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.

Estate Agents face scrutiny after a watchdog revealed it would be watching their competition closely.

It has been four years since the Office of Fair Trading (OFT) last studied the fairness of estate agents work, but a new campaign will be launched in 2009.

Some of the things that will be assessed include internet property prices, consumer protection and competition between different companies.

The OFT chief executive, John Fingleton has said: “Buying or selling a home is something most people do only a few times in their life, but it is usually the biggest transaction they will make.
“We want to ensure that consumers are served well when buying or selling a home and are supported by an effective, competitive and innovative market.”

The industry has gone through some significant changes since the study done four years ago. These changes are not only because of the recent boom and then downturn of the market that we have seen recently, but also changes in several regulations.

The introduction of Home Information Packs and new legislation protecting consumers from unfair practices are a couple of other changes that have occurred since the last mediation.

 The study is expected to be finished by the end of 2009, and will review whether these new rules are adequate enough to protect people using this market.

The review will also look at how easy it is for new estate agents to get into this market, especially online providers, along with the quality and prices charged by all provides.

Concerns about the market were initially raised while the housing prices were at their highest, but in June this year, former head of the OFT, Bryan Carsberg, called for tougher regulations. He said that he thought all estate agents, letting agents and managing agents who handle residential property should be subjected to formal regulations and complete basic qualifications.

National Association of Estate Agents chief executive, Peter Bolton King, has said he welcomes the announcement of the review and also called for appropriate regulations.

He said that: “there is nothing to stop anybody becoming an estate agent and there is a real need for consumers to be aware of this.
“There is clearly a lot of competition between internet retailers, and many people will certainly initially begin their search for property online
“To be safe, consumers should use the professional agents.”

The OFT has the power to ban any agents that break the law when it comes to mis-describing a property, handling a client’s money, not declaring an interest in a property, or being found to have been involved in any other form of dishonesty.

A separate market study from the OFT was published in September, and revealed the market to be competitive, but recommended buyers get more help if they suffer delays moving into their property of find faults.

Administrators have cut 450 jobs at Woolworths in order to try and keep the business running. These layoffs have been in support operations at the store at Marylebone Road in London, and the branch in Castleton, Rochdale.

The company, which employs over 25,000 people in its shops alone, and up to 5,000 others in related businesses, have not yet had to cut jobs in the shops themselves, or in their distribution centres, though this is expected after the Christmas period is over.

Since its collapse last month, administrators have launched Woolworths ‘biggest ever sale’, which some have criticised as looking more like a closing down sale, but administrators are claiming it was ‘ongoing’.

Prices are currently reduced throughout the store, with toys and greeting cards offering up to 50% discount in order to try to encourage shoppers into the store, and move stock before Christmas.

Administrators are saying that the shop will remain open until after Christmas. Neville Kahn of Deloitte said: “there is continuing interest in the core Woolworths business and the sale will continue whilst potential buyers finalise their plans for the purchase of the business.”  He added that extra staff had been hired in order to deal with the demand.

Nick Bubb, an analyst with stockbrokers from Pali International, has claimed that the company is trying to “get rid of unsold stock and empty shops…It looks a bit like a closing down sale.”

The famous high street store went into administration just over a week ago, on 26th November. Deloitte have taken over and are said to be in talks with numerous different companies that are interested in Woolworths assets.

However, just last Thursday, famous Dragon’s Den entrepreneur Theo Paphitis, pulled out of buying a share in the chain of stores.

It is still believed that supermarket chains, such as Tesco, Asda, Sainsbury’s, Co-op and Poundland are all interested in investing in some of Woolworths main stores.

The recent credit crunch has had an effect on lots of high street stores. Some other stores are trying to entice customers back into shops by sales before Christmas.

Debenhams, and Dorothy Perkins for example, have held a three-day 20% -off sale events that are soon to end.

Also Marks and Spencer has offered two sales in the last month, in what it claims to be an attempt to give shoppers “a helping hand in the run-up to Christmas.”

It is expected that the Bank of England will cut their rates to their lowest on over fifty years.

Business leaders and economists alike have suggested an interest rate cut down to 2%, which has not been seen since 1951, in order to try to halt the current economic depression as much as possible.

It was just last month that the Bank announced that it would cut its interest rates by 1.5%, to 3%.

Minutes from last month’s meeting show that the Banks policy makers had discussed bigger cuts in borrowing costs, before settling on the dramatic reduction in interest rates.

Since then, there has been rapid deterioration in businesses since this meeting has raised fears that the economic crisis in Britain could be worse than originally feared.

Among our current economic problems includes the fact that  businesses are finding a continued restriction in bank loans, unemployment continues to rise, mortgage lending is still slowing, consumer confidence has fallen and shops are having to severely lower prices in order to attract Christmas shoppers.

