oil, the deep water projects – I have it this year," he says, in a softly spoken, matter-of-fact tone. "That's not cast in stone. It could slip a year or two. But I'm absolutely confident that it's in the right area."

Whereas Campbell's fears once branded him a wacky radical, as the years have gone by he has been joined by a growing band of industry experts who have reached a similarly grim conclusion. One of those was an American investment banker examining "flow rates" – the speed at which oil was being taken out of the ground. After being asked to advise Donald Rumsfeld and George Bush on energy policy during the 2000 election campaign, Matthew Simmons found that more and more oil fields had begun to decline. That was because, though new technology was helping to extract oil faster than ever before, it was also causing the fields to run dry more quickly, too. "All of a sudden there were fields that were declining by as much as 30 per cent per year," he says. "But I didn't call it 'peak oil' – I didn't even know what that was back then."

Simmons came across peak oil in 2002, when he attended the first meeting of a new group founded by Colin Campbell. Only around 45 people showed up to the first meeting of the Association for the Study of Peak Oil (Aspo), but since then, its findings have convinced a lot more people around the world. Aspo now has branches in 36 countries, with Kuwait the latest wanting to found one. And some serious analysts have also made the mental journey from dissenters to peak-oil prophets.

"I've been on that journey," says Chris Skrebowski, who spent half his career in the oil industry and now edits the UK oil industry's publication of record, Petroleum Review. He admits to having been dismissive of the idea that the world's wells were running dry. It was a visit from Campbell in 1996 that made him change his mind. "I didn't quite believe him, but I didn't think he was the average nutter," he says. Skrebowski began to take a look at the issue himself. The numbers told a clear story. "You can just about struggle through to 2011, if everything goes to plan – which, of course, it won't – but after that, the numbers don't add up. And that's taking a reasonably conservative rate of decline. If you wind it up to a 5 or 6 per cent annual decline, then you are at this peak or plateau now."

One man who believes that could be the real rate of decline is the archetypal US oilman, T Boone Pickens, otherwise known as the "Oracle of Oil". Having made a fortune in the oil industry, Pickens now invests heavily in the oil alternatives he believes will be necessary to fill the gap left by falling oil production.

From the window of helicopter, flying above the uninviting waves of the North Sea, it seems hard to believe that the world could really be running low on easy oil. Dozens of rigs pepper the vast expanse of water, their burning flares making them look like floating candles. Spiralling wisps of smoke fill the North Sea sky – a reminder that there is still oil churning around. Despite the pedigree of the peakists, it's hard not to think we've heard it all before, that it's just the usual doomsayers predicting that the oilfields would run out, and that more will be found somewhere. But for the peakists, the North Sea is a great case study. Its rapid decline has come despite all the advantages the modern world could throw at it.

"The North Sea has the benefit of all the investment anybody could need," says Campbell. "It's got the most modern technology, and it's got a political environment that's stable. There's no reason why it would be producing less oil than is possible, yet it has been declining at a rate of 7 per cent a year." Perhaps even more worryingly, the last year has seen major oil companies begin to make more noises about potential problems ahead. Foremost among them has been head of the French oil company Total, Christophe de Margerie, who has declared that world production will never exceed 100 billion barrels a day, a level of demand expected in less than a decade. "The oil companies are changing their tune," says Campbell. "They can't quite say 'peak' in so many words. They don't want to rock the boat."

Back on dry land, in a seafood restaurant in Aberdeen, a senior oil executive talks freely about a future. "We can try to slow the decline, but we will never stop it," he says casually, over a plate of scallops. "All we can do is get as much oil out of the ground as possible." Meanwhile, Colin Campbell is flirting with official approval. He is already advising a Norwegian oil firm, and has recently been invited to give informal presentations to executives from two of the world's biggest oil companies. A clear momentum has been built up around peak oil fears. For Simmons, it is the peak oil deniers that are now the ones sounding shrill. "I daily read these shrill sounding experts who still believe that oil should be at $40 a barrel," he says. "It's just unbelievable. It's still cheap."

Not everyone is convinced by the peak oil theory, though. This week, The Independent reported that, according to Richard Pike, a former oil industry man, now chief executive of the Royal Society of Chemistry, there is more than twice as much oil in the ground than producers claim. But the most notable peak oil refusnik is the International Energy Agency (IEA), the oil supply watchdog set up by the world's richest nations. It has said that not only is the world not running out of oil, but that production will continue to match the 135 million barrels a day that is forecast to be needed by 2050. It says that while conventional sources of oil may only provide around 92 million barrels a day of that, investment in Saudi Arabia's fields and the growth of new sources of oil will provide the rest.

To the peakists, these standard oil industry ripostes are starting to wear a little thin, and have been damaged by the crashing and burning of some great white hopes. Not a single barrel of commercially viable shale oil, made from oil-rich sedimentary rock, has yet been produced. Oil made from tar sands found in northern Canada is near the top of the list of innovative sources of oil, but even the oil companies themselves admit that the amount of energy currently needed to produce a single barrel of it makes it very inefficient. And while drilling into ever-deeper waters might keep world production on its current plateau, the peakists say the days of "easy oil" are over.

As for the comforting idea that Saudi Arabia could simply turn up its taps and produce far more oil if it felt like it – the preferred belief of President Bush and Gordon Brown – the peakists have some pretty big problems with that, too. "The one thing that made peak oil a bogus issue was the supposedly proven fact that in the Middle East, we had 200 years of oil supply," says Simmons. "Because of that, we obviously couldn't have peaked. I'd just assumed it had to be true. Then I started doing my research." After poring over more than 200 technical papers, he made the grim conclusion that, just like elsewhere, production in Saudi Arabia was either at or very near its peak.

And even the conservative estimates of the IEA have not been unaffected by the spectre of peak oil. It has decided to review how it sources its data on oil reserves, which is widely expected to lead to a lowering of its predictions of future oil supplies when it publishes its overview of the industry in November. If it, too, reveals that the days of free flowing oil could be over, the halls of power might begin to take notice.

None of this will make any difference to life on the Alwyn rig in the near future. For the next 20 years, it will be producing natural gas, and making low-grade oil from some of it. "We'll be here until every last drop of oil is out of the ground," Ollie Bradshaw reassures me.

But unlike Alwyn, more rigs will be decommissioned than refurbished if the peak oil theorists turn out to be right – and they warn that the effects on the world could be dramatic.

A world without plentiful oil, as described by the peakists, looks very different from today's. The peakists are in no doubt about the aspect of modern living that would have to change. With transport soaking up the vast majority of the world's oil, they maintain that our addiction to the car will have to go. According to Chris Skrebowski, large-scale electrification will be needed in all vehicles, perhaps with pylons placed down motorways to provide power. Diesel-powered public transport needs to be replaced with electric trains, trams, and trolley buses. That would create breathing space to make more profound societal changes, such as a growth of working from home. Matthew Simmons also sees the current global economy soon becoming unsustainable. "Local farms are now coming back," he says. "We have all the technology in place to do that."

