Deeper, longer recession raises fears for the recovery
Construction slump has prompted worst drop in output for half a century
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Independent Minds
The recession has been longer and deeper than previously thought, says the Office for National Statistics. Fresh estimates reveal that the British economy endured its sharpest drop in output in more than half a century earlier this year, and that the recession began as early as the second quarter of 2008, some months earlier than had been assumed.
Between January and March the economy shrank by 2.4 per cent rather than the previously thought 1.9 per cent. Those 12 weeks thus witnessed a more severe contraction than occurred in the whole of the recession of the early 1990s.
Given the other downward revisions by the official statisticians, the scale of the present recession can now be viewed in its full historic majesty – the biggest since the early 1930s in terms of the fall in output from peak to trough. At 4.9 per cent it comfortably beats comparable figures for the slumps of the 1970s, early 1980s and early 1990s – at 3.5 per cent, 4.6 per cent and 2.5 per cent respectively.
Around half of the ONS's downward revisions for GDP in the first quarter of 2009 were accounted for by the construction industry. Although only around 6 per cent of the economy, such has been the biblical catastrophe that has overtaken the building and construction firms that they have managed to drag the economy down with them, and by more than City analysts anticipated. General business profitability and investment are also being squeezed.
The focus for policymakers will be less on history, however, and more on what the data tells them about the chances of a sustained recovery. The Bank of England, which must decide soon whether it will end or extend its £125bn programme of quantitative easing, so-called printing money, will take the reports as evidence of an even higher level of excess capacity in the economy, and strengthen the general view that many of the underlying forces in the economy are deflationary – meaning that it could keep monetary policy easy for longer.
Much of the fall in output over the past few months has been attributed to the "inventory recession", but the latest figures hint that the ongoing constriction of bank lending in the economy will continue to make its presence felt even after the "destocking" phase has ended and the economy enjoys a temporary bounce as car production and other output resumes.
Consumer spending will also be restrained by a rise in savings visible in the data, as nervous households eye the jobless numbers and try to pay down debts accumulated during the boom years. On one measure, savings are at a three-decade high. Figures also released by the ONS show that the current account deficit, at £8.5bn in the first quarter, is showing only modest improvements, and the much-awaited boost to the economy from a much-depreciated pound is yet to arrive.
Economists' opinions are starting to diverge more sharply on the shape of recovery, and on future house prices, interest rates and inflation. The Nationwide reported a 0.9 per cent rise in house prices during June, taking the annual rate of decline to 9.3 per cent, gentler than in recent months. While such news is taken as a sign of imminent recovery in the property market by some economists, others dismiss the figures as a symptom merely of pent-up demand from cash buyers being released.
Think of a letter: The recession shapes the experts forecast
Simon Hayes, Barclays: W
We will probably see some sort of "bounce" in the second quarter but the underlying constraint remains the credit crunch. Sluggish consumer spending and weak business investment will eventually reach a floor and the economy will return to growth – though it may be very slow.
Howard Archer, IHS Global Insight: L
Businesses' investment intentions are exceptionally subdued, reflecting deep uncertainties about the future and increased spare capacity. Meanwhile, consumers are under pressure from higher and still rising unemployment, low wage growth and heightened debt levels. Furthermore, demand from key overseas markets remains muted, thereby limiting the beneficial impact of the more competitive pound.
David Page, Investec: U
The economy should resume expansion in the third quarter. As we enter next year we hope to see genuine signs of improvement in consumer activity and business investment that will mark the start of a more genuine period of recovery and avoid a "double dip". Nevertheless, it faces significant headwinds.
Sean O'Grady on economics at independent.co.uk/econoblog
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Pity they couldn't see the recession coming in the first place.
UK services: The services sector remained in deep recession, but there were signs that confidence among companies was improving, while the decline in business activity is slowing, the CBI reported in a quarterly survey.
UK prospects: Hopes that the recession may have bottomed out and that recovery is starting to emerge were boosted by the latest Treasury snapshot of City forecasts. It showed that the average City projection for UK growth in 2010 had risen to 0.5 per cent, from 0.3 per cent a month ago, still a long way short of the Chancellor?s prediction for a 1.25 per cent expansion in 2010.
UK millionaires: The number of millionaires in the UK has more than halved in the past two years to 242,000 as tumbling house prices have wiped an average of 24 per cent off the value of the wealthiest Britons, according to estimates from the Centre for Economic and Business Research.
Eurozone industrial orders: New orders for goods from eurozone factories plunged again in March, falling by 0.8 per cent to stand 26.9 per cent down from levels a year earlier.
German economy: Detailed breakdowns of Germany?s GDP in the first quarter revealed that record slumps in exports and investment were the driving force behind the 3.8 per cent quarterly plunge in Europe?s biggest economy in the period.
French consumption: Consumer spending in France rose by 0.7 per cent in April, beating forecasts for a 0.1 per cent fall, official data showed.
