The economic outlook for 2009 has been revised by the Organisation for Economic Cooperation and Development (OECD).

The organisation warns that the UK is in what it calls a ‘sharp recession’. The output is now set to contract 4.3% this year, as opposed to previous predictions of 3.7%.

It also predicts that there will be no growth in the UK economy in 2010 and that the UK budget deficit will hit 14% of GDP next year.

This forecast is worse than the Treasury made at the Budget, but many independent economic forecasters suggest the UK recession is bottoming out.

Worried About The UK’s Budget Deficit

The average prediction for independent economists is that UK economy will contract 3.7% in 2009, similar to the chancellor’s forecast of -3.5%.

The OECD’s particular worry is the size of the UK’s budget deficit: “public finances have deteriorated sharply… curtailing the possibilities for additional fiscal stimulus,” it says.

It adds that the UK is one of four countries where government borrowing is above 10% of GDP in 2010. It warns that, deficits need to be reined in as recovery takes hold, urging the government to develop a “concrete and comprehensive plan” ensuring debt is declining.

It believes that even if the UK reduces governmental borrowing by 1% of GDP a year for seven years, it will still have a gross debt-to-GDP ratio of 125% by 2017-one of the largest.

The Cause Of Political Disagreements

The OECD’s comments have caused political arguments to take place.

George Osborne, the country’s shadow chancellor says: “The OECD figures show just how deep Labour’s debt crisis is.

“The Projected record budget deficit is worse than the Treasury forecast, the worst in the developed world and double what it was when Dennis Healey had to go to the IMF.”

UK Economy One Of Worst Hit

The Chief Secretary to the Treasury, Liam Byrne however, had the following to say: “Britain had the space to fight back hard against the global downturn because we had lower debt than most G7 countries before the crisis broke.

“If we invest now we can stop the recession cutting long and deep.”

On the other hand, Liberal Democrat Treasury spokesman Vince Cable said: “there is no doubt that the UK economy has been one of the worst hit.

“What is particularly worrying is that the government seems to have no coherent plan to get the British economy back on course and the Budget back into place.”

World Recession ‘Nearing The Bottom’

The OECD is a little more optimistic about the world economy however as it believes the world economic recession is “nearing the bottom” after its sharp decrease in the six months before March.

It predicts a total fall of 4.1% this year, slightly better than the original -4.3% originally forecast.

Japan and Germany’s economies are expected to decline faster than the UK’s, but the OECD believes there are signs of strong growth in countries like the US and China.

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Robin Hood

Banks are not ‘Robin Hood in reverse’ when it comes to overdraft charges, the House of Lords has been told as seven banks and one Building Society petition he Office of Fair Trading regarding the regulation of their overdraft fees.

Jonathan Sumption QC says that banks aren’t taxing the overdrawn to help others but that overdraft fees involve a large element of cross-subsidy.

The result of the appeal of the OFT will decide if millions of bank customers are able to reclaim their past bank charges back or not.

According to Mr Sumption, current consumer contract regulations, the OFT does not have the power to regulate overdraft fees, and that these fees are required, but shouldn’t necessarily be fair.

Overdraft Charges ‘Fundamental’

In previous court battles, judges have upheld that the OFT has the right to make its opinion heard on the fairness of banking charges under the 1999 Consumer Contract Regulations. But Mr Sumption says this is wrong, and that in both cases the problem had been over-refined and overcomplicated the interpretation of the Regulations.

He also points out that the Regulations were not designed to mediate price control or the services offered. And therefore they do not apply to the main subject matter of a contract or the price being charged for it.

He said: “The overdraft charges are too fundamental to the bargain to be declared unfair.”

According to Mr Sumption, people who exceed their overdraft and have to pay charges are paying back the cost of providing a current account to those who are always in the black. Therefore the charges exceed the cost of dealing with an overdrawn customer because “the revenue stream is essential to the whole of the current account structure.”

