Oil prices have continued their record breaking run today after increasing to over $140 a barrel. The high price has been driven by a mixture of supply concerns, dollar weakness, inflation fears and turmoil in equity markets.

ICE August Brent hit a record $141.98 a barrel before easing back to trade at $1.67 higher at $141.50. Before easing off to $141.40 a barrel, Nymex August West Texas Intermediate hit a peak of $141.71 a barrel.

Oil prices rose by more than $5 a barrel on Thursday after threats from Libya to cut its oil production and Opec’s president Chakib Khelil warned that prices could surge as high as $170 a barrel this summer.

Libya’s top oil official, Shokri Ghanem, said the country was considering reducing oil production in response to a bill before the US congress that would empower Washington to sue Opec members for cutting supplies.

“We are studying all the options,” Mr Ghanem said. “There are threats from the Congress and they are taking Opec to court, extending the jurisdiction of the US outside the US,” he said.

After Mr Khelil warned oil prices could rise as high as $170 a barrel, traders used it as a reason for buying, with further encouragement for buying interest provided by dollar weakness and weakness in equity markets.

In late April, Mr Khelil warned that oil prices could reach $200 a barrel this year, but since that time, Saudi Arabia has promised to increase supplies to 9.7m barrels a day, which is the highest level in 30 years. The kingdom said that it planned to raise crude oil production capacity to 12.5m barrels a day by 2012.

“It is unlikely that global markets will see this additional crude in a hurry,” said Kona Haque, commodity strategist at Macquarie. “This is either because Saudi won’t be able to, due to delays and soaring project [cost] inflation, or won’t be willing to, due to the need to maintain reserves for future generations.”

Macquarie said that oils prices were likely to test the $200 a barrel level over the next five years, and were unlikely to sink below $100.

Due to oil’s strength, Gold has increased in value to $920.10 a troy ounce from New York’s late quote of $912.60 on Thursday. Gold has seen renewed buying interest as the dollar retreats from the Euro following the Federal Reserve’s statement on monetary policy on Wednesday, which indicated that an imminent rise in US interest rates was unlikely.

For the fourth consecutive month the number of people claiming unemployment benefit has risen, providing further evidence that the stuttering economy has begun to affect the jobs market.

According to figures published by the Office for National Statistics, the claimant count rose by 9,000 to 819,300 last month. The last time the figures rose for four months running was two years ago.

Total unemployment has also risen for the second consecutive month from 38,000 to 1.64m during the three months to the end of April, marking the highest level for more than a year.

David Kern, economic adviser to the British Chambers of Commerce, said that the figures conveyed “serious warnings that the economic outlook is worsening”.

He added: “Given the expected slowdown in economic growth, it seems very likely that unemployment will increase further over the next year … Against this background, expectations in some quarters that UK interest rates will have to go up soon are unjustified.”

The number of people in employment rose by 76,000 to a record high of 29.55m. Stephen Timms, employment minister, said that this showed there are still “plenty of jobs available for people looking for work”.

However, Geoffrey Dicks, chief economist at the Royal Bank of Scotland said the rise in jobs was not enough to provide work for all the increased number of people entering the country.

Nigel Meager, director of the Institute for Employment Studies, added: “Fears that the current economic instability could cause a downturn in the labour market are now beginning to be realised. In the wake of high- profile job losses in the finance and construction sectors … [the figures also revealed] sharp reductions in vacancies in some sectors, such as manufacturing, hospitality and finance.”

Statistics from the British Retail Consortium earlier this week raised the prospect that retail workers could well “be the next to join the dole queue”, Mr Meager said

John Philpott, chief economist at the Chartered Institute of Personnel and Development, said however that the fact employers were still actively employing staff, and there was no sign of redundancies indicated that the job market was “cooling only moderately”.

Mr Philpott said that the finance and business services sector remained “in the eye of the storm, shedding 20,000 jobs in the first quarter of this year … But shops, hotels and restaurants are suffering too and are now in a period of jobs standstill.”