That's just for starters. According to Campbell, a wholesale change in the western lifestyle will be needed a little further down the road. "Cities will face massive challenges," he says. "By the end of the century, when there really isn't very much oil left, the world will be a very different one – much more rural, probably with fewer people. It's a sort of doomsday message, but in some ways, it's just a change from the modern mindset. There are people in the world who live a simple life like that and are very happy." But that's nothing compared with what could happen if we attempt to carry on regardless with ever-growing oil consumption. "If we don't make changes, we're going to have a resource war and blow ourselves up," says Simmons. "I think that would be a really inconvenient way to end the world."

So will the end of the oil age herald in a new dark age? Are we doomed to go back to sheltering in mud huts and living off a diet of turnips and water? Not necessarily. Thankfully, other peakists are optimistic that we can cope with a world without such vast quantities of cheap oil – if we act now. "Humanity is very ingenious," says Skrebowski. "But at the moment, it doesn't yet see a crisis. We're just acting like a spoilt child who has had its lollipop taken away. At some point, some politician has got to come out and state clearly that the world is going to be different. It's not the end of the world, but we're all going to have to change the way we do things. And the sooner we get on with it, the better. The anticipation is probably worse than the reality."

Let's hope he's right.

    Fade to black: Is this the end of oil?, I, 12.6.2008, http://www.independent.co.uk/environment/green-living/fade-to-black-is-this-the-end-of-oil-845092.html

Oil shortage a myth,

says industry insider

Monday, 9 June 2008
The Independent
By Steve Connor, Science Editor


There is more than twice as much oil in the ground as major producers say, according to a former industry adviser who claims there is widespread misunderstanding of the way proven reserves are calculated.

Although it is widely assumed that the world has reached a point where oil production has peaked and proven reserves have sunk to roughly half of original amounts, this idea is based on flawed thinking, said Richard Pike, a former oil industry man who is now chief executive of the Royal Society of Chemistry.

Current estimates suggest there are 1,200 billion barrels of proven global reserves, but the industry's internal figures suggest this amounts to less than half of what actually exists.

The misconception has helped boost oil prices to an all-time high, sending jitters through the market and prompting calls for oil-producing nations to increase supply to push down costs.

Flying into Japan for a summit two days after prices reached a record $139 a barrel, energy ministers from the G8 countries yesterday discussed an action plan to ease the crisis.

Explaining why the published estimates of proven global reserves are less than half the true amount, Dr Pike said there was anecdotal evidence that big oil producers were glad to go along with under-reporting of proven reserves to help maintain oil's high price. "Part of the oil industry is perfectly familiar with the way oil reserves are underestimated, but the decision makers in both the companies and the countries are not exposed to the reasons why proven oil reserves are bigger than they are said to be," he said.

Dr Pike's assessment does not include unexplored oilfields, those yet to be discovered or those deemed too uneconomic to exploit.

The environmental implications of his analysis, based on more than 30 years inside the industry, will alarm environmentalists who have exploited the concept of peak oil to press the urgency of the need to find greener alternatives.

"The bad news is that by underestimating proven oil reserves we have been lulled into a false sense of security in terms of environmental issues, because it suggests we will have to find alternatives to fossil fuels in a few decades," said Dr Pike. "We should not be surprised if oil dominates well into the twenty-second century. It highlights a major error in energy and environmental planning – we are dramatically underestimating the challenge facing us," he said.

Proven oil reserves are likely to be far larger than reported because of the way the capacity of oilfields is estimated and how those estimates are added to form the proven reserves of a company or a country. Companies add the estimated capacity of oil fields in a simple arithmetic manner to get proven oil reserves. This gives a deliberately conservative total deemed suitable for shareholders who do not want proven reserves hyped, Dr Pike said.

However, mathematically it is more accurate to add the proven oil capacity of individual fields in a probabilistic manner based on the bell-shaped statistical curve used to estimate the proven, probable and possible reserves of each field. This way, the final capacity is typically more than twice that of simple, arithmetic addition, Dr Pike said. "The same also goes for natural gas because these fields are being estimated in much the same way. The world is understating the environmental challenge and appears unprepared for the difficult compromises that will have to be made."

Jeremy Leggett, author of Half Gone, a book on peak oil, is not convinced that Dr Pike is right. "The flow rates from the existing projects are the key. Capacity coming on stream falls fast beyond 2011," Dr Leggett said. "On top of that, if the big old fields begin collapsing, the descent in supply will hit the world very hard."

    Oil shortage a myth, says industry insider, I, 9.6.2008, http://www.independent.co.uk/environment/climate-change/oil-shortage-a-myth-says-industry-insider-842778.html

Gas price spike

threatens fresh rise

in energy bill

June 9, 2008
From Times Online
Robin Pagnamenta,
Energy and Environment Editor

Wholesale gas prices today rose through the £1 per therm threshold for the first time, compounding fears that UK consumers are set for a fresh round of fuel price hikes.

The price of gas for delivery during the first three months of 2009 touched 100.93p, up 5 per cent compared with Friday’s close. Wholesale gas prices for next winter are now more than double last winter's average of 48p.

Power prices, which are closely linked to gas, also rose further this morning to £88.25 per megawatt hour for the coming winter, compared with a previous £50.

Gas has breached the £1-a-therm mark despite the summer months, a time when supplies tend to be cheaper.

The spike has been driven by the soaring price of crude oil, which hit a record of more than $139 a barrel on Friday amid fears of rising tensions between Israel and Iran. Oil prices have since fallen back slightly.

The majority of global gas contracts between the producers and their customers are indexed to oil.

With supplies from the North Sea running out, the UK is a major importer of gas. Around 27 per cent of supplies were imported last year but this is expected to rise to around 40 per cent this year.

Last winter, a number of energy providers introduced double-digit increases on household bills, including British Gas which lifted gas and electricity prices by 15 per cent.

A spokesman for Centrica, owner of British Gas, said: “We're having to buy in a world market and pay world prices.”

He said that UK prices for next winter are similar to those being paid in Japan, the world’s biggest importer of gas.

Until recently, the previous record UK gas price on the forward market for a winter period was 88p in April 2006 in the run up to the winter of 2006-07.

Industry sources say that a fresh round of price increases are probably inevitable, with August tipped as the most likely time frame.

    Gas price spike threatens fresh rise in energy bill, Ts, 9.6.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article4097841.ece

New massive malls

to open within 18 months

June 2, 2008
From The Times
Steve Hawkes

Shopping centres equivalent to eight Bluewaters are due to open over the course of 2008 and 2009, just as the economy heads into its worst period for more than a decade.