OFT Raising The Stakes

Apparently cross-subsidies are also common in the banking industries like France, Canada and the US., and that they are common in their charging structures. He also compares them to mobile phone tariffs and airline ticket prices which people do not object to.

One of the Law Lords assigned to the case asked if bank charges included a surcharge to subsidise those who did not go overdrawn. Another suggests overdrawn customers be taxed for the benefit of others.

Mr Sumption said that banks were not operating a Robin Hood-like operation in reverse, saying that if the OFT were to succeed it might render all past overdraft payments unenforceable possibly leading to “restitution.”

“The OFT has significantly raised the stakes. The issues are of considerable importance to consumers and the future of retail banking.”

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India And China Lead The Way

According to the World Bank, the economies of developing countries are expected to grow by just 1.2% this year. This is compared to last year’s 5.9% and 8.1% in 2007.

If India and China are excluded from these figures, the gross domestic product in developing countries is predicted to fall by 1.6%.

The Banks annual Global Development Finance report also warns of the possibility of joblessness and poverty in developing nations along with the fact that the global economy as a whole could shrink by 2.9% this year, compared to earlier predictions of 3%.

The Bank report warns that the economic policies have to focus on the financial sector reformation and support the poorest countries as well as warning that the amount of money flowing into the world’s poorest countries is likely to halve this year.

Figures from the World Bank show that developing countries’ net private capital inflow has fallen from $1.2 trillion to £707 billion in just a year.

Will The Rich Aid The Poor?

The Bank also predicts that the private capital inflow for the worlds’ poorest countries could be as little as $363 billion this year.

The Bank is asking the richest economies in the world to help boost the flow of credit into the poorest nations in order to help speed up the economic recovery.

“Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit,” said the chief economist at the World Bank, Justin Lin.

The institution also warned that the weakness in the developing countries after recent years of growth could also heighten the risk of social unrest.

But despite the negative outlook for the year, the Bank says that the growth in developing countries could reach 4.4% in 2010 and 5.7% by 2011. Primarily this will be down to India and Chinas’ contributions.

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Charity Grandparents Plus has found that young grandparents caring for their grandchildren or their own elderly parents are increasingly facing poverty.

A third of grandparents under 55 years old in the UK are struggling financially. Also, there was an increase in ‘gran-carers’ living alone on low incomes.

The report is called the Poor Generation?, and describes an ‘invisible generation’ that is caught between what their children, grandchildren and their parents need. Sam Smethers of the charity says it “challenges the cosy image we have of the retired grandparent.”

Those who have four or five generation families that are single, working class grandmothers are finding themselves particularly trapped in their obligations to look after people, getting caught in the cycle of living on a low income and acting as unpaid carers.

Torn Obligations

Ms Smethers adds: “For many, particularly ‘gran-carers’ who are of working age, on low incomes and who provide most of the childcare, it’s a real struggle.

They get no help with the challenge of combining work and care. As a result we see them taking low-paid, part-time work or dropping out of the labour market altogether.”

The overall trend of today’s society is for women to have children later in life which in turn pushes back the age of people becoming grandparents. But this report highlights the group at the opposite end of the scale.

There are1.5 million grandparents under the age of 50. Most of these are from less affluent families.

The report shows that younger grandparents are usually lone grandmothers and are three times more financially stretched than those with partners.

Rights For Carer Grandparents

It also shows that the number of single grandparents has doubled in the last ten years, and the number of grandparents on low incomes has risen by a third.

Single children of young grandparents will be particularly dependent and half of such children will rely primarily on grandparents to provide childcare.

The charity asks that carer grandparents be able to work flexible hours, and that they can have ‘granny leave’ when a grandchild is born. They also want grandparents to be eligible for childcare benefit if it allows the child’s parent to work.

Ms Smethers says: “Although overall the grandparent generation is getting older, it is younger, working-class grandparents who are most likely to suffer financial hardship.

“We want this reality to be recognised by paying grandparents through the tax credit system for the childcare they provide.”

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High Figures Bring Bad News
 
Office for National Statistics figures show that unemployment rose to 2.261 million in the three months to April, the highest since November 1996.