As the City bonus season came to an end the annual rise in average earnings including bonuses dipped by 0.2 percentage points to 3.8 per cent during the three months to April.

The increase in average earnings excluding bonuses was only 0.1 percentage points higher, at 3.9 percent.

Sir Fred Goodwin, Royal Bank of Scotland kingpin warned today that the turmoil in the credit markets is likely to continue for at least another year, and said the Bank’s “risk appetite is tempered”.

Discussing an “adjustment” in financial markets, Sir Fred said: “It is difficult to see it would take less than 12 months to work its way through.”

He added that “there’s clearly more bad news than good news, there’s almost exclusively bad news, but I don’t think we’re looking at the end of the world.” He saw “chinks of light” in some areas of capital markets and repeatedly reiterated that the bank “remains very much open for business”.

Sir Fred’s comments came as RBS, which raised £12bn from the biggest ever rights issue earlier this week, reassured investors in a trading update that its performance and writedowns on risky assets remain in line with previous guidance. RBS said in April that it expects a hit of £5.9bn before tax from its credit market exposures this year.

Banking shares rose on the news and were the top performers on the FTSE 100 in early trading as traders were relieved that there had not been a further deterioration in the RBS loan book. The bank’s shares climbed 4.75p to 238.5p but were down later, by 3p to 230.25p. HBOS was up 4.5p to 296.5p and Lloyds TSB rose 3.75p to 355.25p.

“The coming months I look to with caution but with a degree of optimism. It’s ’steady as she goes’ at this point. The business continues to perform satisfactorily on an underlying basis. There is business to be done and we’re doing it,” Sir Fred said, while acknowledging that the credit crunch is holding back the performance of many of RBS’s businesses.

ABN Amro, the Dutch bank acquired by RBS last year, is performing better than expected in terms of revenues and costs, it said.

Sir Fred said the bank is confident of selling its insurance arm for the price it had in mind at the start of the auction despite continued market turbulence. The operations, which include Direct Line and Churchill, were put up for sale in April with an expected price tag of up to £7bn.

“There are a number of people who would all ostensibly be good owners and capable of paying the price that we’re looking for,” he said. “We had a price in our minds that we were looking for at the start of the process and that hasn’t changed. We’re determined not to sell this for an undervalue, but at this point that doesn’t look like an option that’s going to come to pass.”

Sir Fred refused to give a forecast for UK house prices falls in the coming months but said it would “not be nearly as bad as in the US”.

Commenting on the £12bn rights issue, Sir Fred said “It was a good opportunity to be interacting with our shareholders but it won’t go down as an enjoyable experience,” referring to the “gyrations” which he said weren’t surprising given the size of the cash call and the “very exceptional market circumstances”.

On Wednesday, the Organisation for Economic Cooperation and Development said that a fall in of around 10 per cent by the end of 2009 will slow Britain’s growth rate significantly and make the economy more vulnerable than most to the global credit crisis.

The organisation expects the economy to grow by 1.8 percent in 2008 and 1.4 percent in 2009, a projection that falls in line with the Bank of England’s latest central forecasts, but far more pessimistic than the Treasury.

The OECD continues to support the Bank’s generalised strategy of allowing the economy to suffer a protracted slowdown to squeeze inflation out of the system and advised the bank to keep interest rates on hold for the remainder of 2008.

However, it disagrees strongly the Bank of England on the effect of house prices on the economic outlook. The OECD believes that the UK is one economy apart from the US where a large fall in house prices would severely curtail economic growth.

OECD’s acting chief economist, Jørgen Elmeskov, said that the OECD had looked very closely at the underlying forces influencing consumptions and always found house prices and mortgage equity withdrawal to be significant.

“This could just be a coincident, but at the end of the day there have been too many such coincidences,” Mr Elmeskov said.

The OECD expects the economy to recover more slowly than the bank in 2009, and believe this creates the need for three interest rate cuts next year once it is clear that inflation is falling and that economic activity has slowed appreciably.

