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) says that UK house repossessions fell 10% in the second quarter of the year compared to the first.

However, there was still a rise of 14% of homes being repossessed compared with the same three months last year.

The group believes low interest rates, early advice for struggling homeowners and tolerant lenders are helping, but with unemployment still rising, more and more households will get into difficulty.

Low interest rates means those that are falling behind on their mortgage repayments is levelling off.

The number of home loans with arrears of over 2.5% of the mortgage balance in the second quarter of this year was 205,600, compared to 203,900 at the end of last quarter, and 139,700 this time last year.

Negotiations

But separate figures show that there may be a future rise in repossessions yet. The number of court repossession actions started bounced back in the second quarter of the year, rising 10% compared to the first quarter. Repossession orders given by judges also rose at the same time by 16%.

Homeowners can still negotiate with their lenders to stay in their homes at this stage, but nearly half of the repossession orders were suspended as judges allow borrowers to negotiate a deal with mortgage lenders.

The CML say the figures show lenders aren’t being aggressive about lack of payments, but do issue a warning: “with unemployment rising and the economy still weak, the outlook will remain challenging for the rest of this year and into 2010.

“Clearly, low interest rates are also helping borrowers who are committed to working to resolve their arrears, paying what they can – and when they can – towards their mortgage, and maintaining good communication with their lenders.”

Second Wave Still To Come?

The CML recently reduced its estimated number of repossessions in the UK to 65,000. However, homeless charity, Shelter, believe there may be a second wave of repossessions when interest rates rise again.

Kay Boycott from the charity said: “Despite many lenders using more tolerant measures to help their customers, further action is needed if we are to prevent a second and more devastating wave of repossessions.”

CML and the government believe free advice to those falling behind on their repayments and ‘last-gasp’ advice in repossession courts has allowed many to keep their homes. But similar schemes  – such as those to allow people to sell their home to housing associations and live as tenants – have had a slow start.

 Fifteen households completed the ‘mortgage rescue’ process in England by the end of June under a new scheme, and the government will send a fast-track team to oversee it from autumn. Seventy families have been through the scheme in Wales and a hundred and five in Scotland since March. Other people have started the process to eliminate the imminent threat of repossession.

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UK unemployment has risen to its highest level since 1995.

In the three months leading to June, unemployment rose to 2,435,000, making the rate of unemployment 7.8%.

Average earnings excluding bonuses also grew at their slowest rate since records began in 2001, at an annual rate of 2.5% in the three months to June, compared to 2.6% in the three months to May.

Those in manufacturing suffered worst with pay increasing only by 1.1%. Public sector work saw an average rise of 3.7%.

The full impact of the current lack of jobs has yet to be shown by the figures which don’t yet include those that left education this year.

Bank governor Mervin King warns the UK is looking at a ‘slow and protracted’ recovery in 2010.

He also hinted further measures may be needed to stimulate the economy on top of the Bank of England’s current quantitative easing.

Lost Generation

The BCC believe unemployment is likely to keep rising rapidly even if the economy begins to grow again, and may reach 3 million.

However, the Institute of Directors also estimated a million people are working part-time because of the recession, that are also not represented in figures.

Calculations based on ONS data believe unemployment among 16-24 year-olds has risen to 19.1% as 928,000 of them are classed as unemployed.

There is rising concern about the number of young unemployed people in the UK. Lord Mandelson, the UK Business Secretary said: “This is something the whole country has got to rally to. We need public and private employers, as well as those in the [charity] sector, to help us mount this national campaign to back young Britain.”

Shadow Chancellor, George Osborne adds: “Unemployment continues to rise, month after month, we are facing a lost generation of young people who can’t get work.

“The government talk about all their unemployment schemes that are supposed to help, but at the moment we’ve just got people losing their jobs and getting very little help in trying to find a new one.”

What Are You Going To Do About It?

Youth Fight for Jobs Campaign says there’s a lack of affordable housing as well as jobs for young people: “It’s about highlighting that there’s a problem, and also saying to the government, and local MPs, and councillors, what are you going to do about it?

“Young people don’t get proper training, a lot of working class young people get put off from going to university and being saddled with debt.”

The number of new claimants for job seekers allowance had been falling, but rose from 21,500 in June to 24,900 in July. The government says it will launch an investigation into the difference between those out of work and those claiming unemployment benefits.

Latest data shows, under International Labour Organisation rules, the jobless rate rose by 7.8% in the second quarter of 2009, but the rate of people claiming unemployment benefit in July was only 4.9%.

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No Such Plans…

The Conservatives say that they have no plans to increase VAT to 20% if they win the next general election says shadow Health Secretary Andrew Lansley.

Mr Lanslet insisted on BBC’s Andrew Marr Show, that the move was note being actively considered. He added that “no such plan” has ever existed and denies reports that “senior level discussions” were being held in order to discuss this possible move.