A total of 1.25 million sq m will be opened in the next 18 months, the first of which was the Liverpool ONE city centre development, which centres on a new John Lewis and the largest Debenhams in Britain.

According to Mark Hudson, retail and consumer leader at PricewaterhouseCoopers: “The amount of space coming on is potentially massive and, with the trading conditions we have and the ongoing shift towards online, it's going to mean more empty shops in market towns. More marginal sites will become unprofitable and more companies will go bust.”

Nearly a dozen retailers have collapsed into administration since the turn of the year, including Dolcis, Ethel Austin, Base, The Sleep Depot and Toyzone.

New developments such as Liverpool One, and two more mammoth centres due to open later this year - Bristol Cabot Circus and Westfield London - take years of planning and are almost impossible to stop.

However, a number of smaller developments, including a regeneration scheme in Dumfries and another in Chester, have been postponed as the credit crunch affects funding and the number of retailers signing up to the project. This month St Modwen put the development of a £100 million retail-led development in Hatfield, Hertfordshire, on hold because of the retail and economic climate.

Alistair Parker, head of Cushman & Wakefield, the property development consultancy, said: “The monster malls take ten years to deliver. They are like oil tankers - once set down, they take a while to slow.”

Mr Parker said that new centres such as Liverpool One were essential to reviving areas where most of the retail estate pre-dated the Second World War: “Liverpool believed it was losing large amounts of trade over the years to everywhere else, so the effect will be to pull that trade back to Liverpool. Clearly, other areas will lose out, but that's what drives improvement.”

    New massive malls to open within 18 months, Ts, 2.6.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article4045369.ece

House prices fall

at fastest rate for 17 years

May 29, 2008
From Times Online
Robert Lindsay

The slump in Britain’s housing market gathered pace this month, with house prices suffering their biggest drop for at least 17 years, a key survey showed today.

The price of an average house fell 2.5 per cent in the month, making the seventh consecutive monthly fall in prices, the longest downward slide since the end of the early Nineties housing crash, according to the figures from the Nationwide Building Society.

The latest plunge in property values left them down 4.4 per cent from a year ago, in the steepest annual fall since December 1992, at the end of the last recession, when prices were down by 6.3 per cent year-on-year.

Some £8,000 has now been wiped off the value of an average house since in 12 months, taking this down to £173,583 on the Nationwide’s figures.

Fionnuala Earley, the Nationwide's chief economist said that it should be borne in mind that rising house prices up until last year means that even now prices are still 5 per cent higher than two years ago and 10 per cent higher than three years ago.

She added that she hoped the Bank of England would now resolve to cut rates: "Problems in credit markets have clearly been the trigger for changing fortunes in the housing market and while it is never wise to place too much weight on one data point, the apparent speed of the adjustment may lead the Bank of England's MPC to look more closely at the balance of risks to inflation in the medium term.

"Stronger than expected inflation appears to have shattered hopes of an early cut in the Bank Rate in June, but more downbeat economic and housing market data could lead more MPC members to join David Blanchflower in voting for pre-emptive cuts."

She said there was now mounting evidence of a downturn in the housing market. "The Bank of England reported an 11 per cent monthly drop in house purchase approvals in March to reach a seasonally adjusted 64,000 - the lowest since records began in 1993. RICS estate agents reported the most widespread regional falls in house prices in the history of their series.

House price expectations also fell into negative territory, as the Nationwide Consumer Confidence Index for April reported that consumers expect prices to fall by 1.7 per cent over the next six months.

Nationwide’s figures deal a blow to tentative hopes of a recovery after the British Bankers’ Association earlier this week reported a small rise in the number of loans for house purchases, to 38,704, in April, although this remains 39 per cent below a year earlier.

Meanwhile official inflation has hit 3 per cent after spiralling oil and food prices, and isexpected to soar further still later this year - reducing the chances of help through sustained interest rates cuts because the Bank of England has a 2 per cent inflation target.

Despite the steep falls in prices, Ms Earley said homeowners were unlikely to feel the pinch as badly as they did in the early 1990s when hundreds of thousands of householders who had bought at the peak of the boom in the late 1980s ended up in negative equity - their homes worth less than the amount they had borrowed.

She said fewer homeowners bought at the top of the market - which came in the second half of last year - and most have put down a larger deposit than their 1980s counterparts.

Many borrowers had also learnt from the experience of the early 90s by opting to repay capital on their loans rather than just interest. In 1988 85 per cent of loans were on an interest-only basis. In 2007-2007 only 30 per cent took out interest-only loans.

David Stubbs, senior economist at the Royal Institution of Chartered Surveyors, said: "The difficulties in the mortgage market are stretching accessibility and threaten to reduce transaction levels by 40% this year. With buyers unable to secure financing on reasonable terms, some sellers are now choosing to cut prices. The market will only stabilise once transaction volumes recover."

Mr Stubbs called on the Government and the Bank of England to implement measures to restore the smooth functioning of the mortgage market, before the drop in transactions and prices begins to really hurt the economy.

There was further negative comment from Howard Archer of Global Insight, the economic consultancy, who described the 2.5 per cent May plunge in house prices as "a real shock ". He said it would fuel concern that we were now headed for a sharp correction in house prices.

"It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009," Mr Archer said.

"On top of this, unemployment is now starting to rise, which along with many homeowners having to re-mortgage at higher rates, is increasing the likelihood that a significant people will have to sell their house for 'distressed' reasons.

"Those people who took out 100 per cent or even 100 per cent plus mortgages within the last 18 months or so at the tail end of the housing market boom are particularly vulnerable."

He said people could not rely on the Bank of England cutting rates for help. "Even August may well prove too early for another interest rate cut to occur, as the Bank of England is unlikely to act until it has sustained, clear evidence that wage moderation is continuing and that reduced demand is undermining companies' pricing power," he said.

    House prices fall at fastest rate for 17 years, Ts, 29.5.2008, http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article4024729.ece

Global food crisis

Families struggling

as bills begin to bite

Thursday May 29 2008
The Guardian
Esther Addley
This article appeared in the Guardian
on Thursday May 29 2008 on p12 of the UK news section.
It was last updated at 00:15 on May 29 2008.
 

For the two weeks in every month that her husband Jim is working offshore, abseiling off the side of oil rigs to check and replace gas detector units, Sharon Wall is at home with their four young children. As Wall does not drive, and their home town of Peterhead, near Aberdeen, is not well stocked with affordable, good quality food shops within walking distance, feeding the junior Walls is a little more complicated than for most families.

