The British Chambers of Commerce’s (BCC) quarterly report found the credit crunch and rising costs had dented the most important sectors of the economy.

It comes as falling shares in banks, house builders and retailers dragged the FTSE 100 towards a bear market.

Global stock indexes have also fallen amid concerns about the global economy.

WHAT IS A RECESSION?
There are a number of definitions of a recession.

The most commonly used one is when there are two quarters in a row of economic contraction, or negative growth.

But it is quite possible to have two quarters of negative growth and another couple of quarters of decent growth - so the economy actually grows year on year, despite going through a technical recession.

Persimmon cuts 1,100 UK jobs
FTSE 100 heading to bear market

The gloom surrounding the UK economy has been amplified by a string of further developments including:

* Housebuilder Persimmon revealing it had cut 1,100 jobs amid woes in the UK housing market. The building firm said that completions of house sales in the first six months of the year were down 30%, during what it described as the “most challenging period in our recent history”.

* The Council of Mortgage Lenders saying that a recovery in the mortgage squeeze was still “some way away” - revealing that the number of loans for home purchases remained low in May at 52,700.

* Shares in troubled lender Bradford & Bingley falling another 20% on Tuesday after Monday’s 18% drop as concerns lingered over its fundraising plans.

Grim outlook

Firms in the manufacturing and services sector said domestic sales and orders had slowed over the past three months, said the BCC, which added that firms were also experiencing serious cash-flow problems.

Its economic adviser, David Kern, said the survey showed a “menacing deterioration” in UK prospects.

“We are now facing serious risks of recession,” he said.

“The outlook is grim and we believe that the correction period is likely to be longer and nastier than expected.”

There are a number of definitions of a recession, but the most commonly used one is when there are two quarters in a row of economic contraction, or negative growth.

Services firms, which include restaurants, gyms and tour operators, have been particularly hard hit, the BCC reported.

Sales and orders, job expectations and confidence in this sector had hit their lowest levels since the recession of the early 1990s.

The BCC’s director general David Frost said the report was deeply worrying.

A house being constructed
There has been disappointing news on house building and mortgages

“I am sending Alistair Darling and Gordon Brown a strong message from the businesses I meet every day up and down the country,” he said.

“To put more pressure on business would not only restrict business growth and hit the consumer hard, it would crush further what our economy is based on - confidence.”

Mortgage drought

The report is likely to add to the wave of pessimism sweeping across the business world, from retailers to house builders.

Last week, the housing market suffered another blow when the Bank of England said mortgage approvals had plunged by 28% in May and were 64% lower than a year earlier.

House builders are cutting jobs and offices as the property slump continues. Before the news of the job cuts at Persimmon, rival builders Taylor Wimpey and Barratt Developments had announced 2,000 redundancies in the past week.

The mortgage drought has meant many people have been unable to secure the finance they need for a new home, while falling property prices have also put people off buying.

There was more bad news for the economy on Monday, when official figures showed that industrial output was falling at its fastest rate for more than a year.

Meanwhile, Marks and Spencer sent shivers across the retail sector last week when it reported a shock downturn in sales.

Some economists believe the chances of a recession in the UK are now 50:50.

They had hoped the slowdown in the economy would eventually reduce inflation, without turning into full-blown recession.

Source: BBC

The Nationwide building society said prices fell 0.9 percent last month after a 2.5 percent drop in May which had been the sharpest fall since the series began in 1991.

House prices have been falling non-stop since peaking last October at 186,044 pounds, according to Nationwide data, and stood 6.3 percent lower than a year ago in June, the weakest annual rate since December 1992.
Photo

Economists say the housing market can only get bleaker this year given weak demand, tighter lending conditions and a slowing economy. Bank of England policymaker David Blanchflower has even warned of a 30 percent slide in house prices.

“The tightening of credit conditions along with changing expectations of house price growth and a general weakening in consumer confidence in the economy have led to a severe slowing in housing market activity,” said Fionnuala Earley, Nationwide’s chief economist.