The OECD said the projected weakness in the economy also put the government’s fiscal rules in jeopardy. It forecasts in the twice-yearly Economic Outlook suggest that the government’s sustainable investment rule could be breached in 2009.

The organisation puts the blame for the weakness in the budget firmly at the government’s door. . “While ongoing economic weakness in 2009 would argue against fiscal restraint, the government’s options have been limited by excessively loose fiscal policy in past years when economic growth was strong,” it said.

The United Kingdom will announce its determination to launch the first Islamic bonds by a western government. This is the clearest sign that long-running doubts over costs and pricing have finally been put to rest.

The economic secretary to the treasury, Kitty Ussher will say there is a “powerful momentum” behind the plans, which should solidify London’s position as the leading western centre for Islamic finance.

In April 2007, the government unveiled hopes to issue Sharia-compliant bond, or sukuk. Since then, the initiative has been hotly debated, with some civil servants raising concern about the cost of issuing sukuk, which due to their complex structure to avoid paying interest in line with strict religious laws, are far higher than conventional bonds.

Convinced that the political and financial benefits far outweigh worries about cost, the government believes the bonds can be priced competitively to attract buyers, which is of further concern to civil servants.

Ms Ussher commented on the announcement, “This is an important market for Britain, which we are committed to growing.

“Although we don’t see this as a competition between financial centres, London is now established as the most important western centre for Islamic finance. New York has missed the boat.

“We are determined to issue Islamic bonds. It will bring money to London and send out a strong positive signal to the Muslim community.”

Bankers say that a sovereign UK Islamic bond would be a milestone for the $80bn sukuk market as it would boost liquidity and encourage other western governments to follow suit.

Although the Bulk of sukuk issues have come from the Middle East and Malaysia – around 90 percent of the market, a Texas-based oil group, a German state and the World Bank are also involved.

Bankers predict the bond will be about £500m. A bond of this size would help Islamic banks by giving them the ability to buy safe triple A rated paper, which will improve their balance sheets and provide them with collateral for other lending operations.

Centrica, the company that controls British Gas warned first-half operating profits would be “materially lower” than a year ago, adding that the high wholesale gas and electricity prices behind the slump in performance were set to continue into the second half.

In February Centrica said margins were under pressure and on Monday it said profit margins had been pushed below long-run targets. Full-year earnings per share are now seen at the lower end of market expectations.

In a trading update, the energy group said, ““we will take the necessary action to deliver reasonable margins in the retail business”. They added that gas and electricity prices had doubled in the last year.

The shares reversed earlier losses to trade 9¼p or 3.2 per cent, higher in London at 296¾p. The expectation of a profit warning saw the price lose some 4.3 per cent last week.

The cost increase moved gas suppliers to raise their tariffs earlier this year. The move came just a British Gas’s residential division was beginning to recoup customers who jumped ship when it raised its prices ahead of competitors last years and had major problems with its billing system.

British Gas said its tally of residential customers had risen above 16m again, when the full year results were posted in February, but in Monday’s interim statement it said the number had fallen to 15.9m.

The residential business accounted for 40 per cent of group revenues last year and 30 percent of profits.

The company said that in 2008 it upstream division’s performance would be very strong but it would be offset by lost sales. Also, the shift in business mix will increase the tax rate to around 55 per cent.

Centrica was already in the news this weekend as it emerged they are seeking to claim £182m in damages from Accenture who designed the company’s billing system that was introduced in 2006.

Customer complaints against British Gas soared, and it was forced to hire up to 2,500 additional staff at one point to deal with the problems created. Accenture described the claim as “baseless and without merit”.

As the market continues to digest the £12 billion fund raising by Royal Bank of Scotland there are more rumours that Barclays are about to come cap in hand to shareholders for £3 billion of new funding. So what will the money be used for and who really benefits?

