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 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.”

Alistair Darling has announced that the government must borrow its way to recovery and believes that it’s the best avenue for the UK economy in the long run.

The Chancellor of the Exchequer confessed that further national borrowing “may feel counter-intuitive,” but “will mean the bills we face as a country are lower” in the long run.

However, many believe that the levels of government debt are already too high, with cuts in public spending and tax rises required. The government has already raised borrowing during the recession by high amounts.

Following Mr Darling’s speech, a question-and-answer session was held, with the chancellor finding agreement with Mervyn King, the Bank of England Governor, stating that there were “no simple answers” when it came to the reform of big banks.

According to Mervyn King, their core business may need to be divided into other practices to prevent them from becoming so big that they aren’t allowed to fail.

Mr Darling was concerned that “we cannot have a regulatory regime that excludes the possibility of failure.”

He went on to state that the banking sector needed more competition, and when the government came to selling its bank stakes that were bought during the financial crisis, it would be hoping to develop greater competition.

Many are calling for a reduction to the borrowing and spending that has caused so much debt, but Mr Darling believes that withdrawing government support would be “wrong and dangerous,” and the country would have to make a big decision.

At a speech in London, Mr Darling declared that “we can resign ourselves to a decade of austerity, low growth and low employment, or we can embrace change, turn it to our advantage and seize the huge opportunities a global recovery will bring.”

He continued by warning that withdrawing government support to the economy “would put the recovery at risk and abandon people facing unemployment.”

In a bid to encourage demand during the recession, the government has pushed billions of pounds into the economy through its £175bn quantitative easing plan, cut the VAT rate and helping ailing banks.

According to Mr Darling, a great deal of work was still required to steer the country out of the recession, including three big steps.

“First, we must support the economy until we’re sure the recession is over. Some are tempted to think the crisis is over. It’s not. Banks all over the world are still dependent on government support.”

The second step would involve raising taxes to regain financial strength and taking “tough choices on public spending for the years ahead”.

He added, that it “will mean cutting costs, cutting waste and cutting lower priority budgets, while continuing to invest in our priorities and our future.”

His third step would involve a government plan of growth.

“We need growth, because when we grow, the economy becomes bigger, we all become richer as a country, and it gets easier to pay back debt.”

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.”

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.

According to research from Barclays, the stock of small businesses in England and Wales look likely to drop by as much as 150,000 by early 2010. The bank says this is due to tighter credit and tougher trading conditions.

Richard Roberts, head of small and medium-sized enterprise analysis at Barclays believes that the stock will fall by up to 150,000 “in the course of the downswing”.

“Growth has already stopped – closures have been higher than start-ups for some time,” he added

Mr Roberst forecast covers venture large enough to have business bank accounts. These have risen in number to about 2.85m in response to steady growth and interest rates. The prediction, which Barclays will make at an enterprise conference today, is more bad news for Gordon Brown, a long time champion of the entrepreneur.

Kat Callo, founder of Rosetta Consulting, a specialist property company, said: “Many young people and corporate employees who were thinking of establishing their own business are deciding not to. It is a sobering time.”

Start-ups are losing some of its glamour as high profile businesses crack under financial pressure. An example of this is one of Management Today’s top 35 young businesswomen to watch in 2006, Pepita Diamand. An ex-fashion journalist, her company Wrapit, went in to administration recently, leaving couples without gifts and guests out of pocket.

Mr Roberts does admit there will be less business failures than in the recession in the early 1990s. Company liquidations jumped by almost 15,000 to 24,000 between 1989 and 1992 as economic growth faltered. He said: “In the early nineties there was a larger number of new companies with heavy debts, which were often overdrafts repayable on demand.”

Harry Rich, chief executive of Enterprise In-sight, which co-ordinates Enterprise Week, an annual national festival, thinks that enterprise is “more important than ever in tough economic times,

“All the external drivers, such as the need to move away from an old-style manufacturing-based economy, are still there.”