Britain's public finances reckoned to be worst state since records began

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Britain's public finances reckoned to be worst state since records began

The continuing decline of Sterling on the World stage was never in more evidence than yesterday when the pound reached its lowest level since the dark days of the Second World War.

Sterling hit $1.38, (the weakest level versus the dollar since 1985) and €1.07, a sign that investors are totally lacking in confidence in the UK economy. This feeling of doom and gloom was not lightened by the prophesy of Bank of England rate-setter Paul Tucker that the latest bailout of the banking sector by the Government is not guaranteed to succeed. .

Whilst appearing before the Commons Treasury Select Committee, Tucker added that this week's slump in banking stocks risks had overshadowed the rescue package, or at least this stage of it.

Carrying on the same less than optimistic themes, Bank of England Governor Mervyn King predicted yesterday that the central bank may have no option but to start snapping up assets within the coming weeks, after reducing the main interest rate to its lowest level since 1694.

U.K. stocks continue to decline for the third day in a row, as predictions that unemployment rates would rise at as fast a rate as the pound would decrease in value were proven to be true.

Among the many companies whose shares were still on the decline were Reed Elsevier Plc who declined by 3.9 percent to 528.5 pence, Vodafone Group Plc falling 2.8 percent to 132.8 pence and the U.K.’s second-largest clothing retailer, Next Plc, who lost 2.5 percent and went down to 1,102 pence per share.

Other UK stocks on the decline were:

African Copper Plc who dropped by a record 25% (0.38p to 1.13) after the company announced that it would need an immediate cash injection of $15 million to survive.

The U.K. mail-order retailer Flying Brands Plc dropped 1.6 percent,( 0.5 pence, to 31 pence) on the announcement of profit cuts against weak sales..

Declining 12 percent ( 17.75 pence to 129.75 ) was SIG Plc Britain’s largest supplier of insulation and roofing materials after being downgraded by UBS AG. The reason for the downgrade given was a breach of loan covenants by the company seemed likely due to forecasts of a “tough year ahead for insulation products.”

Bank shares continued their decline, although slowing down just like an elevator does as it reaches the basement.

The FTSE 100 Index fell 0.8 percent (31.52 to 4,059.88 ) the lowest rate since December 2008 and showing a drop of 2.1 percent this week alone

The FTSE 250 Index stood still closing at 6,159.50
With fourth-quarter gross domestic product data due on Friday 22nd that are expected to officially confirm that Britain is in recession, and the Bank of England likely to announce that it is to cut interest rates by a half a percentage point on 5 February, the mood of despondency is looking to be with us for some time. .

The downward lurch followed Wall Street, where investors returning from a holiday. Share prices pitched sharply lower despite the euphoria as Barack Obama took office, with the Dow Jones industrial average plummeting by four percent (332.13 to 7,949.09), its worst ever showing for an Inauguration Day.

Broader stock indicators also fell sharply, as the Standard & Poor's 500 index fell 44.90, or 5.3 percent, to 805.22.

Wall Street futures suggested U.S. markets are more likely to recover during Wednesday's trading. Dow futures were up 60 points, or 0.8 percent, at 8,005 and S&P500 futures were up 5.3 points, or 0.6 percent, at 811.10.

Across Asia and Europe as Obama assumed power the feeling was that oratory alone cannot bring about a quick recovery in the world's largest economy, even through President Obama plans to begin a massive stimulus package early this year.

In the latest signs of strain on Asian economies amid the global slump, Singapore slashed its 2009 growth forecast for a second time this month, saying the economy could shrink as much as 5 percent due to from plunging demand for its exports from industrial countries and elsewhere.

In Japan, the Nikkei 225 stock average dropped 164.15 points, or 2 percent, to 7,901.64, while Hong Kong's Hang Seng Index shed 381.19 points, or 2.9 percent, to 12,578.58.

Trading in Sterling was rapid with the currency fetching low prices on selling.

Pound/US dollar 1.38293

Pound/Euro 1.06530

Pound/Japanese Yen 123.132

In oil, light, sweet crude for March delivery fell 47 cents to $40.37 in Asian trade. The contract fell $1.53 to settle at $40.68 overnight, with the February contract expiring Tuesday.