BoE data on Monday showed lenders approved the lowest number of new home loans on record — just 42,000 — in May and some analysts say prices could drop by as much as 20 percent this year.

Banks have been forced to toughen up their mortgage terms because a global credit crunch has made financing more expensive and Britons are facing rising living costs and muted wage growth.

However, the BoE is unlikely to be able to provide the housing market supportive interest rate cuts in the near future because inflation is running at its strongest pace in more than a decade.

Source: Reuters

Some 46 percent of British defined benefits schemes, collectively worth billions of pounds, have reallocated funds from equities to bonds in the past 12 months, according to a survey by Aon Consulting.

Around 54 percent said they had made no change to their investment strategy.

The poll of more than 100 pension managers also found that pension schemes have adopted a wider range of diversifying asset classes, which are used to reduce investment risk without reducing expected returns.

British property continued to be the most popular non-equity asset, with almost half of all schemes (44 percent) holding this in their portfolio.

Private equity, absolute return funds and diversified growth funds are also proving popular.

Daniel Peters, an investment consultant and actuary at Aon, said: “It’s no surprise that as pension schemes mature and trustees become increasingly risk aware, nearly half have moved some part of their growth portfolio into matching assets.

“To reduce volatility further, growth assets require diversification away from equities.

“Alternative assets — such as funds of hedge funds — that have low correlations with more traditional investments can be used to target a similar level of return to equities, but with lower volatility.”

While stock markets have tumbled during the first quarter of this year, funds of hedge funds have proven resilient.

“Initial indications show that during the credit crunch and the subsequent fall out already seen during 2008, volatility of these funds is considerably reduced compared to the traditional equity-only strategies,” added Peters.

By size, the schemes analysed are almost equally split between those with assets of more than 500 million pounds, between 100 and 500 million pounds, between 25 and 100 million pounds, and up to 25 million pounds.

Source: Reuters

In a consultation document on reforming the banking system in the wake of last year’s run on mortgage lender Northern Rock, the Treasury concluded it would be wrong for banks to pay more money when they are rebuilding their capital positions.

The paper proposed as the lead option an increase in the compensation limit for protected deposits to 50,000 pounds, on a per person per bank basis.

“The Financial Services Authority (FSA) will explore with the financial sector ways for customers to cover amounts above the compensation limit and the appropriate coverage for client accounts and similar arrangements,” the Treasury said.

The 50,000 pound limit was expected but banks, who have been worried by the prospect they might have to pay billions of pounds into the scheme when their balance sheets are under strain because of the global credit crunch, will be relieved to hear there are no upfront costs.

The Treasury is keeping open the option of a pre-funded scheme in the future. The United States requires its industry to have such a compensation scheme.

The British Bankers’ Association said no pre-funding was needed. “What we want is a system that works, that intervenes quickly, that frees deposits when necessary and has the ability to top up as and when required. None of that requires a pre-fund,” said Angela Knight, chief executive of the lobby group.

Under the plans which could come into effect later this year, savers will have up to 50,000 pounds of their deposits protected in the event of a bank failing.

The previous limit was 35,000 pounds. That was raised from 31,700 in October last year following widespread concern about consumer protection after news of the troubles at Northern Rock sparked Britain’s first major bank run in more than a century.

Knight said the current limit of 35,000 pounds covers about 96 percent of all depositors. Increasing it to 50,000 might only get another 1 percent, so it is not a huge change.

“We are happy to discuss the alternative limits with the Treasury, but 96 percent of depositors are covered right now,” she said.

NEW BOE REMIT

The Bank of England will also be given a new statutory remit to protect financial stability under the proposed reforms and will be given new powers to enable it to discharge this responsibility.

As Chancellor Alistair Darling announced last month, the government wants to create a Financial Stability Committee to support Bank Governor Mervyn King which would draw on external expertise.

The Bank’s Court would also get a formal role in overseeing the Bank’s performance on financial stability.

Legislation is planned to require the central bank to consult with the Treasury, on a periodic basis, when setting the detailed financial stability objectives and the remit for the FSC.