Stephen Timms, Treasury financial secretary, says David Cameron, leader of the Tories, “needs to explain” his plans

A British newspaper says that a VAT rise would be introduced by a Conservative government within weeks of the party winning the election. They believe the decision to make the increase is part of an “emergency” budget that will reduce the UK’s debt, was made by Mr Cameron and his shadow Chancellor George Osborne.

But Mr Lansley says that no such action has been taken: “As far as I am aware we have absolutely no such plan and I know there have been no such senior level discussions.

…Can’t Be Ruled Out In The Future Though!

“We have been very clear about the need for public spending to be controlled and the priorities that we will have within public spending, including for the NHS.

“We have been very clear about that because we don’t want to be in a position where we have big tax increases, the effect of which is to stifle the economy.”

Shadow Foreign Secretary William Hague also says that there are currently no plans to raise VAT to 20%, but he also said that such a move could not be ruled out completely in the future. He said: “You can’t ask George Osborne to write the 2010 budget now.”

Mr Timms says: “If David Cameron is seriously considering this, he needs to explain why he thinks it’s right that ordinary families should pay more tax while he’s pledging £200,000 tax cuts for the 3,000 richest estates.”

The current VAT rate is 15% after Chancellor Alistair Darling reduced it earlier this year from 17.5% in a bid to tackle the economic downturn.

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Discourages Risk-Taking

The FSA will publish a code later this week detailing how it expects banks to change their policies on pay and bonuses.

The consultation was launched in February, which looks into measures to discourage excessive risk-taking.

Last week there were suggestions that bonuses have been returning in the middle of a boom in profits from investment banking, but FSA’s Hector Sants says that the regulator will not look at individual bonuses from banks.

He also added that the FSA would be responsible for making sure the calculation of bonuses was not encouraging too much risk that would put banks at risk of failing, and also for deciding if the banks are distributing too much money for their own health.

“Our code next week will address those questions and make absolutely clear that you cannot calculate bonuses in a way which encourages unreasonable risk-taking and puts the institution at risk, which was the case in the past.”

Reward Long-Term Success, Not Short-Term Risk-Taking

The Turner Report back in March, suggested that bonuses should be deferred in order to reward long-term success rather than short-term risk-taking. But it did concede that regulators’ failure in the past to consider the effect of banks’ remuneration on their risk-taking had been a mistake that contributed to the current economic crisis.

The FSA now says it will start looking closely into the way bankers are paid in general.

Mr Sants said: “One of the measures we’ll be announcing next week is a requirement for all UK banks to produce for us a clearly articulated pay policy and we will sign off on that.”

He also added that as long as overall remuneration policy is acceptable, the FSA wouldn’t be worried about the question of staffs individual payments. As long as the overall amounts going on bonuses were not too much, the amount going to any individuals would be a matter for shareholders or the government.

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Deliberate Undervaluing

Estate agents are warning that property sales and remortgage deals are collapsing due to some mortgage lenders and surveyors deliberately undervaluing homes.

Homes are currently thought to be undervalued by an average of 10% according to the National Association of Estate Agents (NAEA), due to surveyors being overcautious.

The Royal Institution of Chartered Surveyors denies this, saying that the housing market is constantly changing and had lots of ‘imperfections’.

If the valuation a lender places on a property is lower than the agreed price, the lender may choose to offer a smaller mortgage, leaving the buyer without enough money to cover the asking price and causing the deal to collapse.

Lenders can also check property value when it is being re-mortgaged in order to make sure they aren’t lending more than it’s worth.

Same Valuer, Two Different Values

Peter Bolton King of the NAEA said: “They are perhaps worrying about the market and almost deliberately knocking off 10% almost regardless of what the property sold for.

“The other reason which I found more worrying, is that we are hearing anecdotally that lenders are giving specific instructions to their valuers as to how they should approach these valuations.”

Sellers are also feeling the effect of undervaluing as they may have to drop their prices. People seeking mortgages are also left with little or no flexibility.

One homeowner says that she had problems remortgaging her home: “The bank sent their own valuer who valued it at £80,000, but I knew it was worth far more so I paid £300 to get it revalued.

“The valuer came and said it was worth £100,000 but it was the same person that made the first evaluation.”

Unpredictable And Unreliable Time

Managing Director of independent broker Mortgage Talk, Andrew Frankish, said: “With the mortgages that are not completing, we believe up to half of them are affected by the valuation.

“What we mean by that is the valuation is coming back at lower than they predicted, which pushed them into a higher loan to value, which means the products are too expensive or the banks are reluctant to lend in that money at all.

“This is even worse than remortgages where around three-quarters of remortgages are affected.”

The Council of Mortgage Lenders says it works with professionals who are duty bound to give accurate valuations, but those who value homes also deny they are deliberately undervaluing them.

Royal Institute of Chartered Surveyors, Barry Halls said: “We are dealing with a market where there are lots of imperfections and there will be a range of valuations that the valuer will look at before they arrive at their opinion of value.

“That opinion of value could well be different from another opinion of value and could fluctuate over a period of time as well.”

