economic situation is dire

[snowychap]

Sterling plunges against dollar

Sterling has fallen sharply against the dollar as yet more bad economic data points towards a prolonged recession and further interest rate cuts.

The pound was down 5.2 cents to $1.486, its largest one day fall in percentage terms since sterling crashed out of the Exchange Rate Mechanism (ERM) in 1992.

Sharp falls in the FTSE 100 index - down 5.2% on Monday - also served to undermine the currency.

The pound was also down 3.5 cents against the euro, at 0.851 euros.

The poor economic data increases the likelihood that the Bank of England will cut interest rates on Thursday.

[drat01]

The dollar was up against nearly every currency earlier today

[Awol]

The dollar was up against nearly every currency earlier today

Indeed, the irony being the markets think America will suffer less from the recession.

[ianrobo1]

The dollar was up against nearly every currency earlier today

Indeed, the irony being the markets think America will suffer less from the recession.

actually it is more to do with going towards so called safer currencies. If China ever called thei r debt in in oe stroke the dollar would be worthless

[ianrobo1]

Any idea what this means (from your link, Ian)?

RBS also had to agree to return to "normal" lending practices

loan money based on normal conditions and stability I would guesss. Some very sound buisnesss have bee refused a line of credit all business's need

[snowychap]

Well as sensible lending has not been the norm for quite some time, I am worried that it might be leaning towards the 'lending levels of 2007' line.

I hope that it is as you read it, though.

[ianrobo1]

well today the US have the highest jobless figures in 35 years and a little snippet from the BBC report

Analysts at Merrill Lynch have said that prices may fall below $25 a barrel before they recover.

"A temporary drop below $25 is possible if the global recession extends to China," the US bank said in a research note.

Merrill Lynch has recently cut its forecast for average oil prices in 2009 from $90 to $50 a barrel.

who would have veer thought this back in july at $147 a barrell, oil just currently above $40

[snowychap]

Vauxhall in secret cash plea to save 5,000 jobs

Vauxhall has held secret talks with Downing Street to seek financial guarantees that could save thousands of jobs in Britain as the carmaker’s American parent teeters on the brink of collapse.

The Times has learnt that the vehicle manufacturer, which employs around 5,000 workers at plants in Merseyside and Luton, approached Lord Mandelson, the Business Secretary, last week along with other carmakers, to urge the Government to give guarantees offering financial comfort to its car-part suppliers and dealerships. The move marks the first time that a company outside the banking sector has approached the Government for financial help since the credit crisis erupted 18 months ago.

Follow-up meetings with Lord Mandelson’s officials are believed to have involved representatives from other car manufacturers with UK plants, including Ford and Honda, which are anxious not to be put at a competitive disadvantage.

The Times understands that the Government is likely to take a cautious approach to any bailout requests, unwilling to allow Vauxhall to become the Northern Rock of the motor sector. While the Business Secretary may authorise short-term measures such as limited bridging loans on commercial terms, it does not want to repeat the sector-wide rescue of the industry seen in the 1970s.

EU rules would normally preclude state aid to car manufacturers. However, officials in Brussels are under pressure not to block emergency financial arrangements that safeguard jobs during the recession.

The future of Vauxhall hangs in the balance as its American parent — General Motors – begs for an immediate $3 billion loan from Washington to stay afloat. Car sales have collapsed in the US with sales of GM cars down 41 per cent in November.

Rick Wagoner, the chief executive of GM, warned Washington this week that without an $18 billion loan, of which $3 billion must be made available immediately, the carmaker will have to file for Chapter 11 bankruptcy protection to buy time to stave off creditors while it slashes costs and tries to work out how to survive.

Vauxhall and Opel, another GM subsidiary in Europe, are believed to be in a more vulnerable position because of growing opposition in America to the use of taxpayers’ money to prop up ailing foreign businesses.

Executives at Vauxhall have been preparing for the worst-case scenario and have drawn up contingency plans that include both outright redundancies and shortening the working week. The company has two main manufacturing plants in the UK – Ellesmere Port, which makes the Astra, and Luton, which manufactures the Vivaro van.

Vauxhall employs around 5,000 workers in Britain, but estimates that the collapse of the company would affect 50,000 workers employed by part suppliers, dealerships and local businesses that cater for the factories.