The first thing that Jim Wall does on his way home is call in at a large Tesco on the outskirts of Aberdeen, to buy "a bit of everything". Though the family has a weekly box of vegetables delivered from a local farmers' market, and toiletry essentials are mailed from Avon, his return is eagerly expected.

"I always fill the fridge and freezers up before I go, and then when I come back I have to do it all over again," he says. "I know the cupboards will be pretty bare by that stage." The couple say their weekly food bill is usually around £150, though in the last four days they've spent £220. A few years ago, they reckon, they spent about £100 a week, though they acknowledge feeding the family was a bit more straightforward before the arrival of three-year-old Jessica and one-year-old Sophie. All four children, Sharon Wall says, "love to eat".

"Bread and milk are classic examples," says her husband. "I think it was about 75p for a loaf of Asda bread just a couple of months back, now it's up to just under the £1 mark."

"I tend to go in and do quite a small shop when he's away, and what used to cost me £20, £25, now that's up to £35, almost £40, for pretty much the same amount of stuff," says Sharon Wall. "I was in the other day and I thought, oh, I've got hardly anything here and it's come to £20 at Asda!"

The numbers and the precise circumstances may vary, but in recent months the Walls' experience has found echoes in family budgets up and down Britain. The global commodity price hikes that have led to riots and civil disorder from Haiti to west Africa to the Philippines may have been greeted, in this country, with British stoicism, but for many, food price rises - a pound here, £10 there - are starting to hurt.

Bread costs 20% more than it did a year ago, according to a survey earlier this month by the price comparison site mysupermarket.com, and rice 60% more. Pasta has gone up by 81% in some shops, and in Tesco it was found to be 113% more expensive. Butter costs 60% more than it did, meat prices too are up. The site puts the annual rise at 19.1%. Though industry observers point out that this figure includes prices from the more expensive Waitrose but not the promotion-focused Morrisons or any budget supermarket chains such as Lidl, it represents the sharpest rise in food prices since records began.

"The odd thing is that a lot of people seem to have only just noticed," says Alex Beckett, a food specialist at the industry magazine The Grocer. "In fact, food prices have been going up for quite some time, but they have dramatically soared in the last 18 months."

In his small local Asda on a Peterhead housing estate, Jim Wall pauses in front of a rack of loaves, running through his head the small, familiar calculations - 5p, 12p, 24p - that can make the difference between ending the month overdrawn, and not. Warburtons farmhouse loaves, the family favourite, are £1.12 each. Asda does a simple sliced white loaf for 65p. He puts two loaves of Asda Baker's Gold, 95p each, in his trolley.

"I suppose this is a bit nicer than the plain Asda loaf, but cheaper than your Warburtons and your Kingsmill. For years we bought Warburtons, but when you're going through almost a loaf of bread a day that 17p does make a difference." He thinks the pricier loaf cost 74p six months ago. They'd like to feed the children "seedy bread", as they call it, every day, but that's at least £1.40 a loaf.

Eggs, too, involve a compromise: "I really don't like the way battery chickens are kept, but six plain eggs are just 88p, and here you have 12 free range for £2.92." In the end he compromises with a dozen "barn eggs" for £2.52. On cereals, juice, dishwasher rinse aid, washing up liquid, the Asda own brand is chosen.

But it is not just branded items that are proving too costly. Sharon Wall researches food extensively; their second son Stuart, eight, is on the autistic spectrum, and they have learned over the years that different foods can affect his moods and behaviour.

Food miles, pesticides, and fair trade also concern them, she says, but these days ethics can feel something of an expensive luxury. "We try to get bits of organic food, I try to get the fair trade coffee. Price comes into it, though. Some weeks I try to pick up the fair trade coffee, whereas other weeks I think, I just can't afford it this week."

If the current climate is squeezing consumers, it is also proving a challenge to the supermarket chains. Factory gate prices - the amount manufacturers charge retailers - may have risen sharply but supermarkets insist their prices across the board are increasing only marginally.

Just days after reporting a 28% increase in annual profits, shares in Sainsbury's fell earlier this month amid predictions that the market is about to become "a lot tougher". The signs, even small ones, are everywhere. After seven years, Waitrose ditched an advertising slogan which made a virtue of its higher cost - "quality food, honestly priced" - in favour of something more egalitarian: "Everyone deserves quality food. Everyone deserves Waitrose."

Stores look rather different than they used to: budget and own-brand ranges, once the faintly embarrassing end of product lines, are now found front and centre in displays. Tesco says its 9,000 current promotions are the most in its history, Asda has 5,000. Thirty per cent of Sainsbury's products are promotional offers, the store says, compared with 20% this time last year.

Meanwhile super-budget chains, imported from Europe, are flourishing. Aldi reports a 25% increase in customer numbers in the past three months. Lidl, already with 400 stores, is planning 40 new ones. "We need more sites to develop," reads the Netto website. "Do you own land or property which may be suitable for a new Netto store?"

"It is certainly a challenge to get the products which people expect to be on the shelves at the right price," says Andrew Opie, food policy director at the British Retail Consortium, which represents leading British supermarket chains. "Some problems, when it comes to commodity prices, are out of their hands, though the retailers have tried to prepare by having a flexible food chain, negotiating with suppliers. They see themselves as trying to absorb costs to insulate consumers from the worst vagaries of the harvests, while at the same time taking advantage of products where there is good availability, such as fruit and vegetables, or sugar, some meat prices, and get those promoted as an alternative. We are seeing more promotions than ever, and these tend to be geared towards straightforward reductions in price, rather than bogofs ["buy one get one free" offers]."

The Wall family welcome offers, of course, but with reservations. Asda may be wallpapered with promotions but, says Jim Wall, "the things that aren't good for you, the cookies and the cakes and the crisps, are the things that are on offer". Although shoppers are greeted by a large display of discounted cheddar, and an offer on potatoes has proved so popular they have sold out, among the most prominent promotions today are Cadbury Mini Rolls, Mr Kipling Victoria Mini Classics, and Asda Jumbo Milk Chocolate Cookies.

As Scots almost at the end of the transport line, the Walls are perhaps more disadvantaged than most as Scottish food prices, already the highest in Britain, are rising more rapidly than those south of the border.

But they may also find themselves ahead of the debate. In response to high prices, faltering production and the country's notoriously poor nutrition, the Scottish parliament late last year initiated a "national food debate", towards formulating a comprehensive policy for food provision and access north of the border. This, argue some, is a conversation that needs to happen more broadly in the £1-a-loaf climate. For as long as Britain consumes so much more than it produces - and bins £10bn-worth of food a year, including, every day, 550,000 chickens and 5.1m potatoes - they argue that talk of supermarket prices is topsy-turvy at best.