The jobless rate also rose to 7.2%, the highest it has been since July 1997. While the number claiming unemployment benefit rose by 39,000 in May, which was much less than the original estimation of 60,000.

Young people are among the worst hit, with the unemployment rate of 18-24 year olds currently standing at 16.6%. And the claimant count rate rose to 4.8%, its highest since 1997.

Average earnings did however rise by 0.8% which was higher than expected, but this reflects the time of bonuses.

Young People Suffer Most

There were 271,000 people less in work over this three month period, the biggest quarterly drop since 1971 when the records began. And the number of job vacancies also fell by 35.6% compared from May last year to May 2009.

Young people are particularly suffering in the recession. In the first three months of the year 462,000 young people between 16-17 were employed, 16.5% less than in the same quarter of 2008.

Also in the same three months, 3.5 million aged 18-24 were employed, 4.8% less than the same time in 2008. Along with the unemployment range in the younger age group being 16.6%, the highest since 1993.

The General Secretary of the TUC, Brendan Barber said: “Youth unemployment is now at its highest for 15 years. And it will get worse when millions of fresh school leavers graduate and start looking for work in the coming weeks.”

Still Hope

The only age group that have increased in employment numbers are those of retirement age, with a rise of 2.6%. Analysts believe this means that the recession could be coming to an end but also say that it is too early to come to a firm conclusion.

The Chief Economist for the British Chambers of Commerce said: “These jobless figures are slightly better than feared, but the overall situation remains grim… It is much too early to talk about the end of recession and it is important not to withdraw the policy stimulus before there is firmer evidence that the economy has stabilised.”

On a less positive note, Alan Clark, an economist for BNP Paribas added: “The economy may actually start to expand, but it won’t be very fast… and until the economy is growing in line with its long-term average we will continue to lose jobs and we will continue to see downward pressure on wages.”

“It’s better than expected. It is probably still too soon to conclude that we have reached any turning point, but it is moderately encouraging,” added Ross Walker, UK economist at RBS Financial Markets.

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British Chancellor Alistair Darling claims that there are no plans for a fundamental reform of the structure of the system regulating the UK financial institutions as the current system is not to blame for the credit crunch, but rather the bosses running the banks.

He therefore wants to improve the quality of the regulators running the banks.

The current system employs a tripartite system of the Treasury, the Bank of England and Financial Services Authority (FSA). It was introduced when the current Prime Minister, Gordon Brown, was still Chancellor. But it has been widely criticised recently for failing to prevent banks from taking excessive risks.

Mr Darling says that the overall regulation needs to be improved on the current system, but that the main problem that needs to be addressed with the current system is in the board room.
“It needs to be more intrusive and needs to ask harder questions. Too many people did not understand the risks to which they were being exposed. You’ve got to make sure you’ve got the right people there to make the right judgements.”

US Make Changes Of Their Own

On the other hand, the US has recently unveiled huge changes to its financial system to prevent any further financial problems. The changes include new powers being given to the Federal  Reserve to oversee the relationship between financial institutions.

The Federal Reserve will also require financial firms to hold more capital in case of further crises to avoid what happened last year when the investment bank Lehman Brothers collapsed, posing a serious threat to the financial system.

According to Mr Darling, these changes by the US are similar to what the UK did 10 years ago.

He said: “Having stabilised the banking sector, we are faced with the challenge of building a stronger, more efficient and more resilient financial sector in the future. Anyone who thinks we can carry on as if nothing has happened should think again. In every country we are paying a huge price for this crisis. Not just the financial cost but also a profound social and human cost.

“I strongly believe that the process of learning lessons has to start in the boardroom, bank boards must have the right people, skills and experience to manage themselves effectively… their focus must be long-term wealth creation, not short-term profits.”

He also suggested that the planned paper on reforming the banking industry that is due to be released in a fortnight, will be much less forceful than was originally planned.

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Stabilisation Beginning?