[snowychap]

Labour threatens to spank the banks who like to say no

Excerpts from Andrew Rawnsley's piece in The Observer:

It will be high noon at the Not OK Corral. Wyatt Brown, his faithful sidekick 'Al' Darling and the Prime Minister's new best friend 'Doc' Mandelson will face off against the bunch of cowboys known as the banking gang. The black hats will either come quietly or there'll be the blood of bankers running in the gutters of Downing Street.

That is the showdown we are being led to expect. Some in the media, encouraged by some in government, are getting excited by the prospect of guns blazing over the banks' reluctance to cut interest rates and extend credit.

....

The Prime Minister has encouraged expectations that he is strapping on his gun belt by saying: 'I think the banks should really pass on the interest rate cut.' He adds with menace: 'We are talking to the banks.'

Calculated displays of anger with the bankers are as much about politics as they are about the economy. It is not just the state of the credit market that troubles the Prime Minister; it is also about maintaining his own credibility.

...

In the chronology of the financial crisis, an absolutely crucial moment was when the government committed eye-popping amounts of taxpayers' money to the bank bail-out. It was also the critical juncture in the narrative of Gordon Brown's political recovery. That was the moment when the opinion poll sub-zero began to transform himself into the global financial super-hero. The likes of Paul Krugman, the Nobel Prize-winning economist, lauded the Prime Minister for coming up with the plan which would save the world. So it is going to be tricky, to say the least, for Mr Brown if his world-famous, patented, miracle banking elixir does not actually work.

......

We are entering a highly hazardous period for the government when it is too late to change the course it has taken, but too early to tell whether its crisis measures are going to work. The theory behind the temporary cut in VAT is that it will leave consumers with extra money in their pockets at the end of each month. Will they spend it to keep the tills ringing in the shops? Or will people put aside any additional cash they have to meet the higher bills that the public know are coming in future?

...

Once upon a time, a long, long eight weeks ago, the Bank of England reckoned the appropriate level for the base rate was 5 per cent. In the space of just two months, the Bank has slashed it to 2 per cent, reducing the base rate to its lowest level since Gordon Brown was born. Such desperate measures tell us that Threadneedle Street now fears that there are dire times ahead.

...

Members of the cabinet were recently shown polling which suggested that the public started to get deeply scared about the economy when the Bank of England made its first dramatic rate cut last month. One minister tells me: 'It made people go, "Oh ****, this really is serious."'

At the heart of the seizing up of the economy is the growing conflict between the government and the banks. Ministers have the advantage of knowing that this is a rare instance where the politicians are doing battle with a group of people even less popular than themselves.

...

There is an increasingly aggressive tone about them from within government. 'We've given them a helluva lot of money,' says one member of the cabinet, predicting that patience has almost run out. 'We've tried nudging them. We're not far off from spanking them.'

The Labour party and much of the public would certainly derive a lot of visceral pleasure from the sight of Gordon Brown putting the bank executives over his knee and taking a slipper to their pinstriped bottoms.

The trouble is that it might be emotionally satisfying without actually being at all effective in getting credit flowing again. Talk of spankings and showdowns obscures the complexity of the credit crisis. Slashing interest rates is not a one-way street to salvation. That may help those in debt, but it is negative for the savers whom the banks need in order to meet the demands of borrowers. Peter Mandelson has had to remind some of his less economically literate colleagues that there are more savers than there are borrowers. The banks need the savers if they are to restore their levels of liquidity. One senior minister highly familiar with the negotiations with the banks acknowledges that the government is not speaking to them with 'one voice' and they are being 'asked to do two contradictory things'.

Adair Turner's regulators at the Financial Services Authority are putting them under pressure to unwind the bad risks they took in the past and rebuild their balance sheets. At the same time, the government is leaning on the banks to extend lending to households and businesses in a recession. By definition, the home-owners and businesses most likely to want financial support from banks are those at greater risk of going under.

Tomorrow, Peter Mandelson will be holding a critical meeting with bank executives. The Business Secretary will more than earn his salary if he can find a solution to the conundrum. If the banks give more loans which go bad, then they will be broke again. If the banks can't be persuaded to lend, then the economy will go bust. In westerns, that is called a Mexican stand-off.