US housing slump: The plunge in house prices continued in March, the latest S&P/Case-Shiller index of property values showed. Prices in ten key American metropolitan areas fell by a further 2.1 per cent in March, leaving them 18.7 per cent down year-on-year. However the pace of decline eased a little from recent record rates.
US consumer confidence: Sentiment among consumers registered its biggest improvement in six years during this month, soaring to its highest level in eight months, according to the latest snapshot from the Conference Board, the private sector research group. Its headline index of confidence climbed to 54.9 for this month, from a revised 40.8 in April.
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Morgan Stanley: A senior trader at the bank in London who cheated seven institutional clients was banned for an unspecified period from working in the City, the third trader at the bank to be outlawed in a fortnight.
Equitable Life: Policyholders have won the right to challenge the Government in the High Court over its failure to compensate more than a million members who lost money when the mutual society was on the brink of collapse in 2000.
Banks: The amount that Britons borrowed through hire purchase agreements soared by 24 per cent to £230 million during March from the same month last year, bucking the trend across the rest of the credit market, according to the Finance and Leasing Association.
Financial complaints: The number of complaints being upheld against financial services companies has soared during the past year, figures show. The Financial Ombudsman Service said that it had found in favour of consumers in 57 per cent of the complaints it investigated in the year to the end of March, higher than the long-term average of between 30 per cent and 40 per cent. The Ombudsman blamed the economic downturn as companies ? conscious of their bottom line ? chose not to investigate claims properly.
Lehman: PricewaterhouseCoopers, the UK administrator for Lehman Brothers, is reported to have declined to sign a code drawn up by Alvarez & Marsal, administrators to the US holding company, to ?provide a framework for multilateral co-operation?. Eight regional administrators signed the code apart from administrators to the key investment banking subsidiaries in the US, Japan and the UK.
Construction & property
Capital & Regional: The property asset manager said that it planned to raise about £50 million of equity for the X-Leisure Unit Trust through an open offer to its existing unitholders in an effort to strengthen the fund?s financial position.
British Property Federation: The industry body called on the Government to use future tax revenues to help to kick-start the construction sector. It said that the UK should introduce a scheme under which money for regeneration could be raised by local councils selling bonds, which would be backed by the increased future tax revenues the regeneration schemes would generate.
THIS JUST POPPED IN Despite a danger of deflation and complaints of tighter credit, the eurozone's main interest rate will probably stay at 1.0 percent when European Central Bank governors meet in Luxembourg.
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Beer: Volumes in the managed pub sector rose 2.8 per cent in April compared with the same month last year as pubs benefited from good Easter trade, improved weather, weak comparables and price promotions, according to figures from Nielsen.
Greencore: The sandwich company, which supplies supermarkets, garage forecourts and airlines, said that operating profit fell by 11.7 per cent to ¤31.4 million (£27.5 million) in the half-year to March 27.
Engineering
ABB: The Swiss-Swedish engineering group plans to eliminate 540 jobs at half a dozen facilities in France, union sources said, adding that the cuts would affect 20 per cent of the company?s French workforce. They said that the plan would become official at a meeting of ABB?s works committee early next week.
Health
Fake drugs: China has been unfairly branded a centre of fake drugs, the country?s drug watchdog said. It blames some overseas companies that source their raw materials through illegal suppliers for the problem. Critics have said that the Chinese pharmaceuticals industry ? although lucrative ? is poorly regulated.
Industrials
Erdemir: Turkey?s biggest steelmaker has secured $550 million (£345 million) and 900 million lira (£363 million) in loans to refinance its debt, the company said yesterday. The loans have maturities of 18 months and 24 months, respectively. Erdemir?s total financial debt was 4.07 billion lira at the end of the first quarter.
Leisure
Camelot: Sales at the company which runs the National Lottery rose 4 per cent to £5.1 billion in the year to March 31. Historically, state-run lotteries have proved resilient to recession and sales have increased despite downturns.
Holidaybreak: The specialist travel company reported widening first-half losses on the back of reduced bookings in its hotel breaks and adventure holiday divisions, but said that it was mitigating the impact through cost cuts. It continued to seek acquisition opportunities, sparking speculation that it could launch an equity fundraising.
Harrah?s Entertainment: The American casino behemoth confirmed the appointment of Mitch Garber, the former chief executive of PartyGaming, as head of a new European interactive gaming business.
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Pop singer Charlotte Church's former boyfriend Kyle Johnson has been remanded in custody charged with intending to supply Class A drugs with a street value of £10 million. Skip related content
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JD Wetherspoon: Tim Martin, chairman and founder of the discount pub operator, played down suggestions that it might issue new equity to pay down debt, saying that it planned to generate sufficient cashflow to get to ?a position where a rights issue isn?t necessary?.
Media
Broadcast advertising: British broadcasters will not be allowed to increase the amount of advertising on television before a second review in 2010, Ofcom, the media regulator, said. Ofcom said that it would assess the issue again next year when the switchover from analogue to digital TV was closer to completion.