Yesterday, a key measure in our services sector contracted in November at its fastest rate since at least 1996.

Also in November, the UK services purchasing managers’ index (PMI) dropped more than expected to a record low of 40.1, compared with 42.4 a month earlier. (Figures below 50 is a sign of their outlook worsening.)

Economists expect the Bank of England to respond decisively. George Buckley, chief UK economist at Deutche Bank has said: “They need to do something aggressive again, because of where the data’s been taking us.”

Judging by past actions, the Bank has shown itself to be capable of such decisive, drastic action when needed.

Governor Mervyn King told a parliamentary committee last week that: “We will take whatever action we feel is necessary on interest rates to steer the economy back into calmer waters. We may need to cut Bank Rate more than we would otherwise have done.”

Moneyfacts, a financial information service, has estimated that homeowners with a standard £150,000 repayment mortgage, could be saving anything between £19 – £75 per month, depending on how big the rate cuts actually are and if lenders will pass on the cuts in full.

John Charcol, mortgage advisors, has said that only 10 of 69 lenders have passes the last two mortgage rate cuts in full to their customers on standard variable rate mortgages.

Lloyds TSB, and therefore also Cheltenham & Gloucester, as the company also lends under this brand, have already promised to pass on reductions to borrowers on standard variable mortgages in full.

Customers on tracker deals however, may not see the full benefit of further Bank cuts in rates.

Some lenders have introduced a floor (also called a collar by some banks) which means that if interest rates fall below a certain point, the cuts will not be passed on to customers.

Mortgage rationing is set to become more of a problem in 2009 if the government don’t intervene, according to a lending group.

Director General of the Council of Mortgage Lenders (CML), Michael Coogan, has said there are now fewer lenders with less money. He also suggested that if lending levels in 2009 go in a similar way to 2008, they could be a challenge. And added that smaller companies may have to spend a third of their profits covering the bail-out of bigger banks.

Mr Coogan was speaking at the CML’s annual conference on Tuesday and painted a rather dull picture for people intending to get onto the property ladder in the near future. He said that: “Consumer borrowing will simply not return to the levels seen in 2007, even if funds increased and a wide variety of lenders were to become active in the mortgage market again.

“In fact, unless the government takes further targeted action to help market participants, we will see a worsening of the picture next year compared to this.

A good outcome next year in my view would be if we had lending at levels seen in 2008, but bearing in mind we will be in a recession…this would be a real challenge.”

Sir James Crosby also voiced similar views earlier this year, when in a recent report to the chancellor, he suggested that net new mortgage lending would pads the low of £15 billion in 1995 and fall below zero.

House prices in Britain have fallen by 10% to 15% this year so far. Mortgage approval is also down 74% compared to last year, and it is expected that there will be further falls in prices.

Mr Coogan also claimed that building societies would make a loss this year. Other small financial businesses are seeing their profits hindered by “unintended consequences” of moves to protect customers with failed banks.

Though the government may have made changes in order to avoid tax-payers having to cover compensation paid on those who have lost money with Icelandic banks, in actual fact, it will be financial institutions of all sizes that have to cover the cost via the annual financial services compensation scheme. This has cost some of the smaller institutions up to 30% of their annual profits.

Mr Coogan has however backed the mortgage lenders decision to delay the process of repossessions for borrowers in financial troubles. But he has also asked for more support from the government. He has proposed a “backstop scheme” in order to sell property to their lender which they could rent back. This would stop the need to go to court, as well as underpinning property prices, and allow people to stay in their own homes, therefore supporting the local community.

Prior to Thursday’s decision on interest rates, he also criticised the idea as “short-sighted and counterproductive”, claiming that this was pushing down interest rates offered to savers.

Jon Pain of the Financial Services Authority has warned lenders to keep to contractual rules when passing on cuts to customers, saying that any floor on tracker mortgages must be made clear in an initial mortgage contract.

At the same conference, Liberal Democrat Treasury spokesman, Vince Cable also said that there should be no return on reckless mortgage lending, claiming that: “the industry should now be exploring new products to restore faith in mortgage lending.”

If NatWest loses its continuing test case over bank charges, it has said it will refund overdraft fees to customers. These findings come as an internal bank document reveals preparations that banks are making if they lose their case.

The document that has been found says that overdraft fees may have to be refunded, the cost of which could run into millions of pounds overall. Though the bank, which has recently been taken over by the Royal Bank of Scotland, has said it was just drawing up a contingency plan to deal with one possible outcome of the test case.

The RBS NatWest is one of eight banks in total awaiting an Appeal Court judgement as to whether or not the Office of Fair Trading (OFT) can decide if their overdraft charges are unfair.