The Bank will also be given a new statutory remit to protect financial stability under the proposed reforms.

Source: Reuters

Domestic suppliers are under pressure to explain pricing intentions after the BBC learnt that household energy bills could rise by up to 40% this winter.

Industry sources have suggested households could pay £400 more a year on average for gas and electricity.

Suppliers have said they are reacting to the sharp jump in wholesale gas costs, triggered by rising oil prices.

Executive parade

The wholesale gas price is closely linked to the price of oil, which itself hit a record high of just under $140 a barrel this month.

Industry research has suggested wholesale gas prices have risen by more than 70% in 2008. Last month, Centrica - which owns the UK’s biggest energy provider, British Gas - signalled that gas prices for customers could increase again later this year.

Centrica’s chief executive Sam Laidlaw is among senior industry figures due to appear before the Commons Business and Enterprise Select Committee on Tuesday.

Centrica office
Centrica will be among the companies giving evidence to MPs

MPs, who are looking into competition in the retail energy market, want to know what suppliers expect to happen to fuel bills over the winter

They will also press energy chiefs on the extra help being given to low-income and disadvantaged households to help them with the impact of rising bills.

Watchdog Ofgem, which is conducting its own probe into the market, outlined plans last month to share data on people on low incomes with energy companies to help people pay their fuel bills.

The proposals, which must be approved by Parliament, are designed to ensure that financial assistance for fuel payments can be better targeted at the elderly and vulnerable.

Fuel poverty

The government estimates that 2.5 million households are in fuel poverty - defined as when more than 10% of household income is spent on fuel bills - but watchdog Energywatch says the figure is more than four million.

A 40% rise in average fuel bills would be far higher than expected and would put more pressure on homeowners already struggling with higher food and fuel costs.

However, some analysts believe the increases will be closer to 25%.

It is thought that any price announcements are most likely to come in August, when energy bills are not at the forefront of people’s minds.

But there is a great reluctance in the industry to be the first to reveal a big rise, so the rises may be unveiled in stages.

The chief executives of Scottish & Southern Energy, NPower, EDF Energy and E.ON UK will also attend the meeting while Scottish Power will also be represented.

Source: BBC

He was speaking after the Office for National Statistics (ONS) said the Consumer Prices Index (CPI) rose by 3.3% in May, up from 3% in April.

This is the fastest rate since the CPI measure began in 1997, the ONS said.

The wider Retail Prices Index measure of inflation rose to 4.3% from 4.2% the previous month.

The biggest contributor to consumer inflation was the rising price of food and non-alcoholic drinks, the ONS said.

This was mainly due to the increasing cost of meat products, particularly bacon, and vegetables.

Increasing household energy bills were also a significant factor, along with the rising cost of books, stationery and foreign holidays.

However, this rise in the cost of leisure and recreation was offset by a fall in the price of DVDs, according to the ONS.

‘Considerable uncertainties’

If inflation rises more than one percentage point above the government’s 2% target, the Bank of England governor must write a letter to the government to explain what action it is taking to control consumer prices.

In his letter to the chancellor, Bank of England governor Mervyn King blamed sharp rises in the prices of food and energy for the increase in the rate of inflation.

“As things stand, inflation is likely to rise sharply in the second half of the year, to above 4%,” Mr King told the chancellor.

“I must stress however, that there are considerable uncertainties, in both directions, around this, and any such projection is particularly sensitive to changes in domestic gas and electricity prices,” he said.

Mr King has had to write such a letter to the chancellor only once before, when inflation hit 3.1% in April 2007.

The governor said that the rate of inflation should peak towards the end of this year, as long as there were no “unexpected increases in oil and commodity prices”.

Should the UK avoid severe external shocks, then the rate of inflation will begin to fall back towards the 2% target next year, Mr King said.

In reply, Chancellor Alistair Darling agreed with the Bank of England’s assessment for the rising rate of inflation.

The two main opposition parties have criticised the Labour Government for the rising cost of living.

They blame years of borrowing for sustaining the economic boom of the past few years, which means now the government cannot afford to make tax cuts or offer financial incentives to help consumers.