The sub-prime mortgage crisis which preceded the credit crunch has seen a great number of banks around the world suffer multi-billion dollar losses on some of their investments. This reduction in their asset base has reduced their ability to borrow money in the money markets due to limited available collateral. This is the situation which many experts identified, stating that even a return of confidence to the market would not see asset values pick up overnight – arguing that a much needed injection of capital was needed for many UK banks to allow them to go back into the money markets.

So who benefits from the fund raising?

While ultimately it will be the shareholders and customers of the banks who benefit, in the short term all shareholders are doing is bailing out the banks directors who have been a little reckless with their actions of late. It is the same old scenario whereby good markets attract more competition which cuts margins which pushes banks into more risky environments. Chasing the next major income stream, the next major profit has brought the banks to the situation we are in today.

If you look back to other recessions and banking sector problems of the past, they all have a very similar thread. Boom times, more competition, reckless lending and moves into riskier markets to bring in the next big income stream – these things are so predictable that it really is untrue!

Only this week we have seen the Bank of England come under renewed pressure after their quarterly report suggested that some UK banks had overstated the affects of the credit crunch and losses would not reach the nightmare figures which have been suggested. This seems a strange comment to make when you consider the banks recent suggestions and comments about the situation. Quite why they have affectively given the banks the green light to return to similar business practices in the future remains to be seen, but those comments may well come back to haunt the Bank of England.

While there are suggestions that we may well be over the worst of the credit crunch, those who are expecting a sharp bounce are very much mistaken. Asset values are still only a fraction of what they were, the housing market is falling in the UK and the economy is set to slow considerably over the next 12 months. We may well have seen off the worst of the credit crunch but the after affects are only just starting to hit home.

The UK economy is probably in a worse position than many around the world with the government taking on extra debt to cover their budget deficit. This is money which will need to be repaid and looks set to hold back the economy and investment into public services in the short to medium term. Things are not as rosy in the UK as many would have you believe.

It seems that the £50 billion bailout of the UK money markets will not be enough on its own to see the economy through the worst. In an unprecedented attack on corporate governance in the UK, the Governor of the Bank of England Mervyn King has warned the banks that they will need to play their part to ensure that the UK economy does not take yet another turn for the worse. So what is happening?

While there was a flurry of relief that the government had pulled off something of a coup with the injection of £50 billion into the markets, this case is slowly unraveling. We are still seeing mortgage lending slumping month on month, house prices have fallen over the last 12 months for the first time for many years and many mortgage lenders are placing ceilings on the maximum mortgages which they will authorise. The situation is not getting any better in the short term!

It would be unfair to suggest that the government thought the affect would be immediate but the much expected flurry of relief has yet to materialise in the market place. Banks are still running to shareholders for billions of pounds to shore up their balance sheets and many of the smaller mortgage lenders are going to the wall. As many people suggested at the time of the £50 billion cash injection, this is one storm which we will have to ride out and one which will get much worse before it gets better. So what about that tax payers cash?

The £50 billion of tax payers money which was introduced to the markets is still very safe with the banks being asked to provide collateral much higher than the amount of money they are looking to raise. There is also the further safe guard that the banks have committed to covering any potential loses on the government’s asset swap. Even if one of the smaller player or a larger player was to go under, the industry itself would be forced to foot the bill just to ensure public confidence remained high.

There has been little news of late with regards to unemployment figures but these are set to rocket over the coming months. There is often a time lag between the economy falling and jobs being lost, although it will not be long before the bad news starts to flow. We are hearing news over the last few days that some of the larger budget clothing Groups in the UK are under severe financial strain with MK One recently put up for sale.

This is very much just the tip of the iceberg and there will be substantially more bad news before we start to improve. The Bank of England may well be forced to reconsider their current stance on interest rates and inflation and look to cut rates in line with their US counterparts. When you know that £50 billion is not going to bail out your economy you know that you are very much in trouble!

The UK government and Bank of England have today announced plans to inject some £50 billion of capital into the money markets by way of an asset swap with the clearing banks of the UK. Under the arrangement the banks will be able to swap a portfolio of their more risky mortgage investments in return for government bonds – with a total of £50 billion on offer during the 3 years scheme. Surely £50 billion will be enough?