G8 finance ministers warn that though the world’s largest economies are beginning to stabilise, they still face some major risks as the global recession continues.

At the G8 nations meeting in Italy, the ministers say that stock markets were rising, interest rates are gaining stability and consumer confidence was returning. But the US Treasury chief, Tim Geithner warned that it’s too early to wind down economic stimulus packages, which should remain in place until global recovery is underway.

The meeting in Lecce aimed to lay down the beginnings of a full G8 conference next month in the town of L’Aquila, which was recently hit by an earthquake. But the finance ministers have also recognised that the global situation remains ‘uncertain’.

In a statement released at the end of their meeting, the ministers said that “significant risks remain to economic and financial stability.” This includes the possibility of further rises in unemployment even after output growth resumes.

The statement says: “We have taken forceful and co-ordinated action to stabilise the financial sector and provide stimulus to restore economic growth and there are signs of stabilisation in our economies.”

Encouraging Early Signs

Mr Geithner notes that the early signs are encouraging but warned that: “The global economy is still operating well below potential and we still face acute challenges.

“I don’t think we’re at the point yet where we can say we have a recovery in place.” He added that it was too early to move away from interventionist economic policies that have been in place since September 2008.

Alistair Darling, Chancellor of the UK said that Britain’s economic prospects are still linked to the other G8 nations.

He commented that: “A lot will depend on other countries making progress: on cleaning up their bank balance sheets; volatility in commodity prices, oil for example. So I think there are reasons to be cautious.”

This meeting occurred just two months after the last G8 meeting in London where it was decided that the heads of government should inject billions into the global economy.

Finance ministers agreed to begin considering exit strategies from such extraordinary measures, but Mr Darling said they were not likely to come into play for a while yet: “One thing we are absolutely clear about is we are not there yet. No-one’s talking about existing now, this is some way down the track. We’ve still got to work through this.”

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 Unfair

Northern Irish politicians are asking Gordon Brown to compensate nine and a half thousand people who lost their savings after promising to protect savers when any UK financial institution got into trouble.

However, seven months ago Presbyterian Mutual Society collapses and none of its savers have received their money back because the government insists they were not ‘savers’, but rather ‘investors’.

MP Jeffery Donaldson, a member of the Northern Ireland Legislative Assembly and assistant to the First Minister Peter Robinson said that he doesn’t accept that view.

He says: “We believe a mutual society like Presbyterian Mutual Society is on a par with building societies who have been helped by the government.

!If you are living in Northern Ireland as a British citizen and you hear your prime minister say that all savers will have their money protected and yet a UK financial institution like Presbyterian Mutual can’t have savings protected, we think that is unfair.”

Fighting For What’s Theirs

The First and Deputy Ministers will be meeting with Prime Minister Gordon Brown to discuss the Presbyterians collapse, with the main objective of the meeting being that the Prime Minister has not met his promise to make sure that no UK savers lose out if their financial institution get into difficulties.

Representative of the Presbyterian, Ian McGimpsey, said that the situation was a great hardship. “Some people have sold a business and put their money into the Presbyterian Mutual Society and they haven’t got the money to pay their income tax. They are having to borrow it.

 “People in care homes – their savings are frozen, they are in terrible difficulties and are so worried,” he added.

Jefferey Donaldson insists that it is the governments responsibility to compensate the money and not the Northern Ireland Assembly.

He says: “Our legal advice is that it is not a devolved matter in relation to government intervention. Although Presbyterian is registered with the Department for Enterprise in Northern Ireland, financial service is not a devolved matter and banking is not a devolved matter.

“The Secretary of State [Shaun Woodward] did say in the House of Commons that he was prepared to intervene. We are now waiting to see what that intervention will be.”

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Is the government letting down Northern Irish savers? Who is responsible for paying savers back? We would love to know your thoughts and opinions. Leave your comments here.

75% Increase!

A watchdog is warning that more people are losing control of their bank accounts and credit cards due to fraud, and victims don’t usually even realise.

