Well it looks as if Britain is heading for its first double-dip recession in 37 years after the economy slumped in the final quarter of 2011 and officials warned of a new threat to many jobs. With almost three quarters of the general public saying they were worried that another recession would have a severe impact on them and their family, while just 13 per cent said they would not expect to be affected it is hard not too worry.

The fresh crisis in Britain’s factories dealt a blow to the Coalition, which has pinned its hopes for recovery on UK industry. The economy’s worse-than-expected performance, which put annual growth for 2011 in line with forecasts at 0.9pc, came as the Bank of England revealed that the private sector is planning job cuts – undermining hopes that it might pick up the slack from the roughly 110,000 public sector redundancies expected this year. Even if the economy does manage to grow in 2012, it’s highly likely that the year will start with a return to recession. We may already be in it given the fall in output at the end of 2011.

And let’s not discount the threat posed by the unstable global markets. The Eurozone debt crisis continues to rumble on, while the US is looking increasingly likely to slide back into recession itself. David Cameron warned that the global economy is close to “staring down the barrel”, while IMF chief Christine Lagarde claimed the global economy has entered a dangerous phase where heavy debt burdens could “suffocate” a recovery.

We’ve already seen £200 billion worth of money rolled out in this fashion and that could be expanded as early as October, when the Bank of England holds its next base rate meeting. Another, more controversial, option would be to cut the base rate from its current record low of 0.5%. The Bank of England’s rate-setting committee caused quite a stir when it revealed that it had discussed the possibility earlier this month.

According to the ONS, manufacturers bore the brunt of the quarterly slump, declining 0.9pc – the steepest fall since the start of the recession in 2008.  However, some hope was offered by an improvement in the CBI industrial trends survey for January. Although orders remained below normal, economists said the data suggested the deterioration in the industrial sector had “troughed”.

The US economy saw its first growth in over a year, rising to an annual rate of 3.5% between July and September.

Experts believe that a major spending plan by the US government which featured a scrappage scheme to encourage the car sales market has been the main cause of the upturn.

Some economists believe that there could be more setbacks lurking ahead, despite the official statistics showing that the recession is over.

A spokesman at the White House announced that recent economic progression was “a welcome milestone” but it would take more time for a full recovery to be recognised.

The US economy had risen 0.9% in relation to the previous three months, whereas the UK economy remained in recession, unexpectedly dropping 0.4%.

Hugh Pym, the chief economics correspondent for the BBC, revealed that the growth rate of 3.5% was greater than the 3.3% predicted by most experts.

He continued:”The sheer scale of the stimulus in the US has made a big difference, it was much bigger in percentage terms than that in the UK.”

“That the US, the powerhouse of the world economy is growing once again, is good news for the global economy has a whole.”

The last time the US economy grew was in the second quarter of 2008, by an annual rate of 2,4%.

The National Bureau of Economic Research will reveal the full extent of the US economic climb from recession when it analyses all the factors.

Some factors were significantly responsible for helping US economy during the third quarter, according to the Commerce Department.

The spending on durable manufactured products rocketed up at an annual rate of 22.3% which was the highest quarterly figure since 2001 and was spearheaded by the ‘Cash for Clunkers’ scheme helping new car sales.

Consumer spending increased on housing products by 23.4%, the greatest quarterly surge in 23 years, and came as a result of an improving housing market.

The big increase is considered by many to be due to the government’s $8,000 tax credit provided to first-time house buyers.

Government spending increased by 7.9% as stimulus spending spread and exports saw their biggest rise since 1996, rising by 21.4%.

Brian Bethune, an economist for HIS Global Insight stated that “it’s good to have the economy growing again.”

“But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.”

“The challenge here is to get organic growth – growth that isn’t helped by fiscal steroids.”

However, unemployment is at a rate of 9.8% and a sharp fall came in September in the car sales industry as a result of the popular car scrappage scheme coming to an end in August.

Dean Baker, co-director of the Centre of Economic Policy Research believes that “you can say that the recession is over, but it sure won’t feel like that.”

“There is a lot of downward momentum that isn’t going to go.”

Plans to split British bank Northen Rock in two which would allow for its partial sale has been granted by the European Union.

The divide would result in two separate banks forming and are already being described as the “good” and “bad” banks.

The “good” bank would offer new lending, retain some of the existing mortgages and hold its savers’ money.

The “bad” bank would be used to repay the existing government loans and hold the remaining loans.

