The US unemployment rate has risen above 10% for the first time in 27 years, leaving the US in a state of despair.

President Barack Obama will hold a jobs summit on Thursday, focused on job creation.

Although he has included business leaders amongst the 130 experts attending the summit in Washington, Republicans in Congress will opposed to any major spending plans.

President George W Bush has already frustrated them by spending billions on bailing out the banks and car makers.

The “big government” image and creating big financial defecits to be paid for by future generations are unpopular in Washington.

Economy.com’s Mark Zandi believes deficits are a major worry, but we can’t afford to be concerned about it now.

“That’s a problem not for 2009, not for 2010. That’s a problem for 2011, 2012 and beyond,” he says.

“We have to make sure that we don’t go back into a recession, because if we go back into recession, the cost to taxpayers will be even greater.”

“The deficits will be measurably larger, so I think it’s important to spend more money now.”

According to Mr Zandi, government spending needs to be aimed at assisting local government offices, as with tax funding falling, many employees are at risk of losing their jobs.

President Obama is on the look out for new ways to combat unemployment.

Unemployment benefits usually run out after six months in the US, but have been extended because of the highest unemployment rates.

Mr Zandi believes continuing with providing benefits to the unemployed as essential to maintaining demand, as those with no money make no purchases.

That situation could develop into a ‘catch-22’, downward spiral, as consumers that don’t consume, results in businesses cutting their workforce, causing more unemployed with no money to spend.

Another area where Mr Zandi feels the government can make a unique contribution is providing credit to small and medium-sized businesses.

Banks are still cautious over lending after the credit crisis, but have always given capital to start-up companies to help them expand, and these new businesses usually provide America with the majority of new employment.

Mr Zandi believes that “it’s clear that even when the economy gets back on its feet, we’re going to have very high unemployment in many parts of the country for a long time to come.

“One reason is that the people out of work don’t have the skills and education necessary to be employed in the jobs of the future.”

The UK’s Yorkshire and Chelsea building societies are said to be in “advanced talks” over a potential merger.

The Chelsea is the fifth and the Yorkshire is the second largest building society in the UK.

If a deal is reached, it would rival the Nationwide as big mutually owned mortgage and savings institution.

In August, Chelsea revealed a half-year loss of £26m after it had assigned £41m to cover to mortgage frauds.

The Chelsea has 35 branches and 700,000 members, while the Yorkshire has almost t three times as many members at 2 million and over four times as many branches, with 143.

The Chelsea building society announced, “the board of Chelsea has been undertaking a detailed review of the society’s activities, operations, financial position and corporate structure”.

“As part of this, Chelsea has considered the potential benefits to members and other stakeholders of a merger and this has culminated in discussions with the Yorkshire.”

The talks of a deal are being seen as a rescue package for Chelsea. New chairman Stuart Bernau has been analysing the business and viability over its independence.

In 2008, it reported a loss of £39m which was the highest recorded loss by a building society. £44m was written off due to huge investments in two failed Icelandic banks.

Another £15m was written off by the Chelsea after buying a mortgage broker in 2007 whose business collapsed during the credit crunch.

Building societies differ from banks and stock-market companies, as they are owned by their members, and struggle to regain reserves if they suffer heavy losses.

The Chelsea went on to reveal that “for a merger to proceed, the boards of both societies would need to be satisfied that it will be in the benefit of each society’s members”.

“The merger would also be subject to approval by each society’s members and the FSA.”

It has yet to be revealed if a merger would provide a windfall to the members of both societies. A spokeswoman for the Chelsea said that such details were yet to be discussed.

Several takeovers of building societies have been made since autumn 2008 in an attempt to save them from problems brought on by the global financial crisis.

In September last year, the Nationwide began its takeover process of both the Cheshire and the Derbyshire, then the Yorkshire made a move for the Barnsley building society, with the Skipton taking control of the Scarborough.

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.

According to official figures, the UK experienced an unexpected contraction of 0.4% for the third quarter, showing that the UK is still stuck in the recession.

This quarterly contraction is the sixth consecutive contraction, the worst run of figures that UK gross domestic product (GDP) has experienced since records began 54 years ago.

The GDP of a country represents the value of goods and services produced by a country. The figures released may be altered at a later date, as this is just a first estimate.