"The whole story has been pitched as a global problem, and it is, but this is a British problem," says Tim Lang, professor of food policy at City University and arguably Britain's leading expert on the subject. "We are a flagrantly wasteful, inappropriate, uneconomic food system and we are pretending that this is China's or Brazil's problem. People like me have been saying for years that this situation was coming. I am not being a clever clogs. I'm just not sure the politicians have caught up with it, frankly."

The "leave it to Tesco et al" approach, he says, demonstrably cannot work in sorting out the enormous global forces behind the price hikes. "I'm afraid that not even Tesco or Sainsbury, not even the mighty Wal-Mart, can sort out climate change, or the impending water crisis in food, the nutrition transition [the shift in rapidly industrialising countries from simple to highly processed and often unhealthy diets] and its associated health problems, population growth, the labour crisis which is creeping upon us. Who are going to be the agricultural workers? Who are going to pick our strawberries?"

Just as falling house prices are seen by many as a "corrective" to an unrealistically inflated market, Lang argues that rising food prices may be an overdue - if painful - reflection of the true cost of our food. Britain may have to learn to produce more and consume less, and pay more for the privilege.

Back in Peterhead, Jim Wall is preparing the children's tea.

On the menu this evening: grapes, yoghurts, and chicken sandwiches. The boys have theirs on healthy "seedy bread", but for the two younger girls, tonight, it's the cheaper, white sliced bread. Tomorrow, it will be their turn.

    Families struggling as bills begin to bite, G, 29.5.2008, http://www.guardian.co.uk/environment/2008/may/29/food.householdbills

Global food crisis

Soaring cost of oil

felt at the checkout

FAQ: Rising prices

Thursday May 29 2008
The Guardian
Felicity Lawrence
This article appeared in the Guardian
on Thursday May 29 2008 on p12 of the UK news section.
It was last updated at 00:15 on May 29 2008.

What has happened to food prices in the UK?

Official figures from the Office for National Statistics are that annual inflation in food was 7.2% in April, roughly double inflation overall.

Certain types of food have gone up much faster than others - milk, cheese and eggs up 15.7%, fats up 15.8%, meat 4.1% and bread and cereals 8.5%, compared with last year's ONS figures. These foods are affected by soaring commodity prices for grains.

Our food systems are now heavily dependent on oil, for production and distribution. Much of current food inflation is related to dramatic rises in the price of oil. Much higher figures for food inflation have been given by the tabloid press, based on data from internet shopping comparison website Mysupermarket.co.uk, which has put food inflation at 15% or more, but its data looks at a far narrower range of foods and shops. Much lower figures are being put out by the big retailers, who say they are helping to protect British consumers from inflationary pressures by not passing them on. The British Retail Consortium gives a figure of 4.7% for food inflation in its Shop Price Index.
 

Why are the figures for food inflation so different? Who is right?

The ONS weights its figures according to average household spending on food, which is currently about 11% of income. The figures may not reflect the experience of those in lower income groups: pensioners and the poorest fifth of the UK population spend nearer 30% of income on food. The BRC figure of 4.7% includes alcohol and tobacco, which are not in the ONS figures. These are discretionary purchases and ones on which supermarkets often give big discounts to attract customers. The Grocer, trade magazine for the industry, tracks a basket of goods from the supermarkets. Its figure for food inflation including drinks in supermarkets is 6%.

What is the government doing about it?

Downing Street is monitoring food prices closely and while it expects them to come down from current highs it fears they will still remain higher than previously. It is also concerned about an Ernst and Young report last week highlighting how much more vulnerable Britain is than the US or other European countries because it produces far less of its own food - down to 58% of its needs today from 80% just 15 years ago. Insiders say there is a tussle going on between Whitehall departments, with some arguing that the UK needs to look at ways of increasing its production again and others maintaining the answer is still in more open world trade.

What are supermarkets doing?

Big supermarkets and farmers' groups argue that current food price rises are largely beyond their control as they reflect the global economy. They also say they have helped keep food inflation lower than it would otherwise be by cutting their margins and reducing prices. Leading suppliers concur that supermarkets have put pressure on them not to pass on their rising costs.

Are rising food prices good news for British farmers?

Arable farmers are better off, although the rise in commodity prices does not translate directly into greater profits: their production costs have risen dramatically too because of the price of oil and gas needed for fertilisers, transport and machinery. Livestock farmers are struggling: about 60% of the cost of production of intensively reared pigs or poultry is the cost of animal feed, and that has soared.

    Soaring cost of oil felt at the checkout, G, 29.5.2008, http://www.guardian.co.uk/environment/2008/may/29/food.householdbills1

Oil costs up,

house prices down - good news

The market has delivered in months
what the Treasury failed to force on us,
a better husbanding of scarce resources

May 25, 2008
From The Sunday Times
Simon Jenkins

The price of oil is soaring worldwide, a “crisis” that has dominated the past week’s front pages. Meanwhile, the price of housing is plummeting, a crisis that dominated the previous week’s front pages and in terms no less apocalyptic. Prices rising, prices falling, all bad news ... I wonder what good news would look like.

The government has been pressed for years to increase the cost of petrol and other fuels to cut consumption and help to save life on Earth. That is precisely what the market is now doing. Yet rather than applaud, ministers feel they must do the opposite and make petrol cheaper. The AA and others demand that the autumn increase in petrol duty should be postponed and millions of bank holiday motorists are told that Gordon Brown “feels your hurt”.

At the same time Brown is promising to do something about the converse “housing crisis”. Here there is only one thing he can do and that is to make houses more expensive by stoking demand. Having behaved for years as if rising houses prices were a disaster, he now does a U-turn and behaves as if falling ones were the very devil. He wants to “ease young people onto the housing ladder”, thus increasing demand and making houses more expensive.

Amazing things are happening to prices round the world, largely as a result of a long period of sustained growth produced by ever freer trade. The price of wheat, corn and other food has been rising fast. The price of travel has been plummeting. Live entertainment and domestic labour have become more expensive while electronic gadgets are astonishingly cheap. Gold is more costly than ever.

The truth is that 99% of the population has no clue what these phenomena mean. It treats prices like earthquakes or tsunamis, nature acting beyond the power of mankind. Last year we were cruising along. Good old Brown, we said, good old Bank of England and Alan Greenspan and the world economy and western democracy. We can’t put a foot wrong.

Then, bang, stuff happens. The screen is covered in static and none of the knobs work. A British public that can do algebraic equations, draw an amoeba and recite On Westminster Bridge is illiterate when it comes to economics. The conceptual basis on which modern democracy is constructed remains unknown territory, barely taught in any school. This ignorance extends to the top. We let ministers take economic decisions off the tops of their heads with no idea of consequence or impact. Imagine our letting them fly jumbo jets or perform heart surgery.

