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2009-01-05 01:04:45| Guardian Unlimited Business - more business news
Normally around this time you wish everyone a happy new year and think of reasons to be cheerful. But that is a tough one given that the economy in 2009 is facing its worst year since the second world war.While we are off the map as far as where we are going, we can be confident, unfortunately, that a million people are going to lose their jobs. A million.The economy began to turn down in earnest last year amid collapsing house prices and banks but this year is going to be a whole lot worse as the credit crunch exacerbates and gives way to a deep recession and lengthening dole queues.We are in uncharted territory because we have never had such a credit crisis in the middle of a recession. Usually recessions are caused by a leap in oil prices or a jump in interest rates but this time is not the same at all so we don't know how bad it is going to get. Unemployment rose from 1.6 million to almost 1.9 million between January of last year and October - the latest month for which there is data available. It is likely that when the December figures are released in February, they will show a total of 2 million unemployed. Many experts think that will rise to 3 million in the current recession.After all, it did in the recessions of the early 1990s and 1980s so there is no reason to think that won't happen this time. Friday's manufacturing survey from the CIPS showed employment in the sector falling at its fastest pace in the report's 17-year history.It is anyone's guess how long this recession will last but, given the high levels of household and financial sector debt, it could last longer than usual. We have already had two quarters of contraction - the third quarter of 2007 saw the economy shrink by 0.6% and the fourth quarter will doubtless show an even bigger fall when the first estimate is released this month, confirming what we already know - that we meet at least the technical definition of a recession as two consecutive quarters of contraction. British recessions of the postwar period have typically seen five consecutive quarters of contraction. So, on an optimistic view, we could already be half way through this one. But you shouldn't bet on it. Many economists are pencilling in a contraction of 2-2.5% for 2009 as a whole - twice what the chancellor, Alistair Darling, forecast in November's pre-budget report.There is only one year in the postwar period that can match that - 1980 when the economy shrank by 2.1%. So we could easily be entering the worst year since records began in 1948.And we could well suffer more than five quarters of loss of output, especially with Barclays' chief executive John Varley warning that bank lending may not return to normal for another two years.Free-flowing credit Modern economies - especially Britain's - depend on credit flowing freely through the economy and that is still not happening more than a year after the credit markets froze in August 2007 and a month later brought down Northern Rock.So the question is, what on earth can be done about it?The good thing is that the Bank of England, prompted by monetary policy committee member David Blanchflower, has woken up to how bad things are. Between October and December it cut interest rates sharply to a joint, all-time low of 2% and is almost certain to cut them again this week, probably to 1%. Many analysts, who have also finally woken up to how bad things are, expect rates to be cut to zero or thereabouts in the next couple of months. The Bank and Treasury are also working on non-conventional measures to reflate the economy, known as "quantitative easing". This is born out of a concern that reducing the cost of credit is all well and good but it may not make much difference if that credit is not available.This is likely to involve the purchases of instruments such as government or corporate bonds from domestic holders of those bonds, thereby pouring extra cash into the economy.The Treasury, which is panicking about a so-called "liquidity trap", is leading the way on this new kind of policy, in addition to Darling's tax cuts in the pre-budget report.All of which means that policymakers are throwing the kitchen sink at this recession in order to bring the economy back from the brink. They may also have to take further actions to fully nationalise several banks if lending remains frozen.The budget deficit and national debt are blowing out as Darling risks everything to stop Armageddon. The government may well have to launch a US-style fiscal stimulus worth, say, £100bn to try to prevent a depression. It is already urgently considering measures to stop unemployment going through the roof.There will be a hangover in the future as the deficit and national debt have to be brought back under control but in the short term that is not the issue.One good thing as far as hard-pressed consumers are concerned is the fall in the price of oil. That has brought petrol prices down and will also eventually be reflected in lower gas and electricity bills, putting some money back in people's pockets.Prices of many goods in shops are also being slashed as shops try desperately to persuade us to part with our cash. The effects of falling oil and goods prices threaten to push us into deflation this year - something else policymakers are desperate to avoid, knowing how harmful the Japanese deflation of the 1990s was.Firms, particularly exporters, are in theory being helped by the big fall in the pound's value over the past year. The problem is, though, that world demand is so flat it may not help them increase sales volumes. But it will, at least, help margins. Taken together, there is a huge easing of policy and monetary conditions to offset the effects of the credit crunch. The playing out of these two opposing forces will determine to a large extent the point at which the economy begins to pull out of this recession.First-time buyers There is another uncertainty and that is the housing market, where prices that are in freefall could have a long way further to fall. A few new year estimates from bodies with a vested interest say we are close to the bottom. That seems very unlikely. Prices have fallen 20% from the peak in the autumn of 2007. Add in inflation at about 6% over that period and you have a real terms correction of a quarter.True, interest rates are now very low. But so are mortgage approvals - at a record low in fact. First-time buyers can't get loans and don't want them anyway because house prices are falling.A year ago I forecast that house prices would fall by a third in nominal terms in this downturn. That would mean roughly another 15% from where we are now. That is now looking conservative - especially as they were so over-valued at the beginning of the fall and because house prices tend to overshoot on the way down as well as on the way up.That is, of course, good news for all those who have been unable to get a foot on the property ladder over the last decade or more. And it is also good because it teaches people that house prices are not a one-way bet - something that far too many people had forgotten in recent times.ashley.seager@guardian.co.ukEconomicsHouse pricesRecessionPropertyUnemployment and employment dataManufacturing sectorBankingMarket turmoilguardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
2009-01-05 01:03:32| Guardian Unlimited Business - more business news
The government is considering raising the school-leaving age to 18 immediately, as a way of combating the huge rise in unemployment, particularly among the young, that it expects to see this year.The proposal tops a list that Gordon Brown's advisers have put together ahead of a jobs summit they will hold next Monday, sources have told the Guardian.There are also proposals to accelerate the filling of existing vacancies at local authorities and to offer employers a national insurance "holiday" for any new workers they take on.The government has just brought in legislation that would ensure that all 16- and 17-year-olds remain in school, training or an apprenticeship until they are 18, but that only applies to children who turn 11 this year, and so does not effectively start for another five years.With unemployment already having risen by a quarter of a million and with many experts expecting it to jump by another 1 million or more over the next year, ministers are looking at all possible solutions.The prime minister talked at the weekend of further investment in infrastructure and "green" jobs, but there is concern in Whitehall that this would not come quickly enough to prevent a big rise in joblessness. The British Chambers of Commerce warned at the weekend that one in 10 British workers could lose their jobs in the current recession. Research also shows that Britain has one of the biggest youth unemployment problems of any country in the world. Latest figures show that of the 137,000 rise in unemployment in the three months to October, 55,000, or 40%, were in the 18-24 age bracket. While the country's overall jobless rate is currently 6%, among 18-24-year-olds it is 14% and among 16-17-year-olds it is 26%."As unemployment rises the cost of keeping people in education or training falls. So doing that and having more teachers to teach them makes sense," said one source. "You will have some 17-year-olds who will be cross at having to stay on, but that is better for them than being on the dole."In 1999, young people accounted for around a fifth of all unemployed, but by 2008 that had risen to almost 30%.A spokeswoman for the Department for Children, Schools and Families said she was not aware of any plans to accelerate the introduction of the raising of the "participation" age in education or training that was recently passed into legislation.The last time the school leaving age was raised, to 16, was in 1972 under Margaret Thatcher, then education secretary. In 2006, Alan Johnson proposed the recent legislation to raise the school and training age to 17 by 2013 and 18 by 2015.Unemployment in Britain stood at 1.86 million at the end of October, and many experts predict it will rise to around 3 million over the next 12-18 months.14 - 19 educationSchoolsStudentsGordon BrownEducation policyUnemployment and employment dataEconomicsguardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
2009-01-04 01:07:50| Guardian Unlimited Business - more business news
