Loan lenders, including banks, are facing severe restrictions on their sales of lucrative loan insurance.

Payment protection Insurance (PPI), is meant to repay borrowers’ loans if they fall ill or lose their jobs, but are currently costing borrowers over £4billion.

According to the Competition Commission, lenders will no longer be able to sell PPI when they grant a loan, or for seven days afterwards.

Though, borrowers will still be able to approach their lenders about buying PPI policies 24 hours after taking out a loan.

The Commission expects PPI providers to meet its requirements regarding giving consumers better information by April 2010, and will introduce new measures in October 2010.

The Competition Commissioner also added it would have “lower prices and better choice.”

Their deputy chairman, Peter Davis, said: “the ‘point-of-sale’ advantage has meant that leading providers have faced little competition for PPI and, as a result, have charged persistently high priced.

“Consumer’s interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider’s PPI product.”
“The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect.”

Currently, there are over 12million PPI policies enforced, mainly sold alongside credit cards, mortgages and personal loans.

Louise Hanson is head of campaigns at Which?, and said:“For too long too many consumers have suffered from shoddy, expensive and inadequate protection.

“It’s a great shame that since we began campaigning for better products, many people have wasted millions of pounds on PPIU and have been ripped off in the process.”

Association of British Insurers’ (ABI)s’ Nick Starling said:
“The point of sale ban carried significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more.

“Figures released only yesterday by the ABI show that in November 2008 there were 19,105 new unemployment claims on PPI policies.”

The recommendations were first drafted in November, though changes have been made since the original draft was made, including reducing the moratorium to seven days, but it still goes ahead with banning its proposal to ban sales of ‘single premium’ PPI policies.

These involve the full premium being added to the loan up-front, which inflates the borrower’s interest bill, and also tends to lock in customers who may want to change their PPI policy.

Five of the major UK banks have already taken up the recommendation after pressure from the Financial Services Authority (FSA).

The Commission are also enforcing other services involving lenders providing PPI quotes and annual policy statements for customers.

Stephen Sklaroff of the Financial and Leasing Association said: “by preventing customers from protecting their repayments at the time they take out a loan, the Commission has made it much less likely that they will do so at all.

“Many more people will go without the safety-net provided by PPI, just when unemployment is reaching record highs.”

In the midst of an economic crisis, it’s not all doom, gloom and unemployment.

Going against the grain, Asda has announced it is to create 7,000 new jobs this year, and in doing so will become the latest supermarket to add new positions, as their sales continue to rise despite the recession.

Asda has said it will create 3,700 of the new jobs by opening 14 new stores and extending 15 of its current ones.

On top of this, 2,000 jobs are planned to be created at its home shopping unit, and around another 1,000 through organic growth.

Asda has said that it specifically aims to target those that have been unemployed long-term when it fills its 3,000 new vacancies, which will provide both full and part-time work.

Asda’s Chief Executive Andy Bond said: “our track record of recruiting and retaining people is second to none.”

Asda also said they are going to work with agency Remploy in order to try and secure jobs for a significant number of disabled people that are currently unemployed.

They are also looking to fill about 120 new jobs in their in-store pharmacies and opticians.

Not only is Asda creating new jobs, but also broadcasters BSkyB have announced their plans to create 1,000 new jobs in order to cope with continuing strong demand for its services.

Other supermarkets that are creating jobs include:
• Sainsburys - which is creating 5,000 new jobs this year

• Waitrose is planning on creating 4,000 new posts

• Morrisons is planning on adding 5,000 new jobs

• And Tesco aims to add up to 10,000 new positions.

However, on the other hand, companies that have recently announced more job cuts include:
• GKN – the car parts firm announced it was to cut more jobs this year after 242 people lost their positions in October due to lack of new vehicle sales

• Shop Direct – the home shopping retailer is planning to cut around 900 jobs in their call centres due to an increase in online buying
• Thames Water has recently announced it is planning on trimming its workforce by about 300 people

• Aston Martin – the luxury car production company is cutting all staff to working three days per week.
GKN have said that they have already shed 2,800 jobs globally since October, but that more were to follow due to the slump in the global car industry.
This was announced before Peter Mandelson, Business Secretary, met with UK car industry bosses in order to discuss the details of the £2.3billion support package the government is offering.
The deal was announced on Tuesday, and includes a scheme to unlock £1.3billion of loans from Europe for car manufacturers and major suppliers.
The government are also offering a guarantee of up to £1billion of further loans.
Lord Mendelson said: “we had a productive discussion on how the industry and supply chain can access these guarantees as well as the previous measures we have outlined.”

