Depression Following Recession 
Figures from the National Institute for Economic and Social Research (NIESR) show that output has fallen from 0.4 per cent to 0.3 per cent in the three months to the end of November and that even though the recession is over, the period of depression is likely to continue.

The think tank’s estimate comes after figures from the Office for National Statistics (ONS) showed industrial output to have fallen by 0.7 percent in October, raising concerns that the country may be sliding into recession.

Most economists believe that the UK may be heading for at least one quarter of contracting economic output, if not an outright recession, which is commonly defined as two consecutive quarters of negative growth. NIESR says that it interprets the term "recession" to mean a period when output is falling or receding, while "depression" is a period when output is depressed below its previous peak.

The report also calls for further economic stimulus in the UK, saying: “these data lend support to the further loosening of UK monetary policy." They also stated that they don’t expect output to pass its peak of early 2008 until 2013.

The Bank of England will meet today for its monthly policy meeting and will be under pressure to increase its stimulus package. Apart from the report from NIESR, the British Chambers of Commerce (BCC) has called for a further £50bn of quantitative easing.

David Kern, Chief Executive of the BCC, said: “The disappointing forecast ... with a prediction of negative growth in the current quarter, shows how important it is for the government to introduce measures which will help to stimulate the economy."

However, most economists don’t expect the Bank to agree on more quantitative easing at this month’s meeting but they do predict that a further amount will be injected in February when the current £75bn, launched in October, will be complete.

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Lost ISA Savings Can Be Topped Up 
It has been announced that investors whose ISA savings are lost in the collapse of a financial firm will be able to refill their annual allowance under new Treasury proposals. This is in a bid to strengthen consumer confidence in the security of the product.

Under the current rules, any funds lost if the provider folds would still count towards the £10,680 annual limit, of which £5,340 can be in cash. However, under the proposed changes, the amount able to be invested will increase to £11,280 from April next year and savers will be able to reinstate up to the balance of their account in a new ISA.

In a statement to MPs, Mark Hoban, Financial Secretary to the Treasury, said that the plans included allowing savers who have lost their cash ISA to save the equivalent amount, in the same year, in a new account with another provider.

They would also allow an investor the opportunity of reinvesting any compensation paid out if a stocks and shares ISA is affected by a financial firm's collapse and would permit investors with ISAs directly affected by the collapse of Lehman Brothers to reinstate the same level of investment, irrespective of whether compensation has been paid.

In the statement Mr Hoban said that the changes “will enable investors whose ISAs are affected by the failure or default of a financial firm to continue to benefit from tax-advantaged savings,"

He added that they "also demonstrate the government's commitment to ensure that the ISA remains a secure, accessible and tax-advantaged saving product,” he added.

In related news, Halifax recently launched a Junior Stocks and Shares ISA, which tracks the performance of the FTSE 100 Index and allows parents to save for their children’s future after the Government’s decision to extend tax-efficient savings for children.

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Service Sector Growth On The Rise 
The Markit/CIPS service purchasing manager’s index (PMI) rose from 51.3 in October to 52.1 last month. Economists had expected the pace of growth to slow, forecasting a fall on the PMI to 50.5.

However, business confidence in the sector fell from its five-month high and worryingly, employers in the sector shed jobs at the fastest pace in more than a year – worrying because the service sector accounts for almost three quarters of the UK economy.

Job losses were heaviest for hotels, catering and restaurants and for transport, storage and communications and were mainly accounted for via redundancies and natural attrition.

The pick-up in activity in services was driven by a continued inflow of new business, albeit at the slowest rate since December 2010, and by extra advertising and marketing, the purchasing managers' survey showed.

By sub-sectors, activity increased in the business-to-business services sector but declined in IT and computing as well as in the catering and transport categories. The survey does not include retailers or public services.

The survey said that the Euro zone debt crisis was weighing down on confidence in the sector and that growth was being hampered by low bank lending and public sector spending cuts.

Chris Williamson, Markit's chief economist said: "The service sector saw a modest expansion again in November, holding up in the face of growing gloom at the health of the domestic economy and heightened uncertainty regarding the Euro area's debt crisis.

"However, with manufacturing contracting at a steep pace, the weak growth in services means the economy is likely to have stagnated in the fourth quarter," he added.

David Noble, chief executive of Cips said: “Whilst the service sector is still growing, it is doing so at a modest rate and businesses remain under strain. Strong headwinds from the continued Euro zone crisis combined with public-sector pressures are adding to the anxiety levels amongst many businesses in the sector."

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Taxman Needs Training 
A National Audit Office report has found that HM Revenue & Customs (HMRC) spent £96m on skills training in 2010/11 but doesn’t have all the skills it needs to meet its objectives, nor does it know where its skills gaps are.

The report also found that there is an absence of engagement at senior level in staff skills and that there is no specific body that examines the total spending on skills and decides whether it is being made in the right parts of the organisation.

For example, it needs better data and information on where it should take a more strategic approach and gain an early warning of future skills gaps, such as the risk of skills depleting as experienced staff retire. This is of particular concern in the department, as one in five staff in key business areas is over 55.

Many of the points in the report have been raised previously by HMRC’s own reviews but they have not made the changes needed. For example, the total number of training courses has not reduced from 2,000 courses in 2009, when an internal review raised concerns about poor focus in training provision.

Amyas Morse, head of the National Audit Office, said: "At the level of the business as a whole, HMRC has no strategy to manage the £96m it spends each year on skills. Although the department is doing much to make sure it has the skills it requires, it needs a more systematic approach, where spending on skills is linked explicitly to the organisation's overall business objectives and a vision of how it should look in the future.

The report concluded that HMRC must focus on boosting staff skills if it is to meet its targets of shaving 25 per cent from its budget and increasing tax revenue by £7bn.

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King Warns Banks 
Bank of England Governor, Sir Mervyn King has warned the banks against the “extraordinarily serious and threatening” economic situation facing the UK’s banking system.

Sir Mervyn has advised the banks to build up their financial buffers in an effort to withstand the threat from the eurozone crisis and said that the Bank itself was making “contingency plans” in case of a eurozone break-up. He has not revealed, however, what those contingency plans are.

Earlier this week, six central banks, including the Bank of England, took action to encourage lending between banks in order to keep the global economy moving and the President of the European Central Bank, Mario Draghi, told the European parliament that “downside risks” to the eurozone economic outlook had increased.

Sir Mervyn also said that the UK’s banks were amongst the strongest in the world, with tier 1 capital ratios, which are an internationally respected measure of a bank’s strength, at well above 12 per cent.

Speaking of the potential break-up of the eurozone, Sir Mervyn said: "There are many ways in which the future could play out. Maybe it (the eurozone) won't break up, maybe it will continue in various forms, but maybe there will still be questions of default."

The advice given by the Bank’s Financial Policy Advisory Committee (FPC), of which Sir Mervyn is chairman, is that the banks should keep lending but should build up their financial reserves by cutting internal dividends and bonuses

According to economists, it is remarkable for a central banker to deliver such a stark warning, showing the seriousness of the situation. However, Sir Mervyn is confident that the banks can withstand the threats if they set aside more capital.

IN his statement, however, he acknowledged that the financial problems re widespread and beyond the control of any UK authority alone.

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