Music: European anti-trust regulators have told the music industry to change licenses that restrict online music stores such as iTunes from offering the same songs for sale across Europe. In Europe, music rights are sold separately in each country, which has prevented Apple?s iTunes from setting up a single store to service all of Europe.
Formation Group: The talent agency that represents the Britain?s Got Talent judges Simon Cowell and Piers Morgan and its presenters Ant and Dec, said that it was in exclusive talks with Gresham, a mid-market private equity specialist, to gain backing for a management buyout of parts of the company.
Natural resources
Shell: Linda Cook, the head of the energy group?s gas business and once a contender for the top job, has resigned. She is the first boardroom casualty at the hands of Peter Voser, the Anglo-Dutch group?s new chief executive.
TNK-BP: A second name has been thrown into the ring as a possible chief executive of TNK-BP, raising fears of a fresh battle between rival shareholders for control of the Anglo-Russian oil company. A group of four Russian billionaires could put forward Maxim Barsky as a rival to BP?s chosen candidate Pavel Skitovich.
Rio Tinto: The mining group has agreed to price cuts averaging 37 per cent with Nippon Steel, a large customer. The long-awaited deal ? the first in the steel industry this year ? sets a benchmark for negotiations between other ore producers and steelmakers and could signal a slump in iron ore contract prices.
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The existence of a will, drafted by Jackson in 2002, has emerged as his parents swiftly moved to take control of his assets in court.
The Wall Street Journal reported that Jackson?s former lawyer, John Branca, wrote the will and he could file it to the probate court this week. Mr Branca is named as an executor, as is the music executive John McClain.
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Clarks: The privately owned shoe firm reported a 15.6 per cent rise in annual profits for the year to January 31. Clarks, which has about 400 stores and employs 11,350 people in the UK, is looking to take advantage of the ?relative disarray? of its competitors to increase its market share, it said.
Albemarle & Bond: The pawnbroker expects to ?significantly? exceed its forecasts for the 12 months to June 30 after the higher price of gold boosted trade in recent months.
Support Services
Homeserve: The household repair services group is to buy SFG, the French electrical appliance warranty provider, from April Group for £24 million. SFG has its headquarters in Aix-En-Provence, has 55 employees and runs a national network of sub-contract appliance engineers.
PricewaterhouseCoopers (PwC): The UK?s largest professional services group has hired Ashley Unwin, a former executive at Terra Firma, the private equity firm, to run PwC?s UK consulting division, one of its fastest-growing units.
Technology
Facebook: A Russian internet investment company will pay $200 million (£125 million) for a 2 per cent stake in Facebook in a deal that values the social networking group at $10 billion. Digital Sky Technologies, which is controlled by Yuri Milner, the Russian internet entrepreneur, also said that it would offer to buy at least $100 million of Facebook ordinary shares from existing shareholders.
Nikon: The Japanese camera maker is to cut 1,000 jobs to try to stem losses this year. The company will cut 800 non-regular employees ? such as contract and part-time workers ? from its domestic manufacturing workforce of 2,900 by March 2010 and another 200 from its marketing and servicing staff in Japan and overseas.
OpenX: The technology start-up ? run by the British-born ex-Yahoo! executive Tim Cadogan ? has raised another $10 million (£6.27 million) in venture capital funding. The company delivers online advertising to web publishers, a market dominated by Google, Microsoft and Yahoo!.
Telecoms
Vodafone: The telecoms company has raised the prospect of its joining the tax exodus from Britain after demanding a ?dialogue with the Government? on the subject.
BT: The company that pioneered flexible working practices has ordered some homeworkers back to the office as it seeks to turn around its failing IT services unit. This month, BT reported a pre-tax loss of £134 million for the year to March 31, largely because of losses at its global services division that provides IT and telecoms services to companies.
Transport
Virgin Atlantic: The airline has reported a sharp rise in profits in the year to the end of February to £68.4 million, nearly double the £34.8 million seen in the previous year. It said that results had been helped by a rise in premium economy passengers.
Utilities
Econcern: A court has approved procedures to protect the green energy company ? said to be the biggest of its kind in the Netherlands ? from bankruptcy, it said. The new status granted by the court will temporarily shield Econcern from creditors while it tries to find alternative ways of repaying them. Econcern ? created in 1984 to develop projects in wind, solar and bio-energy ? employs about 1,200 people in 19 countries.
THIS JUST POPPED IN What is recession no money, or no money and no food????No money for education no money for tube, smoking, pot, eggs, beer, Scots, hey there you are a goner on Whiskey BA work free. Oil down, Sausages up, Whores begging. Police beating them or betting on them, Horse flue, And Okay Cell Phone. My cell fell down when I buried my friend; I remembered and told his bothers if we could have the second look at who killed him, Like Micheal. He called to find if the cell was buried Came back the reply, "Why cannot you allow us to give the proper account of our deeds in the hell?? The live brother is in the hospital broken and is praying?
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