 Decisions made by the EU to accept the move are seen by Northern Rock as “an important and positive step.”

Changes to the existing setup will be made towards the end of the year.

The EU revealed that the good portion of the bank would be expected to grow and then be sold to third party, with the bad bank allowing its assets to dissolve then becoming liquidated.

The good bank may be sold prior to the general election next year with potential buyers being speculated already, with Virgin and National Australia Bank, owner of Clydesdale and Yorkshire Bank, among the interested parties.

EU Competition Commissioner, Neelie Kroes, believes that the move would make the bank a good long-term option, revealing that “this decision demonstrates once again that the EU’s state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage.”

Whilst Jonathan Todd, European Commission spokesman, said caps would need to be applied for the duration that the good bank remains owned by the public.

Some of the caps include a balance sheet reduced to a quarter of its size prior to the crisis, not being the market leader for loan interest rates, a cap set to limit its lending to one-third of Northern Rock’s 2008 levels and also a cap on retail deposits to be slightly lower than the pre-crisis level.

An investigation was engaged by the EU into Northern Rock in April 2008, two months after its nationalisation.

The results from the investigation showed that the UK government was kept at a “necessary minimum”.

By 30 June, the bank had paid back approximately half the taxpayers’ £26.9bn loan and will gain a further £8bn from the government during the end of year restructuring.

The EU stated that the restructuring would reduce its market share to below half of its pre-crisis level and “correct the excessive expansion of Northern Rock pre-crisis.”

Northern Rock released a statement, saying “this approval is an essential requirement of the planned legal and capital restructure, which is central to the business plan for Northern Rock.”

“The restructure will strengthen the capital and liquidity position of Northern Rock significantly, and offers value for money to taxpayers” and it would be “business as usual” for its customers.

Whilst the general financial atmosphere is improving and optimism growing, it is too soon to announce that we are in the process of recovery, according to experts at Ernst and Young Item Club.

The influential professional services firm expects some growth towards the end of 2009, but this growth should begin to struggle, with 1% expected growth for 2010.

They also predicted that customers repaying debt will grow slower than first anticipated and impending tax rises will follow the election.

BT Business research predicted a more optimistic outlook, declaring that small businesses are positive about the forthcoming year.

In September, BT Business conducted a survey of over 7000 small businesses and found that 75% believed their business would see an upturn in 2010, with 61% confident about their business’ prospects.

Professor Peter Spencer, Chief Economist from the Item Club, issued a wake-up-call to all those getting carried away with the optimism of recovery.

He warned, “there could still be substantial pain to come for corporates and consumers.”

“For a sustainable recovery the UK economy needs world trade to pick up and there is still not much sign of that happening.”

One of the factors holding back growth is that the VAT rate will return to 17.5% from its current level of 15% on 1 January, a change which may see consumers making purchases before the New Year.

Several other factors which will hold back growth lie on the horizon. An increase in national insurance contributions, the new 50p tax rate, the termination of the car scrappage scheme, tighter government spending and the return of stamp duty on housing are all due to hit the country.

Judging whether the recovery is happening, on the way or unlikely is difficult to forcast.

Professor Spencer went on to tell the BBC that the recent economic data has been “very mixed,” adding, “the stock market is absolutely rampant, industrial surveys all back in positive territory, but it’s yet to show through in hard data for output and things like that.”

“And when it comes to lagging indicators like unemployment, I’m afraid it’s going to be ‘feel bad’ for quite some time to come.”

On Friday, the official statistics for the Gross Domestic Product (GDP) are released, with many expecting no economic growth at all.

GDP is a measurement of the services and goods produced in a country, and since the first quarter of 2008, the UK GDP has been in negative figures.

The Bank of England has focused on quantitative easing, an act of pushing money into the economy. Professor Spencer feels that this has been of little success, with the little improvement on bank lending, going on to complain that “instead, the banks appear to have used much of the money to rebuild reserves and improve liquidity.”

Lloyds Banking Group announced on Friday that it has reached an agreement to sell its estate agency arm, Halifax Estate Agencies, to LSL Property Services for just £1.

The sale of Halifax Estate Agencies (HEA) will result in the closure of approximately 121 Halifax banking counters which are situated within the estate agency chain’s branches, potentially causing 460 people to lose their jobs as a result.

With 218 branches, HEA is the fourth biggest network of estate agencies in the UK. The lack of residential property sales saw a pre-tax loss of £2m, a dramatic drop from their £34m profit in 2007.