The boom/bust in oil and house prices is, quite simply, good news, whatever the tangential pain. It shows that the good ship Gaia, planet Earth, is traumatising its passengers into husbanding its scarce resources. Above all they must ration living space, for which the West has been appallingly greedy, and carbon fuel, of which the same is true.

The fall in house prices follows a classic inflationary bubble induced by cheap borrowing. Prices soared not (as the government claimed) because of an excess of “need”. Need is not an economic concept, only demand. Prices soared because the lowest interest rates in a generation made houses, however expensive on paper, cheap to buy. Millions who could not realistically afford to borrow did so and prices soared in consequence of their unsustainable debts. The bubble duly burst. House sales in Britain are down on a year ago by some 35%, prices by almost 4%.

The market has delivered in a matter of months what the Treasury and its pundit, Kate Barker, claimed that only flooding the market with “new land” could achieve, a surplus of housing supply for both sale and rent, signified by a fall in price. With no loss of green belt and no “eco-towns”, house-buying has been brought within the range of millions of new buyers, albeit under a more disciplined mortgage regime. Only builders and estate agents get hurt.

This would be good news all round were it not for the consequent crash in banking confidence. The banking system, inflated by British homeowning fetishism and dodgy American loans, has experienced a trauma. This is because a secondary failure of regulation impeded inter-bank lending and caused the bizarre collapse and extravagant rescue of Northern Rock.

The worship of central bankers over the past decade has been shown for what it was, a mere shift of blind faith from one group of fallible tunnel-visionaries to another. They have proved no better defenders of the public interest than their forebears during the great crash of 1929. The sickening spectacle of those responsible walking off with millions of pounds of other people’s money in bonuses has rightly put bankers akin to mafia racketeers in public esteem.

The same laws of economics apply to the price of oil – and, for that matter, wheat. These are scarce resources. The fact that more people want them is why they are more expensive. When a Labour MP last week cried that petrol should be made cheaper by the government “because it is a necessity”, he might as well have said two plus two equals five. When will these fools be sent for compulsory re-education before they do more damage?

Average family spending on petrol is expected to increase by £250 this year and energy bills by another £400. That should concentrate minds. With oil being consumed in most of Asia still at America’s 1905 level per head, the market has cried halt to see where the world is really going. Crude oil traded at $10 a barrel 10 years ago. It is $135 today, with predictions (albeit by speculators) that it may go as high as $200 – or down to $60.

At this point in any trade cycle, economics tells us that market imperfection leads to speculative overshoot. Crude oil sits idle in Asian ports and outside refineries, waiting to benefit from further price hikes, in much the same way as dodgy mortgages are traded at the fringes of a bank’s balance sheet. Prices eventually fall for no other reason than that speculation has driven them too far up. Oil withheld from sale is released and price brings demand and supply back towards equilibrium.

As with houses, these wild gyrations in price are partly the result of government intervention. Britain’s political encouragement of cheap housing and cheap travel in the 1990s and 2000s stimulated demand, flooded the market with buyers and duly drove up price.

The Major and Blair governments promoted sprawling car-reliant estates on the land-lavish pattern of Milton Keynes. A network of distribution warehouses and fleets of lightly taxed (half-empty) lorries promoted a carbon-rich retail sector. Cheap air fares induced families to take two or three foreign holidays a year, holidays that BAA and BA sold to gullible ministers as an “urgent need”.

This was all stupid, yet it continues. Hazel Blears’s latest capitulation to the construction lobby has her building another generation of gas-guzzling rural new towns rather than insist on the “densification” of existing settlements. Ruth Kelly wants to continue the explosion in leisure travel by indulging it with new airports and untaxed fuel. She dare not admit that travel must one day revert to being a luxury.

A lesson here is offered by the recent experience of wheat prices, caused by a price hysteria in March. The French demanded that the European Union throw more subsidy at their farmers – confirming my view that a French economist is a contradiction in terms. As it is, the market has proved self-correcting. Stocks have been released, marginal land has entered use and price has fallen (by as much as a third in two months). We will doubtless soon hear of another “crisis” as plummeting wheat prices impoverish African farmers.

It is idiotic to wail crisis whenever a boom is inflating or whenever it is bursting. Price always tends to bring supply and demand into equilibrium, if left free to do so within an intelligent regulatory framework. Subtleties and complications surround this principle but, for starters, “That is all you know, and all ye need to know,” said the poet.

You can abuse the market, distort it, subsidise it or tax it, but it is rooted in human nature and will prove your master in the end. Far better to add economics to the core curriculum in every school and make it a qualification for any who would dare to embark on the profession of government.

Oil costs up, house prices down - good news, STs, 25.5.2008, http://www.timesonline.co.uk/tol/comment/columnists/simon_jenkins/article3998908.ece

1.45pm BST update

Government under pressure

over fuel price rises

Thursday May 22 2008
Guardian.co.uk
Allegra Stratton
This article was first published on guardian.co.uk
on Thursday May 22 2008.
It was last updated at 13:54 on May 22 2008.

The government today came under renewed pressure to take action over the cost of fuel as the average price of a litre of unleaded petrol reached 113.67p.

The Automobile Association compared the price increase to that seen in the aftermath of Hurricane Katrina, saying it would mean Britain's drivers paying £110m more this bank holiday than last year.

Motorists driving diesel vehicles had already experienced their highest month on month increase this century, the organisation said.

Its price report showed that this month's cost rise had been the second highest since 2000 - £3.38 to the cost of filling a typical 50-litre diesel fuel tank – with much of the increase coming in the past 10 days following an 11% rise in wholesale prices.

"The price rises in recent days were of a magnitude only exceeded in the aftermath of Hurricane Katrina, when the price of petrol rose almost 3.5 pence in a week," Edmund King, the AA president, said.

"With many UK families embarking on their holidays next week, the timing could hardly be worse."

Lindsay Hoyle, the Labour MP for Chorley, called on the government to abandon the method by which fuel prices are raised in line with inflation.

The call comes prior to an October decision on whether to raise fuel duty by 2p.

Hoyle told the BBC's World at One programme that "people want to see the fuel duty escalator completely abandoned".

"Rather than wait until the autumn, we need to tell people that it will be abandoned now," he added, calling on the government to toughen up on the profits made by oil companies.

Chris Hunter, of the road hauliers' lobby group Transaction 2007, said it had written to the government demanding help for hauliers, some of whom had been forced out of business by increased prices.

"We want some kind of rebate. A large amount of fuel prices is actually excise duty going to the government," he added. "We want some of that paid back."

Transaction 2007 will hold a protest in central London next week.

Stewart Hosie, the MP for Dundee East, also urged the government to reconsider its stance on fuel pricing.

Hosie said that in Benbecula, on the western isles of the Outer Hebrides, the cost of diesel had reached £1.42 a litre and petrol £1.26.