The Office for National Statistics (ONS), had been expected to show quarterly growth of 0.2%. However, no growth in retail sales for September and a 2.5% fall in industrial output for August had dented people’s positive expectations.

Experts have revealed that one of the main causes of the contraction was an unexpected drop in the services sector, with distribution, catering and hotels generating some of the worst figures.

Nearby countries France and Germany exited the recession earlier this year, and it is generally considered that the UK’s reliance upon the services sector, and more specifically, the finances sector being the main reason.

The UK economy has now experienced a 5.9% contraction since its high point prior to the recession.

The Bank of England is set to re-think its quantitative easing plan after seeing such a poor result in GDP figures. Quantitative easing involves the Bank of England printing money to buy bonds from companies and banks in an effort to encourage positive activity in the economy.

HSBC’s Bronwyn Curtis spoke with the BBC, revealing that “back in August we had a worse-than-expected second-quarter GDP number and that is the reason that the Bank of England extended the quantitative easing programme,”

ING’s James Knightly felt that the data was “awful with no positive news” and “clearly suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, although [it] is not a foregone conclusion.”

It is considered by many experts to be disturbing that measures taken by the government and the Bank of England have failed to make a positive impact. However, David Kern, the chief economist with the British Chamers of Commerce believes that “continued intervention - including help for businesses to access finance, and incentives to promote investment - is still needed.”

“Above all else, business confidence must be nurtured, to ensure that recovery is not further delayed.”

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.”

The Council of Mortgage Lenders (CML) has revealed that the number of new mortgages granted for August is down by 3,000 from 56,000 in July to just 53,000.

Despite such a large fall in granted mortgages, this is still 29% higher than last year’s figure for August.

The CML believe that house sales may have reached a plateau, as most first-time buyers still have to provide large deposits.

Overall, the total value of mortgage lending for buy-to-let and remortgaging for the past year is down by 36% on last years figures.

Long Recovery

The CML’s economist, Paul Samter believes “house purchase activity has revived from its moribund state at the beginning of the year.”

“It will be a drawn-out recovery process with seasonal ups and downs, but house purchase activity is now on a firmer footing.”

According to the CML’s figures, first-time buyers need to find on average 25% deposit in order to receive a home loan.

Regardless of whether a borrower is a first-time buyer or not, two-thirds of all mortgage deals require at least a 25% initial payment.

Relaxing

The Bank of England has claimed that the number of new mortgages approved in August, but not lent, has fallen for the first time in eight months.

From 52,317 approvals, down from 52,404 in July, is a sign that levels may be beginning to level off in the coming months.

Data shows that the number and value of house purchase loans is higher than a year ago, the total value of mortgage lending has dropped by a third.

Standard variable rates are very low, giving borrowers much less incentive to remortgage their house or seek out fixed rate mortgages elsewhere. Buy-to-let mortgages are also down  on a year ago.

“At £12.3bn, gross mortgage lending - which encapsulates all mortgage lending activity, including house purchase, remortgage and buy-to-let lending - declined 36% from August 2008,” the CML reports.

House Prices

The autumn of 2007 saw the onset of the credit crunch, with house prices taking a sudden downturn. Over the past few months, house prices have been steadily rising, giving hope that the recent recovery may become more prolonged.

House prices rose by 2.8% in the 3 months leading up to September, in contrast to the 3 months prior according to the Halifax; the first quarterly increase for two years. Further support to the encouraging recover was made when the Nationwide confirmed that house prices have risen continuously for the past 5 months and have returned to the level of September 2008.

Sales have doubled between January and August and the market seems much more stable in comparison.

Experts have warned, however, that the rise in house prices is supported by the shortage in new properties being put on the market. If there is a sharp rise in houses placed on the property market, the rise in house prices may come to a sudden halt.

Following recent Bank rate cuts to 3%, Premium Bond prizes are also set to drop.

The National Savings & Investments (NS&I) have said that total Premium bond prize payout will drop from £87.8 million to around £57 million by January next year. Along with this, the number of Premium Bond prizes will also drop from 1.54 to 1.1 million.

However, there will still be two £1 million jackpot prizes each month, the catch being that overall odds of winning a prize will rise from 24,000-to-1 to 36,000-to-1 per £1 bond. So, someone who has invested £30,000 in Premium Bonds, will win, on average, 10 prizes per year according to NS&I.