HBOS became acquired by Lloyds during a controversial deal made earlier this year.

Lloyds released a statement on Friday, stating that the decision to sell was made as a result of considered reviews by the bank and “concluded that an estate agency operation is no longer integral to its business model”.

The decision comes after measures were made in August by Lloyds announced it was to sell its Insight asset management business to Bank of New York Mellon for £235m.

In efforts to gain approval from the European Commission for aid from the UK government, Lloyds are expected to make big cuts.

LSL currently own a range of estate agencies, such as Your Move, Reeds Rains and InterCounty. The addition of HEA would result in 584 branches and increase their estate agency portfolio to become the second-largest estate agency network in the UK.

LSL considers HEA to have been run to primarily distribute financial services products and held great potential for their business.

“This is a significant opportunity for LSL to acquire a high-quality branch network, an established asset management business and pipeline of sales on favourable commercial terms at a low point in the economic cycle.”

Shares in LSL increased by 5% to 275p and Lloyds shares increased 3.4% to 94.52p during early Friday.

The deal is expected to be completed in January 2010, and include approximately 1050 HEA staff transferring to work for LSL as a part of the agreement.

On Friday, a statement was released by LSL suggested that the acquisition of HEA had been traded ahead of management expectations made in July, with turnover for the 8 months up to 31 August, down by 18%.

LSL revealed that they await the results of 2010 with caution, confessing that “any recovery is likely to be constrained by the availability of mortgage credit and general economic backdrop.”

Official statistics show that one of the main measures of inflation has reached its lowest point since September 2004, another sign of sterling weakening. The annual rate of 1.1% in September was lowered from 1.6% in August by the Consumer Prices Index (CPI).

A separate measure of inflation conducted by the Retail Prices Index (RPI) found that mortgage interest payments and housing costs also dropped, from -1.3% to -1.4%.

The pound also reached its lowest point in the past six months when it fell 0.5% against the Euro to 1.0628 Euros and to a five-month low of 1.5730 US Dollars.

Weak

Duncan Higgins, a senior analyst for Caxton FX, felt that “this is bad news for the pound.”

“The CPI figures will weigh heavily on the UK currency and will continue to discourage investment.”

A report conducted by the Centre for Economics and Business research predicted UK interest rates would not rise above 0.5% until 2011 and fail to meet the 2% mark until 2014; a further damnation to the outlook for the pound.

Meanwhile, the strength of the UK economy was dealt a further blow last week when it was revealed that industrial output dropped in August.

A prediction for the GDP had to be recalculated by the National Institute of Economic and Social Research after the UK economy failed to grow during the June/September quarter.

However, the economy is still very “frail” according to the British Chamber of Commerce (BCC), despite business confidence improving.

In an effort to sustain a stable broader economy and prices, the Bank of England is making efforts to retain 2% CPI inflation. Should the CPI inflation drop below 1%, the governor of the Bank of England must provide a written explanation to the Chancellor, Alistair Darling.

High energy prices a year ago, in comparison to lower energy prices this September are being blamed for the recent fall in inflation. The Office for National Statistics (ONS) reported that electricity, gas, and other fuel bills tumbled by 7.3%. Energy costs have started to level more recently, with little change from August to September.

Jonathan Loynes from Capital Economics predicted that we can expect to see CPI back at the 2% mark by the start of 2010, due to increased energy prices and VAT returning to 17.5%. He does believe that a “huge amount” of unused production capabilities would keep inflation down and “keep alive the threat of a period of outright deflation late next year or beyond.”

In contrast, Keith Wade of Schroders UK forecasted that it “probably will be the low point in inflation.”

Bank policymakers of UK are concerned about the expected high inflation levels and the consequences the industry will face. It is feared that the inflation will increase over the period. Bank of England is struggling with the rising price pressures and slow growth rates and the soaring inflation expectations will also affect the interest rates as it will come down more slowly than expected. Bank of England in its February survey stated that the public expect the inflation to be around 3.3 percent in the coming year and also the current inflation levels have jumped to a record level of 3.9 percent.

Bank of England setters have also warned that the impending inflation originated by the rising and falling cost of worldwide commodities will worsen the situation further and the actual threat to UK’s economy will be further price hikes and more expectations of the public which may lead to higher inflation levels.