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Self-Assessment Payers Targeted

HM Revenue and Customs has sent out a warning about gangs stealing taxpayers’ passwords and submitting claims for tax refunds to be paid to them after a series of claims of attempted fraud through self-assessment repayments system has been discovered.

Figures have not been released detailing the extent to which the fraud has reached, but a Revenue and Customs spokesman said that this was a new method of trying to extract money and urged people to make sure their passwords from HMRC were kept secure.

He said: “They should treat these details as carefully as they would a Pin for their bank account.”

Over nine and a half million taxpayers are on the self-assessment system, which was changed this year in order to encourage more people to submit their details online.

In 2007-8, two-thirds of all filings were made via the internet rather than on paper.

What’s Going Wrong?

When someone applies to use the system they are sent a password through the mail which is then used when the taxpayer logs onto the HMRC website within a 30 day period.

But fraudsters are somehow getting hold of these passwords and other personal details – perhaps through stealing mail, tricking people out of their details or even finding the letters discarded in bins. They then use these details to make fraudulent repayment claims, requesting the funds be sent to other bank accounts.

According to Revenue and Customs, this is different from so-called phishing emails which pretend to be from the tax authority and aim to discover taxpayers’ banking details so their accounts could be raided.

Their spokesman also adds that liability for any losses will be judged on a case-by-case basis.

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The Department for Business, Innovation and Skills has confirmed that the government will be offering graduates struggling to find work trips abroad thanks to expedition company Raleigh International.

The scheme will pay for 500 graduates under 24 to travel to places like Costa Rica and India to take part in projects like building schools.

This comes as it is revealed that there are currently forty eight graduates chasing every job offered according to research by the Association of Graduate Recruiters.

The expeditions will be 10-weeks and will enable graduates to work on community and environmental volunteering projects in remote countries.

Unfair

David Lammy, Higher Education Minister said that volunteering would help new graduates develop the “communication and leadership skills that are so highly valued in the workplace.”

The government will pay Raleigh £500,000 to support graduates who otherwise would be unable to afford to go on such trips. According to a British newspaper, graduates must raise £1,000 to pay for flights and eligible vaccinations.

Applicants for this will have to prove an expedition overseas is beyond their financial means without the bursary. Normally, these expeditions would cost £3,000 per person.

Matthew Pickin taught in Malawi in his gap year, and says the scheme is unfair to those who had to pay £3,000, and that working to afford to be able to go abroad brought more satisfaction while being out there.

Government Not Helping Everyone

A recent graduate also disagrees with the scheme saying it’s like a “smack in the face” for those that aren’t picked.

He said: “I am out of work and I am currently funding my own re-training – currently heading for £3,000 – to make myself more employable and because the government will not help me.”

The government has increased its campaign to help graduates find work in the recession since the most recent batch of University graduates leave.

On Wednesday it announced 2,000 internships would be made available through a graduate talent pool website, and the Work and Pensions Secretary invited businesses, councils and charities to bid for a share of £1 billion to create 47,000 jobs for young people for six months at minimum wage.

‘Creative Thinking’

The outlook is also causing many graduates to stay in education.

National Union of Students president Wes Streeting said the governments “creative thinking” was welcomed to give graduates an opportunity to gain new skills.

He said: “With youth employment reaching the one million mark, funding opportunities foe skills development is surely better than the soul destroying experience of sitting at home watching Jeremy Kyle, on the dole.”

Although, chief executive of the Taxpayers Alliance, Matthew Elliot, said the scheme was a “headline grabber” that would dent taxpayers pockets.

He said: “The government needs to stop spending. It needs to focus on creating the right economic climate to allow entrepreneurs and business men to be able to hire new graduates.”

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Targeted!

Bogus emails are apparently targeting people who are aiming to meet next Friday’s tax credit renewal deadline according to credit reference agency Equifax.

These emails offer tax refunds in return for credit card or bank details. It is therefore making sure people know that organisations such as HM Revenue and Customs do not ask for details such as these either via email or telephone.

The government introduced the tax credit system in 2003, but it has been the cause of many problems such as overpayments ever since it began.

In recent weeks most people have received tax credit renewal packs in the post in order to sort out their own.

Always Double-Check!

Equifax external affairs director, Neil Munroe, said that fraudsters were showing “cynical timing” as they send out emails to people offering relief from tax bills.

He advised: “If you were worried about money and then got the email you might think all your prayers had been answered.

“They ask for credit card or bank details and if you gave those you could find yourself very quickly a victim of ID fraud. However, generally a person would be alerted to a tax refund at the end of the financial year.”

He also warns that people should always double-check with the tax authority if they are not sure what to do about any documents they receive.

Other prevention tips to avoid becoming victim to this fraud, or similar things include the installation of virus protection software on your computer, having a range of passwords, and destroying hard drives on old computers.

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Could more be done by the government  and HM Revenue and Customs to prevent such fraud? What else can the general public do to protect themselves? We would love to know your thoughts and opinions on this. Leave your comments here.