Shadow chancellor George Osborne said: “Gordon Brown’s economic reputation has gone bust. His years of boom and borrowing have left Britain ill prepared to face the double evil of rising inflation and falling growth.”

Economic slowdown

The higher-than-expected rise in consumer price inflation has transformed expectations for interest rates, according to the BBC’s Economics Editor, Hugh Pym.

He also suggested that prices will rise at a faster rate in the coming months.

Confident talk of two or more cuts in borrowing costs from the present level of 5% has been replaced by forecasts of unchanged or even higher rates in the months ahead, our editor says.

Mr King and his colleagues are unlikely to cut interest rates further until they are convinced that the inflationary threat has passed - despite pleas from those struggling in the housing market.

However, analysts warn that raising interest rates to curb inflation could dampen an economy already dented by slowing growth and the weakening housing market.

“The key factor [deciding the direction of interest rates] will be whether increased inflationary expectations feed through into greater wage demands and second round effects – at the moment average earnings growth is stable, but the MPC will be watching it closely through 2008,” said economist Charles Davis from the Centre for Economics and Business Research.

In his letter, the chancellor called for “restraint” in pay rises awarded in both the public and private sector.

“To return now to inflationary pay settlements would undermine rather than raise people’s living standards, with a damaging circle of wage increases eroded by steadily increasing prices,” the chancellor said.

Prime Minister Gordon Brown said ministers would not accept a pay rise for this financial year.

Passed on

Consumers and companies around the world have been feeling the effects of higher energy and food bills.

“The global nature of these price changes is evident in inflation rates not only in the UK, but also overseas,” Mervyn King said.

In the past 12 months, world agricultural prices have increased by 60% and retail food prices by 8%, the governor said.

Oil prices have nearly doubled over the past year and on Monday the price hit a fresh high of almost $140 a barrel in New York.

Wholesale gas prices are up by about 160% in the past year and UK household energy bills have risen by about 10%.

Those increases have prompted many people to rein in their spending in other areas.

Source: BBC

Some 84 percent of successful credit card applicants — 4.8 million people — were not asked to provide any proof of income, such as payslips, to support the figures stated in their applications in the past 12 months, according to a YouGov poll of 4,048 people.

The survey, commissioned by price comparison website uSwitch.com, also showed that 14 percent were not asked about their salary or outgoings during the application process — yet they obtained average credit of 3,545 pounds, equal to a total of 2.9 billion pounds.

Just 8 percent of those surveyed were asked for proof of income or outgoings when taking out credit.

Some 5 percent of people confessed to lying about their salary when applying for a credit card, adding up to 70 percent onto their actual income and securing over 693 million pounds worth of credit as a result.

“We cannot ignore the fact that the credit crunch has forced lenders to tighten their belts and reject applications that may lead to further write-offs,” said Simeon Linstead, head of personal finance at uSwitch.com.

“(But) the fact remains that just because a consumer appears to have a ’suitable’ credit score, it doesn’t mean they are always honest about their income and actually have the cash available each month to pay the bill.

“The credit squeeze will back some consumers into a corner and — in sheer desperation — people will resort to lying about their salaries as this is such an easy loophole to exploit.”

He said it was too early to tell whether the latest version of the Banking Code, which came into effect in March 2008 and made credit reference checks mandatory, was having the desired effect.

The new code makes it necessary for companies to also take at least one of three other measures: obtain details of income and financial commitments; evidence of how finances have been handled in the past; use credit assessment techniques, such as credit scoring or internal credit scoring processes.

Source: Reuters

If you are having problems paying a fine, contact the court or relevant organisation and try to negotiate with them.

If they don’t know your situation, they could assume the worst - that you have no intention of paying.

Once it reaches this stage, the debt could be passed to a debt collection agency or a warrant might be issued by a court which authorises a firm of bailiffs to try to recover the debt from you.

How to pay a bailiff

Bailiffs recover money that people owe to their clients.

They will ask for a secure method of payment - cash, debit or credit card.

If you pay by card, you will also have to pay a handling fee.