One of the country’s biggest DIY chains, Focus has complained that credit insurers have almost completely pulled the cover they offer to retailers.

Credit insurers are meant to cover suppliers against the risk of customers going bankrupt before paying for the goods the shop supplies. However, Focus has said that credit insurers are now covering less than 5% of its stock.

Bill Grimsey is the chief executive of Focus, and has written to the business secretary asking for an investigation to be conducted.

This loss of cover could mean suppliers ask retailers to pay bills more quickly, possibly even in advance of deliveries, which could put a strain on the retailer’s working capital.

According to Mr Grimsey, Focus has been planning for 2009 not to bring in much profit, and has therefore been negotiating with its suppliers and landlords to reduce its cost base.

He told BBC Radio Five Live: “We planned for all this [downturn], and keep the credit insurers aware of what we are doing, and why we are doing it.
“We just opened two new stores, so that is hardly the sign of a business that is about to go into administration.”

He also said he had invited credit insurers to Focus’s suppliers conference, and given them Focus’s monthly management accounts. On top of this, the group has said that their annual sales are about £450million and it employs 4,900 people.

“The only explanation you can get from them is that we are in a risky area called retailing, where consumer confidence is going, and that we are in the DIY market, which is affected by the housing market,” he added.

He also said the suppliers were currently being co-operative, but he was not going to agree to shorter payment times with any of his suppliers.

He said: “my job is to make sure this business survives 2009, and thrives as the market improves.”

It is well known that one of the problems recently closed High Street chain Woolworths, faced was: in its final few months, it was forced to pay cash when buying goods from suppliers. This was because trade credit insurers were no longer prepared to insure Woolworth’s suppliers.

As Woolworths paid upfront it ran out of money fast.

The Association of British Insurer’s (ABI)’s director for general insurance and health, Nick Starling, has said that credit insurance is not withdrawn from firms lightly.

He said: “When an insurance company decides to withdraw or reduce trade credit insurance cover, it is done only after extensive and detailed analysis.
“Insurers have built up extensive risk management data and by not renewing cover are trying to help business avoid risk – they are in a better position to know where risk is.
“We are in unprecedented times and everything trade credit insurers do is geared towards giving their customers, often SMEs, the best possible service.
“The withdrawal of cover from a company is a symptom of a struggling business, not a cause.”

Shadow business secretary Ken Clarke claims that the UK’s economic recovery could take years.

He told the BBC that 2009 is likely to be a “dreadful” year, and that if the Tories win the next election, they faced a “difficult” task.

He also said that Labour are wasting billions on failed policies and markets were “losing confidence” in Prime Minister, Gordon Brown.

Mr Clarke also says he doesn’t expect the introduction of the euro in the UK to become a political issue for a few years now.

Mr Clarke returned to the Conservative frontbench recently after 10 years on the backbench, and has been unsatisfied with the Tory leadership over Europe for years.

He said that labour had failed to get to grips with the financial crisis, resulting in a series of “panic-stricken” measures to try and support the banking system, and therefore he was “gloomy” about the economic prospects for this year.

He added that: “we realised some money had to go in but the money has been pumped in ineffectually and it hasn’t worked.
“So far the crisis is deepening and we haven’t achieved the one key objective to get the banking system working normally again.
“The Conservatives are going to find themselves presiding over a difficult recovery which will probably take a few years when we get in.”

Mr Clarke added that he found the collapse of the pound sterling worrying, but that talk of financial “calamity” with the prospect of the UK having to go cap in and to the IMF for emergency financial support was unrealistic.

David Cameron, leader of the Conservative party has said that there is a real risk of the UK potentially running out of money and having to seek external support.

Describing the euro, the conservatives are said to have a settled policy on Europe which Mr Clarke described as “moderate”, adding that the idea of Britain’s entry into the euro was unlikely to be an issue again in his “political lifetime”.

Nick Clegg of the Liberal Democrats has said there was a “crisis of confidence in Britain PLC”.

He also claimed that only the Liberal Democrats could make the radical changes that needed making in order to address the problems of the economic model that has, over the last 20 years, been swept away.

He said that: “the future is going to look dramatically different than the past in terms of how we run our economy.”

