The Financial Tymes

David Blancheflower, member of the Monetary Policy Committee, is calling for significant and quick interest rate cuts.

Speaking at the University of Kent Blanchflower warns that a lack of decisive action on interest rates will mean the impending recession will be even more prolonged.
He says: “My view remains that interest rates do need to come down significantly – and quickly. If rates are not cut aggressively we do face the prospect of a relatively deep and long lasting recession.

“Certainly the scale of the problems in financial markets has been rather worrying. As house prices have fallen LTVs on existing mortgages have deteriorated, putting significant proportions of the population into negative equity.”

Blanchflower says the cut should be made before next week’s MPC meeting as the turmoil is pushing banks to restrict lending further.

He adds: “I believe the impact of constrained credit conditions has yet to fully feed through to the broader real economy, particularly on firms’ investment decisions.

“Recent events in financial markets will likely reduce lending further to both households and firms in the near term. This is a key factor underpinning my view that we need a looser monetary policy in the UK.”

Technorati Tags: bank rate cut, interest rates, MPC

The price of petrol could be on it's way down again

Petrol prices have fallen to less than a pound a litre for the first time in nearly a year, and could fall to below 90 pence within weeks, experts believe.

Petrol prices have fallen to less than £1 a litre for the first time in nearly a year, and could fall below 90p within weeks, experts believe.

The cost of oil has fallen below $60 a barrel and further reductions are expected, which could produce more good news for motorists. But the fall in the cost of petrol has raised the spectre of the Government reinstating the 2p a litre fuel levy next year.

Last week Opec, the oil producing cartel, cut production by 1.5 million barrels a day and analysts predicted further cuts in the months ahead that could push prices back up. The onset of winter could also force up the cost of fuel.

However, according to the latest figures produced by the AA, the average price of petrol fell to 98.63p a litre on Sunday, its lowest figure since Oct 30 last year. This is more than 20p a litre less that the 119.7p a litre being charged to motorists in mid-July. The cut is worth £45.16 a month for the average two-car family.

The AA believes that the dramatic fall in prices has been driven by the supermarket price war, which has forced other forecourts to follow suit. Motorists are currently buying petrol based on oil which was bought at $100 a barrel.

With prices having fallen even further, they can look forward to substantial reductions when the garages start selling petrol based on oil which was bought at $60 to $70 a barrel – less than half the $147 it was selling for at the height of July.

An AA spokesman said: “I think 88.32p [a litre] would be a good figure; that is where it started 2006 and 2007.”

Technorati Tags: oil, oil prices, Opec, petrol, petrol prices

Mobile phone maker Sony Ericsson has seen pre-tax profits fall, blaming demand for cheaper phones and fluctuation in currency rates.

It made a profit of 12 million euros (£9.3m; $16.2m) in the three months to 30 September. If restructuring costs are included, it made a 23m euro loss.

Consumers were scaling back when buying new phones, the firm said.

Earlier, Nokia reported a 30% plunge in third-quarter profit as it lost market share after competitors cut prices.

Finnish bank FIM said on Friday it had downgraded its recommendation on shares in Nokia - the world’s largest mobile maker.

Price fall

Sony Ericsson, the world’s number five handset maker, has had to issue two profit warnings this year.

The average selling price of a phone slipped form 116 euros to 109 euros.

Sony Ericsson’s sales in the quarter totalled 2.8 billion euros, down 10% from a year earlier.

The number of phones sold during the period also fell to 25.7 million from 25.9 million in the same three months a year earlier - but this was slightly better than the 24.4 million devices it sold in the previous quarter.

Technorati Tags: mobile phone, Nokia, Sony Ericsson

Conservative leader David Cameron is calling for a 1p cut in national insurance to help small businesses during the economic downturn.

He said the reduction should last six months for companies which employ four staff or fewer.

Mr Cameron told the BBC many small businesses would “be going to the wall unless they get help”.

Meanwhile, Labour is considering delaying a planned expansion of flexible working to help businesses.

The Ernst & Young Item Club think-tank said the economy had “deteriorated dramatically” in the last three months, and predicted a decline in investment and rising unemployment.

‘Tough time’

It predicted that economic growth would decline by 1% next year before recovering in 2010, when it would see 1% growth.

The Conservatives said the 1p national insurance cut could save a small business as much as £600, which, for example, could help pay the interest on an outstanding loan.

The change would cost the Treasury £225m and could be paid for out of an existing Tory commitment to cut complex tax reliefs and allowances, the party added.

Mr Cameron told BBC Radio 4’s Today programme: “Good small business will be going to the wall unless they get help.”

The national insurance reduction would “help with what’s going to be an extraordinarily tough time”.

Mr Cameron said it was a “real tragedy” that Labour had built up the “biggest budget deficit in the industrialised world”, reducing scope for more tax cuts to stimulate the economy.

‘No magic wand’

He added: “To stop a downturn turning not just into a recession but a slump, we must save small businesses…

“We would like it if there was a magic wand. If we were like Sweden and had a budget surplus we could do much more.”

Mr Cameron also said he wanted a six-month VAT holiday for small and medium-sized firms and called on local authorities to pay small businesses within 20 days for their services, rather than 30.

