Darlings Doom
11 / Jan / 2009
The saga continues! The Christmas period brought bad tidings for a number of retailers and manufacturers who have struggled to keep the show on the road and have eventually succumbed to the effects of the credit crunch. Woolworths, Zavvi and MFI all casualties with the doors being shut for the final time at the end of 2008. The consequences being tens of thousands of people being laid off. Last weeks manufacturing output figures did not provide us with any comfort. Output fell 2.9% on the month, the biggest fall since the summer of 2002 and well below the economist’s forecasts of –0.7%. Industrial Production fell 2.3% on the month giving an annual rate of –6.9%. The annual decline was the largest seen since March 1981.
Thursdays’ announcement was no surprise. The MPC cut rates by 0.5% leaving UK base rate at 1.5%, the lowest in history. Economists forecast further reductions ahead with the next move being on February 5th. Despite the cut in rates Sterling made a bit of a come back. Against the Euro sterling was trading at 1.12, way off the lows of 1.01 and against the dollar recovered to 1.5250. It could be argued that because Euro land have not been as aggressive with their monetary policy to date, their time will come. Further cuts in Euro interest rates may well be needed and if that happens the beneficiary could be sterling. This week we get a rest from the bombardment of negative data with the only release being the RICS house price Survey, on Tuesday, which obviously will not make pretty reading.
Mr. Darling announced in a T.V. interview on Wednesday that ‘Britain is far from through the recession’. I’m glad he’s noticed! It seems that his previous optimistic prediction that he expects the economy to recover in the second half of 2009 might have been a bit premature. He stated that the Government are now looking at other ways to boost the economy, which could include tax cuts, and more Government spending in the March Budget, however…can they actually afford it?