Culture Secretary for Labour, Andy Burnham, said that opposing politicians and commentators should be careful of language and ensure they don’t talk down the economy.

Official government figures finally show that the country is in its first recession since 1991.

Gross Domestic Product (GDP) fell by 1.5% in the final quarter of 2008 after a fall of 0.6% the previous quarter, meaning the official definition of recession has been met.

The figures show the biggest quarter-on-quarter decline since 1980, and a fall of 1.8% compared to figures a year ago.

The figures also sent the sterling to its lowest value in 24 years. Also, the FTSE 100 index fell almost 2% to below 4,000 points.

The figures were produced by the Office for National Statistics (ONS), and showed manufacturing to be contributing most to the economic downturn with a 4.6% contraction.

The only economic area that hasn’t shrunk is agriculture according to the figures by the ONS.

The fall in GDP is steeper than most analysts were expecting.

Alistair Darling said that the figures underlined how much of a challenge the government faced. He said: “It’s going to be a difficult year for families in the UK. We need to go about the problem with a sense of purpose.”

He added that countries across the world also faced recession, and that other governments should act quickly to stimulate their economies.

George Osborne, Shadow Chancellor, said the government was failing to command confidence at home or abroad.

He said: “With unemployment rising faster than anywhere else, and businesses closing every day, these figures are deeply worrying.
“It is difficult to see how we’ll get that confidence with a Prime Minister who blames everyone else for the mess we’re in and refuses to acknowledge any mistakes.”

The crisis started in the financial sector, but quickly spread to the wider economy. Unemployment is one of the biggest casualties, with 1.92 million people currently unemployed. The housing market and retail are all also suffering badly.

Retail figures were however, better than expected in December, growing 1.6% but ONS believe this could mostly be to do with heavily discounted prices.

Chief Economist at ECU Group, Neil Mackinnon said the GDP figures were “grim” and underscored the depth of recession, adding that “there are no green shoots of recovery, no light at the end of the tunnel.”

On average, all recessions in the UK since 1955 have lasted three quarters. However, the past two recessions have lasted for five.

In fact, forecasters believe this recession could stretch to 2010, and may be as severe as the recession in 1991.

Graeme Leach, chief economist at the Institute of Directors said: “the debate on the length and depth of the recession is extremely complex and at this stage one cannot be dogmatic about the outcome.
“The last recession is beginning to look as if it will be more like the 1980s than the 1990s in terms of lost output. We are well into the financial crisis but the economic crisis is only just beginning.”

Seven and a half million customers will apparently benefit from the 10% cut British Gas plan to cut its standard tariff by.

The plan will come into force on 19 February, saving the average household £84 per annum. However, the plan will not apply to those on fixed tariffs.

It has been said though that even if other companies follow suit, the move will be “too little too late.”

In 2008, British Gas, which also trades as Scottish Gas in Scotland, raised its prices by 35%, while other companies raised prices by 20% or more.

At the end of last year, the ‘big six’ companies were pushed to pass on lower wholesale prices to customers.

Phil Bentley, British Gas managing director said: “we are committed to providing the best possible prices for customers.
“This price cut will go some way to helping customers to manage their budgets, and we will continue to do what we can, when we can.”

Watchdog Consumer Focus says it thinks British Gas has done the right thing, adding that: “there are millions of dual fuel and electricity only customers that will not see a penny off their bill.
“We will now turn the heat up on the other five companies that are keeping prices sky high.”

Age Concern is worried that unless further cuts are made “many of the poorest pensioners will continue to struggle to pay their energy bills.
“Even with price decreases, millions of the poorest pensioners and families will still be living in fuel poverty and will continue to pay more for their energy than wealthier customers.” The charity’s director Gordon Lishman said.

The cost of wholesale gas is linked to the cost of oil, which has significantly fallen since its peak in summer 2008.

“Consumers would not have to rely on occasional grand gestures by energy companies if the market was more transparent and competitive in the link between wholesale and retail prices,” said Mr Mayo.

Tim Wolfenden, head of home services at price comparison site USwitch.com said British Gas were making a positive first step. He added that by just cutting gas prices and not lowering electricity prices suggested suppliers were feeling cautious, but that other companies were likely to cut their prices fairly soon too.

He said: “it’s going to give some customers a bit of respite at a time of year when they are going to be spending a significant amount on heating their homes.
“Energy price cuts are likely to be too little too late to help consumers with this winter’s fuel bills. More importantly, it is now looking highly unlikely that price cuts are going to wipe out last year’s painful hike in household energy bills,” he added.