He added that he would be seeking to introduce an amendment to the finance bill currently going through parliament, proposing the creation of an independent fuel duty regulator allowing higher oil prices to trigger lower fuel duties.

"There is a question as to whether the fuel measures in this year's budget, including the measure that fuel duty will rise 0.5p per litre above inflation annually from 2010 - are now appropriate," he added.

"Right now, people are needing help. If the barrel price continues to rise, the government would be extremely foolish indeed not to consider postponing further October's 2p rise in fuel duty."

The Conservatives said they were "looking closely at the fuel tax issue" but it was "too early to say if the 2p increase in fuel duty should be delayed – we don't know what the oil price will be in October".

London remains the most expensive region in which to buy petrol, 1.7p more expensive than the cheapest, Yorkshire and Humberside.

The AA said the Grangemouth dispute and the panic buying associated with it had little effect on the average price of petrol in Scotland, although diesel was at least a penny more costly than in northern English regions.

    Government under pressure over fuel price rises, G, 22.5.2008, http://www.guardian.co.uk/uk/2008/may/22/transport.transport

The spectre of 'stagflation'

It was the curse of the 1970s
– rampant inflation and stagnant economic growth.
Now there are fears
that Britain could once again
be haunted by the spectre of 'stagflation'

Wednesday, 14 May 2008
The Independent
By Sean O'Grady, Economics Editor


A combination of stagnant output and high inflation not seen for decades is set to haunt policy makers for months if not years to come.

Even with the credit crunch, the housing market at its lowest ebb in 30 years, high street sales at their most miserable in half a decade, and industry reporting a collapse in orders, prices are still rising – and at an ever-faster rate. The Chancellor, Alistair Darling, did not admit as much in his mini-Budget yesterday, but his injection of £2.7bn of spending power into the economy may be designed to prevent a catastrophic collapse in demand as Bank of England policy makers find their room for manoeuvre to reduce interest rates constrained by record inflation.

In April, we discovered yesterday, consumer price inflation hit 3 per cent, well above the official target rate of 2 per cent, and a whisker away from the level at which the Governor of the Bank of England, Mervyn King, is obliged to write an open letter to the Chancellor of the Exchequer explaining the failure of policy.

The jump, from 2.5 per cent last month, is the most dramatic since 2002, and the rise in the cost of living is unusually broadly based. The retail price index, which includes housing costs, rose to 4 per cent, up from 3.8 per cent the previous month. Increases in the sort of basic items that families have to buy were the highest. Food is 7.2 per cent up on a year ago, with analysts expecting 10 per cent inflation in a few months. And it's the essentials that are up the most – bread by 13 per cent, butter by 32. 2 per cent and eggs by a third. The increase in food prices is the fastest since 1990.

The twin effects of the credit crunch and the commodities crunch have sucked purchasing power out of the economy while increasing the cost of housing, food, energy and almost everything else. Global food prices are up 40 per cent in a year and oil is up by 70 per cent – a barrel costs four times what it did in 2004. With the American property market still in freefall and the sub-prime crisis as acute as ever, little seems to ease the credit crunch. Propelled ever higher by an insatiable demand from China and other fast-growing emerging economies there also seems little end in sight to the rise in commodity prices.

The 15 per cent decline in the value of sterling – as steep as when the pound was forced out of the ERM on "Black Wednesday" in 1992 – has exacerbated inflationary pressures. The fall is hitting living standards, especially for pensioners and the poorest.

Electricity bills are 8.3 per cent higher and gas up 3.7 per cent. Heating oil is a staggering 59.4 per cent more expensive than this time last year. Yesterday British Gas became the latest energy supplier to threaten yet more price rises by the end of the year, having raised its tariffs by 15 per cent in January. Average household gas bills could top £1,000 in 2008. The average price of petrol rose by 1.9p per litre between March and April this year, with diesel up by 4.2p a litre.

During the past few years or so, the Bank of England's Monetary Policy Committee (MPC) would have a simple remedy for such an increase in prices – a rise in interest rates. During the "Great Stability", a decade of generally low inflation, low interest rates and rapidly rising living standards, policy makers could expect to influence the economy relatively easily. Now their task is more difficult, as they are pulled between the need to fight inflation and avoid a slump.

The Bank of England recognised the danger of inflation this time last year, and began a programme of interest-rate rises to rein it in. Then came the credit crunch, the risk of recession, and the plan was abandoned. The fear was of a slump, one that would damage the economy so badly that, if anything, the longer-term danger would be of inflation undershooting the target as demand and confidence collapsed. The need to prevent this happening while tolerating a "temporary spike" in inflation has been the Bank of England's rationale for a series of interest-rate cuts since last autumn. However, after a quarter percentage point cut to 5 per cent in April, the Bank has chosen to keep rates on hold this month. It could mark the end of that plan, and a return to a keener watch on rising prices.

Tellingly, the MPC knew how bad the new inflation figures would be when members met last Thursday. Economists now believe that a rate cut that had been predicted for June will also be cancelled. The Inflation Report, due from the Bank today, will tell us more about how they see the likely "path" of rates over the next year or so.

Matters are made more complicated because the Bank's "policy rate" is almost irrelevant when market interest rates remain stubbornly high, thanks to the credit crunch. Almost as fast as the Bank of England has been reducing rates the commercial lenders have been raising them and putting up their fees for arranging a mortgage, cutting the flow of funds into the housing market by a half.

Attempts to "inject liquidity" into the banks by swapping government securities for unwanted mortgage-backed securities have been only partially successful. At least for now, the Bank seems more concerned about inflation. Even so, there is little chance of the MPC raising rates to address this danger. Mr King said as recently as two weeks ago that "it doesn't make sense to raise interest rates at this stage to induce a recession to keep inflation below 3 per cent".

Yet a recession may be just what Mr King gets – no matter what he and his colleagues do. The British economy is growing at its slowest rate for three years, with expansion in the first quarter of this year just 0.4 per cent, compared with a rise of 0.6 per cent in the previous quarter. Bank officials have admitted that its forecast for growth is consistent with the possibility of a brief, shallow recession, that is negative growth. Few now expect the Government's official estimate of growth in a 1.75 per cent to 2.25 per cent range to be achieved. Most independent observers put the growth rate much lower, some as low as 1 per cent this year. Even the bottom range of the Treasury's own projection would be consistent with a quarter or two of virtually no growth, as close to a recession as makes no difference. Some sectors are already in, or close to, recession.

Most ominously, this week saw a sharp rise in the number of "forced sales", consistent with last week's poor news on repossessions. The accidental leak by the Housing minister, Caroline Flint, of an expectation of a 5 to 10 per cent decline in house prices looks optimistic by some standards.