If a bailiff visits your home, you will have to pay a fee. Fees are set at different rates according to the type of debt and court.

Are they allowed in?

Since 2004 bailiffs have had the legal right, in some circumstances, to force entry to seize your goods to recover the money you owe.

That applies to fines, fixed penalties enforced by magistrates courts, or income tax arrears.

For all other debts, bailiffs do not have the power of forced entry to seize goods.

That applies to debts being enforced by county court judgements, civil parking penalties enforced via Northampton County Court, council tax arrears and demands for business rates.

Bailiffs are only entitled to take your belongings if they have the appropriate written authority - for example, a warrant issued by a court or, in certain cases, a creditor.

Note though, the bailiffs do not actually need to show you written proof of the court order when they turn up, though it is a foolish bailiff who does not have the necessary paperwork with them.

Seeking advice

If bailiffs take your belongings, the company you owe money to can sell your goods at auction, perhaps for only a fraction of their value.

However, they should leave basic household items such as beds, clothing and items of equipment you need to do your job.

More fees will be charged for removing, storing and selling your belongings.

The law on bailiffs is very complicated and rules depend on what the debt is and who you owe it to.

At most stages of the debt recovery process, there are opportunities to negotiate.

Contact your local Citizens Advice Bureau for advice relating to your specific circumstances.

Source: BBC

The drivers, who work for two companies delivering fuel to Shell forecourts in the UK, walked out at 0600 BST.

Last-minute talks aimed at resolving the dispute ended without agreement when the Unite union rejected an improved pay offer.

Shell said it had contingency plans in place but admitted some of its 1,000 petrol stations might run out of fuel.

Unite said the improved pay offer from Hoyer UK and Suckling Transport, who employ the drivers, was “not sufficient”.

The employers said their latest offer would take drivers’ average earnings to about £41,500, up from the current average salary of £36,500.

SHELL OIL TERMINALS WHERE THE PICKET LINES ARE TAKING PLACE
Stanlow, Cheshire
Avonmouth
Plymouth
Pembroke
Cardiff
Kingsbury
Basildon
Grangemouth
Aberdeen
Inverness
Jarrow
Luton Airport

“We extended our offer to the very limits that our business could sustain,” said Bernie Holloway from Hoyer UK.

‘Significant impact’

Union members have set up picket lines outside a number of Shell sites at oil terminals around the UK.

These include Stanlow in Cheshire, Avonmouth, Plymouth, Pembroke, Cardiff, Kingsbury, Basildon, Grangemouth, Aberdeen, Inverness, Jarrow and Luton Airport.

Unite said it expected the knock-on effect to be felt almost immediately.

Shell, which runs one in ten of the UK’s petrol stations acknowledged that the impact would be “significant”.

But the UK Petrol Industry Association (UKPIA), which represents oil refiners, maintained that stocks at forecourts across the UK were at normal levels and most garages would have around four days of supplies.

Len McCluskey from Unite on why talks broke down

There have been reports this week of higher-than-usual demand at petrol stations. UKPIA estimated that demand for fuel was 30% higher than average for the time of year.

But a spokesperson said this was something the industry could easily cope with and that motorists appeared to be behaving sensibly.

Sharing information

Business secretary John Hutton urged both sides to resume negotiations.

“The strike, which will have a disproportionate effect on people in Britain, cannot be justified,” he said.

“We have been working closely with industry to put in place detailed contingency plans to reduce as far as possible the disruption for the driving public.”

The government has allowed fuel companies to share information in order to get supplies of petrol and diesel to where they are needed during the strike, while remaining within the scope of competition law.

It also has the option of using a number of “emergency response tools” in the event of any fuel shortages. These include:

* Limiting the amount of fuel that retail customers are allowed to buy at any one time
* Prioritising the supply of fuel to ensure adequate supplies to the emergency services and other key services such as utility companies
* Encouraging motorists to use less fuel

A government spokesperson said, however, that these emergency powers had not been put in place.

“Our response will remain proportionate to the situation,” the spokesperson said.