He also urges people to look into deals that other companies have going to check there wasn’t a better plan out there for them, especially if they have never switched before.

Co-operative Financial Services (CFS) and Britannia Building Society are planning to merge.

Though some branches may have to close if they are too close to each other, the companies have claimed there will be no compulsory redundancies.

The new business that will be created will be a subsidiary of the Co-operative Group. Therefore Britannia customers will become Co-op members.

The merger is only possible due to a new law that will be passed in March, allowing mergers between mutuals.

The Butterfill Bill, as the Act will be commonly known as, after its sponsor, MP Sir John Butterfill, or the Building Societies (Funding) and Mutual Societies (Transfers) Act, will give building societies greater freedom to merger with other companies.

The Bill will also change current restrictions on the way they are allowed to raise money.

On the less positive side, the deal will have to be approved by Britannia members, and may take up to three years to complete.

Britannia chairman Rodney Baker-Bates said: “Customers will be owners and ill have available all the services they would expect from a financial provider, together with a real say in setting strategy combined with a share of the profits.”

Once merged, the business will have around nine million customers, over twelve thousand employees, three hundred branches and twenty corporate banking centres.

There may be some closures where the merger will mean more than two banks in one area will be a part of the Britannia/Co-op group, but the companies have promised that there will be no compulsory redundancies among the staff.

The two financial services have said they will continue to have significant presence in Manchester, where CFS is based, and Leek in Staffordshire, where Britannia is based, but have warned of possible redundancies in the head-offices.

CFS chief executive David Anderson said: “owing to the damage done by the credit crunch, people have been crying out for a new way of doing business with a financial organisation of substance that truly has their interests at heart. This merger will create that organisation and we’d hope to attract many thousands of new customers as a result.”

The two companies have said that customers should not see any immediate change in the service they receive.

Also, enlarged businesses will continue to trade under the Co-op and Britannia brand names. Therefore, anyone with savings accounts at both organisations will retain their separate £50,000 deposit protection offered for each business by the Financial Services Compensation Scheme (FSCS).

Both Britannia and the Co-op claim they are not suffering any financial troubles, with a combined profit of £267 million in 2007.

Britannia have revealed though, that its 2008 earnings would be dented by losses on money lent to two banks which collapsed in the past year, and the cost of contributing to the replenishment of the FSCS, which the government have used to bail out banks like Bradford and Bingley and Icesave.

After years of deflation when it comes to food prices, research from Verdict Consulting has shown that 2008 saw a sharp increase in food prices.

According to the research, for the period of 12 months up to the end of December 2008, food price inflation hit 11.9%. It also showed that the monthly increase from November reached 1.4%.

The Verdict has said that: “the good news for consumers is that the pace of food inflation is easing.”

This news came on the cusp of research that was expected to show that inflation eased considerably in December.

A Reuters poll has tipped that the annual inflation rate will have fallen to 2.7% in December, from 4.1% in November.

Consulting director for the Verdict, Neil Saunders has said: “consumers have felt the pinch of rising food prices and have reacted by shopping around more, using discount supermarkets and buying less.”

The Verdict has also said that people are becoming more sensitive and “increasingly willing to sacrifice convenience for low prices.”

This is shown by the fact that, on average, in 2007, people shopped at 1.9 other stores on top of their main store, while in 2008, this rose to 2.4 additional stores on top of their normal retailer.

Also, it has been recorded that laundry, washing and paper product sales were up 21.6%, while meat and fish sales increased 17.7%, and fresh fruit and vegetable sales rose by 16.8%.

The major concern for the first half of 2008 was the continuing rapid inflation, but it seems that worry has now been reversed to worries about deflation as the economy slows down and consumers cut how much they spend.

The Consumer Price Index (CPI) is tipped to stay above the UK’s target on 2% inflation, but is expected to be far from last September’s high of 5.2%.

At the same time, the Retail Price Index (RPI) is expected to fall to an annual rate of just 0.8% in December, from 3% in November. This figure includes mortgage payments.

In an attempt to boost the economy, the Bank of England reduced its interest rates to 1.5% earlier this month, its lowest level in the Bank’s long 315 year history. Despite this, many economists are predicting that the economic slowdown will continue for some time yet. As credit remains difficult to access and manufacturing slows and the number of unemployed increases.

Gordon Brown has said new measures to be put in place will encourage banks to increase lending levels and protect jobs.