[snowychap]

And returning to the subject of changes in gas/electricity prices from earlier in the thread:

Energy firms refuse to pass on cost cuts

Energy firms will refuse to pass on all of the savings they make on cheaper wholesale gas and electricity to consumers, one of the UK's top energy bosses admitted this weekend.

The warning, issued by Paul Golby, chief executive of Eon UK, came after a week in which the price of oil tumbled to just above $40 a barrel. As the government demands that the banks give borrowers the benefit of the latest cut in interest rates, energy companies are also coming under increasing pressure to cut customers' bills.

Last week, two of the big suppliers - German-owned RWE Npower and Eon UK - announced they were making limited reductions in some of their customers' electricity bills.

But consumers who hope that these moves will spark a round of dramatic falls in their energy bills are likely to be disappointed. Golby told The Observer that the industry needed to protect its profit margins. This was in order to invest an estimated £100bn to build new wind farms and power plants, and to meet the government's ambitious environmental targets, he said.

In the future there would be a 'disconnect' between the wholesale price suppliers pay for gas and what they charge customers to use it, he added. 'If wholesale gas prices have fallen by a third, it does not mean retail prices will go down by the same amount.'

...more on link

[b6bloke]

It winds me up that they get away with this! The Tax payer bailed out the banks and we were screaming blue murder as we would not see the benefit of it in our pockets so this was a chance to actually give us something back! The government should grab hold of both these groups by the bollox and make them! but no! they won't do nothing and the fat cats will get fatter!!

[snowychap]

The peculiar case of middle-class benefits

When is a scrounger not a scrounger? Answer: when his state benefits are helping to keep him in a nice house with a £400,000 mortgage. I have been trying to square the Government's tough new proposals on welfare reform, which will involve slashing housing benefit and forcing single mothers of one- year-old children out to work, with its announcement last week of a mortgage rescue plan to allow homebuyers to take a two-year holiday on their mortgage repayments if they suffer a loss of income.

But I am afraid I am not doing very well. Whichever way I look at it, it appears to me that a different standard is being applied to the middle classes than it is to the poor. Worse, I have a horrible feeling that this might be caused by a desire to seek middle-class votes.

It isn't, after all, just the Government that is minded to look more favourably on handouts for the middle classes than it is on those for the working class. Yesterday David Cameron declared that he will put an end to the “something for nothing culture” - a phenomenon which he linked with Karen Matthews and council house-dwellers like her. Yet last week the Tories didn't have a bad word to say about the Government's proposal to offer homebuyers something for nothing. Far from it, their main concern was that the mortgage rescue plan would not prove generous enough.

....more on link

[villal]

It winds me up that they get away with this! The Tax payer bailed out the banks and we were screaming blue murder as we would not see the benefit of it in our pockets so this was a chance to actually give us something back! The government should grab hold of both these groups by the bollox and make them! but no! they won't do nothing and the fat cats will get fatter!!

I think its becoming more transparent with regard to who is in charge, and its not that one eyed clearing in the woods in Downing St

[snowychap]

Rio Tinto axes 14,000 jobs to reduce debt pile

Rio Tinto, the Anglo-Australian mining giant, today announced that it will cut 14,000 jobs in an attempt to reduce its $39 billion (£26.2 billion) debt mountain.

The company, which recently fought off a long-running takeover battle with rival BHP Billiton, said it was introducing the measures "in response to the unprecedented rapidity and severity of the global economic downturn."

In total, 8,500 contractors and 5,500 full-time staff will lose their jobs in the cull. The company's London headquarters will be shut and senior executives will move to another office in the city.

Rio will reduce capital expenditure from $9 billion to $4 billion next year by shutting new projects and deferring the expansion of existing ones.

So far this year, Rio Tinto has reduced its net debt by $3.2 billion but hopes to cut borrowings by a further $10 billion by the end of 2009.

It took on $40 billion of debt last year to buy Alcan, the Canadian aluminium producer, and must pay back or refinance $8.9 billion by the end of October next year. A further $10 billion is due one year later.

The company had planned to divest $10 billion of assets this year to cut its debt but has struggled to find buyers because of the credit crunch.

However, Rio said that it planned to press on with the divestments and that new assets might be included in the sale. This has raised the possibility that Rio may be forced to sell some of its crown jewels to meet its debt obligations.