BoE has reserved the rates at 5.25 percent during the first week of this month however shareholders are making a bet that the rates will fall as low as 4.5 percent within this year. This kind of predictions also makes the position of the Monetary Policy Committee more difficult as this dampens the interest rate cut in the near-term. It is believed that the workers may demand higher wages to meet the rising prices of commodities and the industry will be forced to increase the wages to retain them.

Many economists feel that the consumer’s inflation expectations are overly influenced by the increased price of essential commodities such as petrol and bread. According to the economists, because of the latest price hikes and the increased rates of food price the public tend to expect the inflation to grow at a higher rate and the fact that this piece of information is widely exposed further supplements the belief.

The CPI inflation as per the last reading was 2.2 percent in January. The retail price index which also comprises of mortgage payments was 4.1 percent during this period and the news has created much concern for BoE as the high inflation expectations will reduce the chances of quick cut in interest rates. Since December, Bank of England has undertaken two quarter-point cuts and has kept the standard rate at 5.25 percent. So, for the moment the economists feel that the Bank’s apprehension about inflation has balanced its growth fears.

The prime factors that affected the CPI had also affected the RPI and the mortgage interest payments had a downhill effect on the RPI during this month. Also, the RPIX inflation on all the items excluding mortgage interest payments had risen to 3.4 percent in January from the 3.1 percent mark in December. Moreover, the largest growing pressure on RPI is due to the raise in the price of fuels. With oil prices at 110 dollars, the inflation rate may further rise to record prices and economists are also voicing their fears to the Government.

For those who have not come across leveraged buy-outs before, these were very very popular in the 1980s, at a time when stock markets were flying high and takeovers and mergers were all the rage.  Money was also cheap, and lenders were bending over backwards to help corporate raiders with worldwide economies booming.  So how do leveraged buy-outs work?

As the name suggests, raiders who used the leveraged buy-out ideals would take out massive loans against a target companies assets and cash flow projections, paying off the debt as they went along.  While obviously this would have an impact upon short term profitability, with the majority of income going towards paying off what was in many cases millions of dollars worth of debt, there were advantages.  The beauty of these schemes was that for a relatively small initial sum, the raider could borrow many more times that amount using the company’s assets as collateral and maybe even selling off non-core assets.

After the pay back period was over, and the loan had been successfully repaid the corporate raider would have a business which they owned lock stock and barrel, for which they may only have paid a fraction of the value – with the vast loans paid back out of the companies cash flow.  If the theory went perfectly to plan, which it often did, the owner of the business could net hundreds of millions of dollars of assets.

So what went wrong?

As the market was pushing along well, the economy flying high and not a cloud in the sky, up popped the 1987 stock market crash.  Not only were the banks now looking to reign in some of their ill advised loans, interest rates were sneaking higher (adding to the debt burden) and the economy came under pressure (reducing profitability and cash flow).  These were the events which killed the leveraged buy-out market overnight.

While highly successful for many investors in the 1980s, the situation has never been quite the same with leveraged buy-outs.  We have some debt funded buy-outs since then but the banks are more risk averse and there are fewer prime candidates available for leveraged buy-outs.  Are the golden days gone for ever? Who knows……

While it has very much been in the news of late, the Bank of England has a history which is drenched in traditional and authority.  Located at the famous Threadneedle Street, London  the bank was founded by a Scotsman by the name of William Patterson as long ago as 1694.  In order to begin trading, Patterson arranged  a loan of some £1.2 million to the UK government, in exchange for the right to operate as the bank of the UK government – something which was set down via a Royal Charter in July 1694.

While the Royal Charter has been renewed and amended on a number of occasions since 1694, the Bank of England remains very much the mouth piece of the UK government in the financial markets.  Back in the early days when there was little regulation and no defined structure to government finances, the Bank of England took advantage of this and while entrenched in public and national debt services, they also took the first steps towards regulating the banking sector as a whole.

The first governor of the bank was Sir John Houblon, whose face still adorns the £50 note issued in 1990.  There have been numerous governors since then with one of the most recent being Eddie George, who was subsequently replaced by Mervyn King on his retirement.  While the bank were recently given a form of independence and the right to act on their own instructions, there is still a direct connection between the Bank of England and the UK government, something which has caused some controversy.

The recent Northern Rock debacle has opened up a number of old wounds, and we are yet again going through a phase of reviewing the regulations and rules relating to the financial markets.  Despite many attempts to undermine her, the “Old Lady of Threadneedle Street” (as the bank is fondly referred to) is still very much alive and kicking, with a reputation that many overseas authorities can only dream of.