Without the new scheme he said jobs would be lost needlessly as businesses struggle to access necessary funding. But some argue that even the new plans won’t cut it. And the news saw bank shares plummet.

The Prime Minister said: “Good business must have access to credit. It is because of this that we are taking the action to expand lending.”

This is the second major plan set out to encourage banks to lend more money.

A list of policies will be put into place, including a scheme to offer insurance against banks losing more money from the bad debts that started the credit crunch. Also, the Bank of England will be able to buy assets direct from firms.

Despite the new plans, bank shares have fallen badly. The Royal Bank of Scotland has lost 67% of its value.

The government has not said how much the plans will cost taxpayers.

There are four key points to the government’s latest message:
1) Banks will be able to take up government insurance against unexpected bad debts
2) The Bank will be able to buy up to £50billion of assets in companies in all sectors of the economy
3) Extra time will be given for Northern Rock to repay its loans from the government
4) The governments stake in RBS will increase to nearly 70%. The RBS have also said they suffered a loss in 2008, with asset write-downs of up to £20billion.

According to the insurance scheme, banks will agree with the government what they expect to lose form a particular debt, then the Treasury will sell insurance against around 90% the institutions’ additional losses from the debt.

According to Alistair Darling, banks will have to make specific, legally binding agreements to lend more money, to take out the insurance.

Under its new role, the Bank of England will be able to buy up to £50billion of high quality assets, like bonds and loans, from companies.

Vince Cable of the Liberal Democrats said the plans were inadequate and called for the whole banking sector to be nationalised. He said: “The government must bite the bullet on the public ownership and control of the banks to ensure that lending is maintained to sound companies who can keep the economy ticking over in these turbulent times.”

The government has also made changes to its previous bank rescue terms, such as giving Northern Rock longer to repay its loan, after concerns that the repayment timetable given to Northern Rock was forcing it to reduce its mortgage lending too quickly.

The RBS has said it agrees with the Treasury’s plan to swap £5billion of preference shares to ordinary shares and therefore increasing the government’s stake by nearly 12%, reducing the RBS’s annual payments to the government as preference shares have a higher guaranteed rate of return than ordinary shares.

As the financial crisis continues to deteriorate, it is predicted that unemployment will reach 3.4 million. Official figures will be released later this week.

After unemployment reached an official 10-year high in October last year, Ernst & Young Item Club calculate that the number of people out of work in the UK will reach 3.25 million by the end of 2010, and may hit 3.4 million in 2011.

It also warns that this year will probably see the UK suffer its largest economic contraction since 1946, stating that the UK’s gross domestic product will shrink 2.7% this year and an extra 0.5% in 2010.

Ernst & Young also believe inflation and interest rates will stay near zero, which will help pensioners with tracker mortgages.

However, this also could cause trouble in the housing market, which is set to fall 22% over the next 18 months.

The banks will also be unable to lend money to companies and consumers until the US sorts out their banking problems.

They said: “The government has failed to stop bankers hoarding cash and it seems this panicky behaviour is spreading out to the rest of the economy.”

Ernst & Young also predict a drop of 17% in business investment in 2009, and another 6% fall on top of this in 2010. This on top of consumer spending shrinking by an expected 2.6% as jobs become more scarce, and consumers more cautious.

Their chief economist said: “it is easy to criticise and conclude than none of the government’s policies are working.
“However, we must not lose sight of the fact that they have prevented the collapse of the monetary system as we know it.
“But more needs to be done urgently otherwise the flow of credit will remain frozen and the economy will remain in recession.”

He added however, that the weak pound offers opportunities for British manufacturers to encourage exports, leaving the economy in a better state after the recession than prior to it.

Working Futures, published by the UK Commission for Employment and Skills, has predicted that employment will grow in the long term despite current problems. It believes that employment would rise over the next decade as a whole, creating 13.5 million jobs, 2 million of which will be new.

Men will take on the majority of the new roles, and are likely to take over some of the jobs more traditionally considered as women’s jobs e.g. childcare, beauty therapy etc

Certain occupational areas will suffer losses in jobs, particularly manufacturing, administration and clerical work, which are expected to lose around 400,000 jobs in the next decade.

Chief executive of the UK Commission for Employment and Skills, Chris Humphries, said: “We’re pretty confident that despite the short-term uncertainties the labour market will pick up again fairly swiftly and remain buoyant in the longer term to 2017.”