In recent months, NS&I have seen an increase in money being invested by the general public wishing to take advantage of its 100% state guarantee after recent worries about the solvency of High Street banks.

After the Bank of England made interest rate cuts from 5% to 4.5% in October, NS&I also cut their account rates. After the latest cuts, other variable NS&I savings rates are also being reduced along with the Premium Bond. This includes cuts in rates for their Individual Savings Accounts (ISA), income bonds, investment accounts, and savings accounts.

The interest rates in ISAs have been cut to 2.4% from 3.9%, and income bond rates have fallen by 1.3%.

In it’s Easy Access account however, savers are being offered a slightly higher interest rate than previously. The account focuses on people who have between £5,000 and £9,999, and the interest rates have increased from 1.15% to 1.45%.

One of Japan’s largest banks, Sumitomo Mitsui Financial Group, is in talks with Barclays to invest about Y100bn (£470m) for a small equity stake in the UK bank.

Barclays has been looking to raise as much as £4bn in fresh capital in an effort to shore up its balance sheet without having to launch a lights issue that could leas to aggressive write-downs.

The UK bank has found itself under pressure from regulators and investors to boost its capital reserves. Barclays has been working on a plan that offers stakes to investors, including several sovereign wealth funds.

Barclays’ core Tier One equity ratio is among the lowest in Europe at a bout 5 percent.

The talks between Barclays and SMFG are a rather sensitive topic. It is unclear whether the UK bank will be able to raise the remaining funds it is seeking from other potential investors, according to a person close to the situation.

“Barclays and SMFG are also discussing a business alliance to capitalise on the UK bank’s network in Asia and its strength in wealth and asset management,” a source said. SMFG have declined to comment.

Japanese banks have been looking to expand outside their domestic market and become global players. In January Mizuho Corporate Bank invested £608m in Merrill Lynch.

“The Japanese banks have weathered the sub-prime crisis much better than western banks. Sumitomo Mitsui Financial Group has Y4,400bn in tier one capital, so using about $1bn of that makes some sense (since) it’s difficult to deploy capital effectively in (the domestic market),” said Brett Hemsley, a banking analyst at HSBC in Tokyo.

Barclays has written off £1.7bn so far this year on complex debt securities but analysts say the bank has been less conservative that some of its rivals in marking down assets related to the US sub-prime mortgage meltdown.

Barclay’s shares, which have recently fallen to a 10-year low on fears about its balance sheet and worries that it may dilute existing shareholders by issuing new equity, opened 1 percent higher on Friday at 319p.

Royal Bank of Scotland announced today that 95.11 percent of the shares offered in its £12bn rights issue had been taken up by investors. Nearly 300m shares left with the underwriters – Goldman Sachs, Merrill Lynch and UBS – was to be placed during the day.

This was the largest rights issue seen in European markets. Its success followed an upturn in the bank’s share price last week, which at the start of the week had fallen to 220p, dangerously close to the 200p price for the shares offered to investors on an 11 for 18 basis. The shares had recovered to 259p on Thursday, ahead of the rights deadline on Friday. The shares fell by 5 percent to 245½p on Friday.

The relatively high level of acceptances could help sentiment towards HBOS’s £4bn rights issue. It s offering shares at 275p and on Friday its shares closed at 330¾p, barely above its 12 month low.

RBS who, jointly with Santadar of Spain and Fortis of Belgium, succeeded in winning a €71bn battle to buy Dutch lender ABN Amro last year, is due to announce a trading update on Wednesday ahead of the end of the first half of its financial year.

However, last week when Bradford & Bingley issued its profit warning and restructured its rights issue, RBS announced that the trading guidance it had given at the time of the rights issue in late April was still appropriate for the group and its divisions.

Investors are presently awaiting news on RBS’s plans to make disposals, notably of its insurance business. RBS recently agreed to sell its 50 percent stake in Tesco Personal Finance to the supermarket group for £1bn.

Investors are also heaping pressure on Sir Tom McKillop, chairman, after unhappiness with the group’s performance. They regard the banks determination, despite market conditions, to win ABN Amro as having necessitated the rights issue, which was accompanied by heavy write-downs on the value of complex debt securities.