For Labour, Chief Secretary to the Treasury Yvette Cooper said she was confused over how the Tories planned to pay for the national insurance cut.

She told BBC Radio’s Five Live increasing tax elsewhere in the business system “seems to me like putting taxes up”.

Liberal Democrat Treasury spokesman Vince Cable said: “My own preference would be that, if there’s room for tax cuts, to give ordinary people their own money back.

“Then they will spend more on services and goods that small business provides.”

Spending priorities

Meanwhile, Labour is considering delaying its plans to give flexible working rights to all parents with children under 16, in a move that will help businesses but anger many Labour MPs.

According to the Independent newspaper, a review has been ordered by Business Secretary Lord Mandelson of plans including an expansion of flexible working for those with children and an extension of maternity leave from 39 to 52 weeks.

Chancellor Alastair Darling has said the government plans to use public spending to boost the economy.

“You will see us switching our spending priorities to areas that make a difference - housing and energy are classic cases where people are feeling squeezed,” he said.

But Mr Cameron criticised the government’s plan to bring forward several major public service projects to help stimulate the economy.

“If the government goes on a spending splurge, paid for by another borrowing splurge, everyone knows that would mean not only higher taxes, but it might also mean that the Bank of England wouldn’t be able to cut interest rates as fast as everyone would like,” he said.

Technorati Tags: David Cameron, national insurance

A few months ago, people were queing for hours to withdraw their savings from the Northern Rock. In one of the strangest turnarounds ever, people are now queuing to put their money in the bank.

The nationalised bank is facing rising numbers of savings account applicants - due to the public uncertainty over banks’ financial stability, and is now to pull some of its savings offers due to excessive customer demand.

Potential savers are being turned away due to the bank’s commitment - unique in the UK - to protecting 100 percent of all deposits. Elsewhere, just £35,000 of savings are guaranteed for customers whose bank collapses, although the government is to raise this total to £50,000.

Northern Rock wishes to cover no more than 1.5 percent of the UK savings market - and suggested in an emailed statement that it was in danger of going above this figure thanks to an influx of customers.

At the root of this apparent “flight to safety” is the recent worsening of credit crunch conditions, which has resulted in severe market turbulence and government bailouts of several banks across the world, including British lender Bradford & Bingley. With rumours circulating about the financial stability of other banks, many savers are nervous about their provider collapsing and are looking to have their deposits better protected.

Nevertheless, the move is surprising, in the context of comments from payments association APACS reported by the BBC. According to the organisation, which monitors money transfers in the UK, there has been no apparent exodus of savers transferring their money from high street banks and into government-guaranteed accounts.

Technorati Tags: bank guarantee, Northern Rock

Early losses on Wall Street brought an end to the relief rally seen on the London market after yesterday’s US Government mortgage bail out.

London’s leading share index had been enjoying a second day of gains as trading returned to normal following the London Stock Exchange’s seven-hour shutdown on Monday, and as lower oil prices provided a boost.

But the Footsie closed the session down 30.7 points at 5415.6 in response to heavy falls on America’s Dow Jones Industrial Average.

US stocks were hit after a report indicated pending US home sales fell more than expected in July as the housing market continued to struggle.

Technorati Tags: Dow Jones, FTSE, mortgage bail out

Three of the top mortgage lenders dropped their interest rates yesterday in advance of the Bank of England’s decision regarding the base rate.

Abbey, Lloyds SB and Cheltenham & Gloucester announced a reduction of up to 0.30%. It was the fifth cut in a month by Lloyds TSB. Skipton Building Society also annouced it was offering 95% per cent loans for first time buyers.
The Bank of England kept the base rate at 5 per cent at todays meeting just as economists had predicted. This now means that the average cost of a Home loan is now at levels not seen since the start of the credit crunch.

This can only be seen as good news as the number of secured loans approved in July rose slightly over the previous month. The reductions are as a result of the reduced swap rates, the rate at which the banks lend to each other, falling over the last few weeks.

Technorati Tags: Bank of England, mortgages. secured loans, propert

A new survey has revealed that about 25 per cent of Britons have lied to potential buyers in order to sell their property.

So that they can make their property look more appealing to prospective buyers, sellers lie about everything from a leaking roof to problems with crime in the area.

However, it appears that the most popular white lie among potential sellers is the boiler, with eight per cent of homeowners admitting to being less than honest with buyers. A similar number admitted to telling lies about potential problems with parking or with neighbours.

The need to lie, or so it is thought, is down to the length of time it is taking to sell a house in today’s current market conditions.

The survey also suggests that sellers in the north of England were most likely to cover up problems with their property, with 42 per cent admitting to being economical with the truth about such things as covering cracks in the walls and leaking roofs.

Buyers need to be aware of this growing trend. In the current housing market, where it is becoming increasingly harder to sell property, desperate sellers are resorting to dirty tricks in order to hide problems rather than spend money on fixing them. Buyers should thoroughly inspect the property before making an offer – ask sellers to move furniture, lift floor coverings and check that heating, water and electricity is in working order.

Technorati Tags: housing market, Property