New year is a good moment for bold decisions, and this Thursday Mervyn King, the governor of the Bank of England, is expected to start 2009 as he means to go on: cutting interest rates to their lowest level since the Bank was founded in 1694.Rates have already been reduced from 5% to 2% since the autumn, in an unprecedented onslaught on the worsening recession; but the Bank's nine-member monetary policy committee is widely expected to make another reduction, of perhaps 0.5 percentage points, this week.Few analysts expect King and his colleagues to stop there: Jonathan Loynes of Capital Economics predicts that rates will rapidly be cut to about zero, and remain there throughout 2009, and perhaps 2010 too. George Buckley, chief UK economist at Deutsche Bank, predicts a half-point cut on Thursday, followed by another in February, and a third in March, swiftly bringing rates down to 0.5%. The Observer-New Star interest rate predictor is pointing to a more modest quarter-point cut on Thursday.There have been few pieces of upbeat news to encourage the Bank to hold its fire. On Friday alone, official figures showed the number of new mortgages approved to buy a home dropped to a record low of 27,000 in November; Halifax reported that house prices fell by 2.2% in December, bringing the total decline since the peak in autumn 2007 to 20%; and the Bank's quarterly Credit Conditions survey showed that banks reduced lending to home-owners and small businesses in the fourth quarter of the year, and expect to tighten the taps still further in 2009.Even as recently as the summer, such a rapid-fire round of cuts to boost the economy would have seemed unthinkable, as the MPC fretted that rocketing oil prices would unleash a damaging wage-price spiral, and entrench inflation in the economy. Some members, including the labour market economist David Blanchflower, persistently argued that a sharp rise in unemployment was in the offing, and rates should be cut, but the majority voted for no change, after an initial three reductions, from 5.75% to 5%, when the credit crunch began in late 2007. Now, the MPC believes inflation will fall sharply, from 4.1% in November on the consumer price index measure targeted by the Bank, and plunge down through the 2% target in the first half of this year, opening the way for borrowing costs to be slashed.In fact, in his letter to the chancellor last month, explaining why inflation had remained more than 1% above the government's target for three months, King warned that he might be writing again, in 2009, to apologise that it had fallen more than 1% below the target. Deflation, not inflation, is now the primary concern of the Bank and the Treasury.The MPC's aggressive rate-cutting has already been reflected in the foreign exchange markets, where the pound fell precipitously against the euro in December, as investors bet that the UK will be particularly badly hit by the downturn.Buckley says there are other concerns driving sterling down, however. "This economy is more vulnerable to the type of downturn we're going to have: one where the housing market is falling, and where we're heavily exposed to the banking sector," he says. "But a more sinister concern is that it's falling because of a worry by foreign investors about the sustainability of government and private-sector debts."In normal times, the inflationary surge that typically follows a sharp currency depreciation would force King and his colleagues to think twice, but with commodity prices now sliding quickly, and demand on the high street falling away, there seems little chance of retailers making inflationary price-rises stick.Alistair Darling's £20bn package of tax cuts and public spending in November's pre-budget report, and the government's bank bail-out, is likely to be followed by a renewed wave of taxpayer-funded rescues over the coming months, as the government unleashes every weapon in its arsenal against the slowdown.With US interest rates now set at 0-0.5%, the Federal Reserve is already buying billions of dollars' worth of mortgage-backed securities, and the "commercial paper" many firms use to meet short-term costs, to keep funds flowing around the economy, and interest rates pegged as low as possible, despite the reluctance of banks to lend. But Bernanke has suggested he could do much more, including buying up US treasury bills. Such measures, known as "quantitative easing", echo the desperate steps taken by the Japanese government and central bank to fight off deflation and drag their economy out of the "lost decade" of the 1990s.Officials at the Bank and the Treasury have already begun to discuss how they might embark on quantitative easing in Britain, once conventional monetary weapons are exhausted. Eventually, this concerted policy onslaught should begin to have some take effect. But Buckley points out that even if the barrage of rate cuts, fiscal stimulus and quantitative easing works, the green shoots of recovery will still be very slow in coming - and the very best Darling and King can hope for is a shorter, shallower recession than there would otherwise have been.For voters at the general election, which must be held by May 2010, that may feel much far too late.Interest ratesBank of Englandguardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
2009-01-02 23:39:15| Young Entrepreneur Forums
Forum: Looking for Capital/Biz Partners Posted By: Gator Post Time: 01-02-2009 at 04:30 PM
2009-01-02 21:53:15| Fool.com Headlines
These stocks are tops in the month of January.
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