Tom Albanese, chief executive of Rio Tinto, said "Given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of our markets, our imperative is to maximise cash generation and pay down debt."

Rio's share price gained 131p to £13.89 in early trading but is still down by 80 per cent from its peak of £71.67 earlier this year. The mining group is currently valued at about £15 billion, which is considerably less than its total debt.

Rio's assessment of the iron-ore market highlights the rapid slow down in demand for raw materials.

Earlier this year, strong demand for iron ore led to a 96 per cent increase in prices but Rio now expects that full-year production will be 170 million to 175 million tonnes, which is significantly below its capacity of 220 million tonnes in the Pilbara region of Australia.

The situation will worsen next year with global demand estimated at only 200 million tonnes, which, if correct, will also force BHP and Vale, the Brazilian miner, to cut their iron-ore production.

Mr Albanese said: "'We will minimise our operating and capital costs to appropriately low levels until we see credible and meaningful signs of a recovery in our markets, but will retain our strategic growth options. We will expand further the scope of assets we are targeting for divestment. By taking these tough decisions now we will be well positioned when the recovery comes."

Rio said that it would scrap plans to increase its dividend by 20 per cent next year and will instead hold it steady. The company added that the measures it was taking to reduce debt would make a rights issue unnecessary.

[ianrobo1]

their problems have stemmed from a massive takoever that they financed on the back of high commodity prices, they gambled and failed

[ender4]

When is a scrounger not a scrounger? Answer: when his state benefits are helping to keep him in a nice house with a £400,000 mortgage. I have been trying to square the Government's tough new proposals on welfare reform, which will involve slashing housing benefit and forcing single mothers of one- year-old children out to work, with its announcement last week of a mortgage rescue plan to allow homebuyers to take a two-year holiday on their mortgage repayments if they suffer a loss of income.

But I am afraid I am not doing very well. Whichever way I look at it, it appears to me that a different standard is being applied to the middle classes than it is to the poor. Worse, I have a horrible feeling that this might be caused by a desire to seek middle-class votes.

It isn't, after all, just the Government that is minded to look more favourably on handouts for the middle classes than it is on those for the working class. Yesterday David Cameron declared that he will put an end to the “something for nothing culture” - a phenomenon which he linked with Karen Matthews and council house-dwellers like her. Yet last week the Tories didn't have a bad word to say about the Government's proposal to offer homebuyers something for nothing. Far from it, their main concern was that the mortgage rescue plan would not prove generous enough.

The mortgage help plan is a stupid stupid idea.

The cutting of housing benefits for single mums is a great idea (IMO).

as for helping middle-class voters, well i suppose there's an election coming next year!

[snowychap]

The cutting of housing benefits for single mums is a great idea

I think the proposals for housing benefit (which was actually reformed just 8 months ago) are separate to the issue of lone parents working. :winkold:

It is a reform for housing benefit (now the LHA anyway) and also a reform for benefits for lone parents.

[tonyh29]

the Bank of England made its first dramatic rate cut last month. One minister tells me: 'It made people go, "Oh ****, this really is serious."'

So what did the minister think was going on in the previous months , a bit of a laugh ? :shock :

[ender4]

The cutting of housing benefits for single mums is a great idea

I think the proposals for housing benefit (which was actually reformed just 8 months ago) are separate to the issue of lone parents working. :winkold:

It is a reform for housing benefit (now the LHA anyway) and also a reform for benefits for lone parents.

ah well, i agree with both of them.

i've thought for ages now that less money should be spent on benefits in total, and they should benefit those people who deserve them the most.

Priority should be:

people who have worked but are made redundant/can't find a job

families rather than single mums

housing benefit should only be a short-term stop-gap rather than a long-term solution.

in one way or another, the government is going to have to try & cut benefit spend, otherwise the country is going to be bankrupt soon.

[Gringo]

in one way or another, the government is going to have to try & cut benefit spend, otherwise the country is going to be bankrupt soon.

The PBR splurge already has the country on that road.

The market never lies. Britain is more likely to go bust than McDonald's and Coca-Cola, if spreads on "credit default swaps" (CDSs), which measure the cost of insuring debt against the risk of default, are anything to go by.

full story here