On the surface you would surely hope that £50 billion would be enough to bail out the markets and increase liquidity again, but there are some who have their reservations. For many observers the “fix” has come too late to save many leading financials from disastrous losses, but on the other hand why should the taxpayer affectively bail out the banks for what has been a sustained period of greed within the financial sector?

There should be little risk to taxpayer’s money because the banks will be asked to swap assets with a much greater book value that the bonds which they receive in return. The commercial banks have also agreed to underwrite any losses on these asset swaps, thereby ensuring no loss for the taxpayer – in theory!

This type of move has never been seen before in UK markets, then again we have never quite been in a situation like we are today. By affectively switching their more risky assets off balance sheet and bringing onboard bonds which are guaranteed by the government, this should free up a large amount of liquidity. Not only will this liquidity benefit the clearing banks, but it will also allow the smaller financial institutions to borrow in the markets to get their business wheels in motion again.

This is a final throw of the dice by the government and if there is even the slightest hint of failure with this they will lose all face with the markets and voters. The fact that it has actually taken so long to decide upon this action has surprised many, because for the price of the taxpayer’s investment into Northern Rock they could already have had a similar scheme in place.

Many market observers are expecting to see a short term upturn in sentiment and then it will be down to the markets to find a level of risk and reward at which they are most comfortable. This £50 billion is no quick fix, it will not put right the wrongs of the market overnight but it has a great chance of setting the wheels of the economy moving again.

While the current government can afford to wait until 2010 to call the next election, it really will take some time to get the economy back on an even keel. Even though the money markets may start to show more signs of life, and a certain degree of confidence will return, many in the UK will still have to go through the pain of financial losses, employment worries and housing repossessions – which is all part of the boom and bust culture which all developed economies go through at regular intervals.

The news of an impending summit between the government and the Council of UK Mortgage Lenders is rumoured to be taking place this week, but what will they decide? Will it make a difference to the person in the street?

At the same time as Chancellor Alistair Darling was dishing out words of wisdom to the mortgage industry which he has very much helped to destroy of late, it was announced that State owned Northern Rock were not even following the governments lead. Northern Rock have yet to decide whether their variable mortgage interest rate will be changed after last weeks base rate reduction, in direct to contrast to Darling’s call. So is this a case of do as I say, not as I do?

While the government will argue that this truly reflects the independent nature of the Northern Rock, which is supposed to be run at arms length from the authorities, how can they then criticise the rest of the industry?

The mortgage industry in the UK is literally on its knees with increased funding costs, a falling housing market and a government which seem keen to squeeze them as hard as they can in order to curry favour with the public. It is difficult to argue with some of the points which the government have made, but does this latest outburst not deflect the attention from the Treasury at a time when public spending is under pressure, government debt is rising and the economy is stalling?

It will be interesting to see if the minutes of the summit are released, showing the arguments from both sides, because from an outsider’s point of view it would be interesting to see what was said and any changes agreed for the future. However, is it not ironic that all talk of a one off banking sector tax charge (suggested when they were all doing well) has now been replaced by an atmosphere of “let us work together”.

The bottom line is that while the mortgage companies of the UK could no doubt reduce their rates a little further, there is still massive pressure on funding. Many have been critical of the Bank of England who have injected just a fraction of the liquidity which their US and European counterparts have, despite the obvious deterioration in the financial sector. But is this the fault of the Bank of England, the consumer or even the government?

Let is not forget that this is a government who have bragged about the increasingly bright economic future of the UK for some time, the fact that the boom and bust scenario had gone for good and kept wage inflation in the public sector to a minimal. Now the economy is failing quickly, the bust scenario is returning and we are seeing more and more strike action in the public sector, and all in just a couple of years.

Will Gordon Brown get the chance to breathe new life into the economy, will the mortgage lenders play ball or has the Prime Minister lost his iron tight grip on the UK economy?