Source: BBC

With uncertainty in the markets and turmoil in the banks, more and more people are turning to gold.

“Since the financial crisis erupted last August, there’s been a flood of investment into gold, really because of its safe haven properties,” says Jill Leyland, economic advisor to the World Gold Council.

“Gold is no one’s liability and that means it is the ultimate defence against unforeseen contingencies.”

Sandra Conway, managing director of ATS Bullion, in London has seen sales of gold coins and bullion double in the last year and thinks she knows the reason.

Gold jewellery in Saudi Arabia
Gold equals jewellery for most people

“People were very worried when they saw the Northern Rock situation,” she says.

“And I think people are starting to realise that when the bank has your money, they might not actually physically have it if there’s a problem.”

While more people are buying gold for its investments properties, for most people, buying gold still means buying jewellery.

Three quarters of all gold ends up being made into jewellery.

Dubai has the largest concentration of jewellery shops in the world. Last year, it traded more than $14bn (£7bn) worth of gold.

Scarce commodity

Despite recent price rises, business is booming.

Gold bars
They’re not finding it as easy as they used to
Miner Pierre Lassonde

“Buying gold is an important part of the culture and lifestyle,” says Tawhid Adbullah, managing director of jewellery group Damas.

“Gold in general is beautiful, it’s a unique metal.

“It’s proven to be one of the best things that you ever buy - it lasts for years.”

Even though demand is increasing, Gold production has actually been falling now since 2001.

Miners simply cannot keep up with the world’s increasing demand for gold.

The reason is simple, according to miner Pierre Lassonde.

“They’re not finding it as easy as they used to,” he says.

Selling it cheap

Gold price

Rising energy costs have also made gold a very expensive commodity to mine.

Lassonde explains that a $1,000 bill costs a few cents to print. But gold, costs approximately $600 and ounce to mine and refine.

Gold is not just for the wealthy - most central banks around the world hold gold as part of their reserves.

The Bank of England has stored some for over 300 years.

But in 1999, the then chancellor, Gordon Brown, told the Bank of England to sell of some of the UK’s gold.

Over the next few years, it auctioned off 395 tonnes - more than half the country’s gold reserves.

However, both the timing and the manner of the gold sales turned out to be controversial.

Gold had been falling in price, but after Brown’s announcement it fell to its lowest for 20 years.

“To suddenly announce that you are going to sell a significant amount of it at auctions, when the market was in a pretty fragile state, was to totally destroy, or potentially to destroy, the gold price,” says Tim Green, author of The ages of gold.

Good investment?

Most financial advisors say it makes sense to diversity a portfolio, especially when there are limited ways of making money on the gold stored.

Gold mine
If they’re left holding too much when the price goes down again, at least they can wear it to the next party

Open University: Gold… always believe in?

Philip Shaw, chief economist at Investec, analysed the chancellor’s decision for the Money Programme. He says

“The 17 gold auctions netted the exchequer around $3.5bn,” he says. “Now the proceeds were well invested in government bonds, the value approximately doubled to around $7bn.”

But as we now know, gold turned out to be an even better investment. Its price quadrupled.

“Had Gordon Brown decided not to sell the gold and sold at the peak earlier this year the exchequer would be better off to the tune of around t£3bn,” says Mr Shaw.

In response, the Treasury says its gold sales programme “was part of a restructuring of the foreign currency and gold reserves, aimed at achieving a better-balanced portfolio”.

“A reduction in risk of approximately 30% was achieved,” it says.

“The National Audit Office, in a report in 2002, concluded that the Treasury had met its objectives selling in a ‘transparent and fair manner while achieving value of money’. It added that ‘other central banks around the world have adopted similar policies’.”

The current economic and political climate will continue to shape the future price of gold.

But as is the case with all commodities, its price can fluctuate. ‘

Following its high in March, gold prices have dropped 15%.

But unlike most other commodities, gold is completely indestructible. All the gold ever mined in the world still exists today - some 161,000 tonnes of it.

The only thing we know for sure is that gold is here to stay.

Source: BBC