In the UK over the last year, ‘takeover fraud’ has increased by 75% according to Cifas, a fraud prevention service.

A few years ago, fraudsters who gained personal details would take loans or credit cards out in your name, but these days lenders are more reluctant to give out credit, so criminals are attempting to take over peoples bank accounts or current credit cards instead.

Criminals usually set up fake websites based on popular stories or events, and/or sending out emails. If someone visits one of these sites, their computer is often infected with a malicious software.

The main security analyst at McAffee says: “Cyber criminals out there are trying to infect us so they are going to al places that we go. They’ll try to hide their threats in genuine websites or set up fake websites to look like genuine websites.

“They’ll commonly tie in to current affairs or activities – whither it’s something like swine flu or the World Cup or the latest cricket… they’re trying to make sure that we trip over their attacks.”

Don’t Panic!

Once infected, the computer monitors the websites you visit on your computer and what you type in, such as password details and who you bank with. This information is then sent over the internet to the criminal who can take control of your bank account to draw cash.

There are lots of malware programmes available. These are programmes that detect and remove spyware, viruses and other malicious programmes.  The number available increased more than 400% in 2008 compared to 2007.

But steps can be taken by people to protect themselves: “there are threats everywhere. You wouldn’t dream of leaving your house with windows open or with the door open. It’s exactly the same with a computer,”  says Tony Neate of Get Safe Online.

“You need to make sure you lock your computer. Anti-virus anti-spyware, update the operating system – these are the things you need to do to secure your computer like you would secure your house.”

A good firewall is also very important. But experts say that we shouldn’t get too paranoid about the internet because it is a fantastic tool that can help us with our lives if we use it sensibly.

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Figures from mortgage lenders show that the number of loans handed out for purchasing homes in the UK rose by 16% in April compared to March.

Even with this rise though, the figures are still 28% down compared to April the previous year according to the Council of Mortgage Lenders (CML).

The figures add to other evidence that there has been a spring rise in the housing market. But first-time buyers are still expected to put down an average deposit of 25% of the value of their new home.

The average amount of money borrowed by first-time buyers rose slightly to £96,000. This is the first rise since May 2008.

Fixed-Rate Mortgages Increase In Popularity

This data is the last of a large set of figures relating the state of the mortgage market in April. They confirm that fixed-rate mortgages are currently popular as homeowners believe interest rates are unlikely to fall further.

This is shown by the fact that just 48% of home loans were fixed-rate in January, compared to 69% in April. The average rate charge on such deals in April was 4.83% - the lowest since January 2004.

Bob Pannell, head of research at CML said: “With the interest rate cycle now at its floor, an increasing proportion of borrowers are taking out fixed rates, including for longer term periods of 5-10 years.

“With expectations for rates to remain low in the near future, shorter term fixed-rate deals are less appealing than attractively priced variable-rate deals.”

Fixed-Rate Mortgages Becoming Unaffordable?

Nationwide Building Society reported that it will increase the cost of its fixed-rate deals on Friday by 0.86%. Analysts believe that other lenders will follow suit due to the sharp increase in swap rates – the amount banks charge each other for borrowing and lending money over a fixed period.

Director of mortgage broker Coreco, Andrew Montlake said: “Lenders are now hiking their fixed rates, partly because swap rates have increased dramatically over the past few days, partly because lenders have too many applicants and too little to lend, and partly because they can.

“What concerns me is that many people coming to the end of their existing mortgage products are still reverting to, or being forced to revert to the standard variable rate (SVR), which could come back to bite them should rates rise sharply.”

CML says that the number of loans for house purchases in April was 35,500. Mr Pannell says: “There are tentative signs of house purchase lending stabilising, but we need to see considerably higher transaction levels to underpin house prices.”

The latest house price surveys show that there is some pent-up demand, but also that there was a squeeze in the number of homes on the market pushing down the prices of those that were available.

What Do You Think?

Is the worst of the housing crisis behind us, or is the upturn temporary? We would love to know your thoughts and opinions. Leave your comments here.