This time next year, on the conventional four-year cycle, the country should be in the middle of a general election campaign. Gordon Brown may find himself haunted not only by the spectre of stagflation, but by the infinitely more terrifying spectre of humiliation and defeat.

    The spectre of 'stagflation', I, 14.5.2008, http://www.independent.co.uk/news/business/news/the-spectre-of-stagflation-827745.html

King warns

the 'nice decade is behind us'

May 14, 2008
From Times Online
Grainne Gilmore,
Economics Correspondent

Mervyn King, Governor of the Bank of England, warned today that inflation could top 4 per cent this year as the economic growth slows severely.

Mr King said the Monetary Policy Committee (MPC) was facing its most difficult challenge as it tried to navigate its way through the delicate balancing act of the slowing economy and inflationary pressures.

He said: "For the time being at least the nice decade is behind us."

He also sounded gloomy about the prospects for the housing market.

Speaking at a press conference this morning, he said: "We have already seen house prices starting to fall and they are likely to fall further but I don’t think anyone can honestly know how much.

"We have already seen quite a significant adjustment in the house price to earnings ratio...I don’t think anyone can be at all confident as to what will happen," he said.

While the Bank indicated in its Financial Stability report several weeks ago that the worst of the banking credit crunch may be over, Mr King said that the pain was only starting for households.

He said: “In some ways we’re only beginning to see the difficulties that have faced banks feed through now to conditions in the credit markets for companies and for households.”

The Bank's central projections range take account of economic circumstances which may not change and also estimates what could happen if the economic climate improves or deteriorates.

In its latest quarterly inflation report, the Bank said that if interest rates were cut this year there was less of a risk that economic growth would fall sharply.

However, If rates remain at the current 5 per cent for the remainder of 2008 to curb inflation, as economists now expect, the risk of economic stagnation increases.

The Bank of England said 5 per cent rates risked GDP growth falling to zero at the end of this year and into next.

Compared with the Bank's report in February, its forecasts for inflation have changed markedly, showing a sharper and more prolonged rise. At worst, inflation could rise to almost 5 per cent before the end of this year.

The Governor must write a letter to Chancellor Alistair Darling each time inflation rises above 3 per cent. The Bank says that there is a chance that Mr King could be forced to write a number of letters of explanation this year to the Chancellor.

The gloomy forecast comes just a day after official figures revealed that inflation rose at the fastest pace in nearly six years last month on the back of soaring fuel prices.

Inflation on the Consumer Prices Index (CPI) jumped by 0.5 per cent in April, taking the annual rate of inflation to 3 per cent, well above the Bank of England target of 2 per cent.

The Bank's Monetary Policy Committee would have seen the quarterly inflation report as well as yesterday's inflation figures before making its decision to hold rates at 5 per cent last week.

Today's depressing forecast is likely to further dent hopes of a rate cut next month. Economists now forecast that the bank rate may remain at 5 per cent for the rest of the year.

However, there was a glimmer of good news for the Bank today as it seems that inflationary pressures are not yet fully feeding through to wages.

While the annual page of earnings growth rose to 4 per cent in the 3 months to March, up from 3.7 per cent in the three months to February, underlying earnings growth, excluding bonuses, was stable at 3.8 per cent.

Public sector earnings were also higher in March at 3.8 per cent, up from 3.7 per cent, while salaries in the manufacturing sector rose to 3.8 per cent, up from 3.7 per cent.

Howard Archer, of Global Insight, the economic consultancy, said: "While the earnings data are not that worrying overall for the Bank of England, they do little to revive dwindling hopes that interest rates will be cut again in the near term."

    King warns the 'nice decade is behind us', Ts Online, 14.5.2008, http://business.timesonline.co.uk/tol/business/economics/article3930094.ece

Repossession claims rise by 16%

Friday May 9 2008
Guardian.co.uk
Hilary Osborne
This article was first published
on guardian.co.uk on Friday May 09 2008.
It was last updated at 15:08 on May 09 2008.

The number of homeowners in England and Wales threatened with repossession has risen by 16% over the past year, official figures showed today.

The Ministry of Justice said 38,688 mortgage possession claims were made in the first quarter of the year, 7% more than in the last quarter of 2007 and 16% higher than in the same period last year.

Mortgage possession orders were up 17% year-on-year, and 7% higher than the last quarter, at 27,530.

The claims are made by mortgage lenders and local authorities in England and Wales when a homeowner falls behind on payments for a property.

The action is followed by a court order by a judge, which entitles the claimant to apply for a warrant for possession.

However, many of the orders will not end in repossession as an alternative arrangement can often be reached by the borrower and lender, and possession proceedings will be stopped.

In the first quarter of 2008, 47% of orders granted were suspended, allowing the borrower time to catch up with mortgage repayments and avoid repossession.

Commentators are expecting a sharp rise in the number of repossessions this year as higher living costs put a squeeze on household budgets. Higher mortgage costs are also set to hit around 1.4 million borrowers coming to the end of cheap fixed-rate deals, which could push some into financial difficulties.

As a result, the Council of Mortgage Lenders has suggested repossession figures are likely to jump from 27,100 last year to 45,000 in 2008.

It will not publish its next set of figures until early August, but it has said repossessions are running in line with its expectations.

Gloomy outlook

Mel Mitchley, director of industry relations at credit reference agency Callcredit, said the repossession figures were part of a wider picture of gloom for borrowers.

"Along with the rise in the number of repossessions reported today, our own data shows a 6% rise in county court judgments issued in quarter one of 2008 compared to quarter four of 2007," she said.

"The rising cost of living is clearly hitting home and consumers are becoming increasingly concerned about their financial commitments. At Callcredit we've seen a 20% rise in the number of consumers checking their credit report in a bid to better manage their finances."

Howard Archer, chief UK economist at Global Insight, said he expected the situation to deteriorate "significantly further".

"The financial pressure on many home owners is increasing, and it seems certain that repossessions will trend up appreciably over the coming months, particularly if the economy suffers an extended marked slowdown and unemployment starts rising, which seems likely," he warned.

Later today the government will unveil a package of measures to help homeowners struggling with mortgage payments.

The initiatives will include an extra £9m over three years to the Citizens Advice Bureau to expand its debt advice service; an expansion of free legal representation at county courts in England for people at risk of repossession; and strengthening the national housing advice service by training 1,000 staff in housing law and financial regulations.

The housing minister, Caroline Flint, said: "We know that some borrowers are concerned about their mortgages as a result of the global credit crunch.

"Most lenders are now passing on interest rate cuts and we want to see the rest follow as soon as possible. But for the minority of owners who may need support and advice now, we want to ensure it is there for them in the right place and at the right time."

Repossession claims rise by 16%, G, 9.5.2008,
http://www.guardian.co.uk/money/2008/may/09/debt.property