If the bank is to lose its case, the document reveals that customers can expect to be refunded, saying that a team from the bank are “preparing systems and processes to pro-actively refund charges to the group’s customer base.”

The bank document also says that: “all customer accounts that are due a refund will be calculated as accurately as possible…Any monies will be accurately accounted for and reconciled.”

It adds that the bank aims for “avoidance of group reputational damage and/or loss of funds.”

An RSB spokesperson has said that the document found simply reflects the fact it was obliged by the Financial Services Authority (FSA) to deal with its customers complaints “efficiently and swiftly” if it ended up losing its test case.

He said that “this work stream has absolutely no bearing on how we see the outcome of the test case.

“With an organisation of our size and our different brands, complying with these requirements demands careful contingency planning and this document merely confirms that RBS is taking its obligations in this respect seriously as it has done throughout the whole test case process.”

Campaign group Legal Beagle’s spokeswoman Sharon Coleman has said: “we would welcome a pro-active approach if they intend resolving the matter without further appeals.

“Consumers have become increasingly frustrated by the apparent lack of progress in the test case, especially those affected by financial difficulty.”

For the last three years, banks have been besieged by hundreds of thousands of angry customers demanding the return of high charges taken by banks whenever customers go overdrawn without permission.

Last year, eight banks and the OFT agrees to stage a test case in the High Court in an attempt to resolve the legal issues.

In the first round of High Court hearings, at the beginning of this year, the banks lost their case. Mr Justice Andrew Smith said in April that under the 1999 Unfair Terms in Consumer Contracts Regulations (UTCCR), the OFT had the power to decide if banks’ charges were fair.

An appeal to this decision was heard in October of this year, and judgement is expected in the New Year.

HSBC and Lloyds TSB have also revealed that they have a contingency plan in place should they lose that appeal, and there is little doubt that other banks will have measures in place also.

Among the conditions set by the FSA, includes that banks will have to make “preparations for dealing with relevant charges complaints when this direction ends and updating those preparations as the outcome of the test case becomes clear.”

The Royal Bank of Scotland guarantees that it will not repossess properties belonging to owners who have fallen behind on their payments for at least six months.

RBS are currently the fifth biggest mortgage lender in the UK, with a 7% market share. Therefore, their decision could put pressure on HBOS, who are currently the biggest mortgage lender.

The government have recently also bought out a 58% stake in the Royal Bank of Scotland recently after shareholders held a meeting and decided to take the government money, and therefore bought out a tiny percentage of the shares offered to them.

RBS have said that it wants to make sure customers are given an opportunity to seek help and independent advice before starting legal action against them.

Craig Donaldson, the RBS’ managing director of retail banking has said: “we fully understand that one of the biggest worries facing homeowners in financial difficulty is the thought of losing their home, and this is especially true given the current economic climate.”

Citizens Advice and charity Crisis, who represent homeowners struggling to keep up with arrears, have welcomed the news.

Just last week, Ian Pearson, Treasury minister, said that he would hold banks’ “feet to the fire” in order to assure that customers were treated properly.

Shortly after the RBS made this announcement, the Bank of England released figures that showed mortgage approvals had dropped again in October of this year by around 1,000 approvals less than in September.

BBC business editor, Robert Peston has said:” Here’s the positive side of what Royal Bank has done : it gives those who lose their jobs in the looming wave of redundancies a better chance of getting a new source of income in time to prevent the bank seizing the family property.

“But there is a cost, which will fall on estate agents and – possibly – anyone interested in seeing an end to savage deflation of house prices.”

Initial assumptions were that the delay in repossessions was due to the government take over, but it may not be entirely down to that.

Jonathan Charley, from EDS consultants, has said: “At a time when house prices are falling, banks don’t really want to do repossessions because all they end up with is no money coming from the mortgage loan and they end up with a stock of houses, which they probably can’t sell.

“So, for most banks they’d rather avoid having repossessions and actually just get some form of money coming in from people.”

The delay in bank repossessions for people who are struggling to keep up with their mortgage repayments is just one of many new changes being enforced by the bank. Others include an agreement to return to “normal” lending practices and guaranteeing overdraft rates and contracts for its business customers for at least a year.

57.9% of the Royal Bank of Scotland will soon be owned by the government, as shareholders have only bought out a tiny amount of the new shares that were offered to them.

The small take-up had been predicted, and is likely due to the fact that the offer price of shares was 65.5p – 10p higher than the price at which shares were trading.

The Royal Bank of Scotland also owns NatWest, and the share issue was part of the government’s plan to recapitalise banks.

The government will now pay around £15 billion for its share in the bank, and will also buy £5 billion of preference shares.

Existing shareholders at the bank bought almost 56 million shares, representative of just 0.24% of the offered new shares. This cost them £36.7 million between them and made an immediate paper loss of £5.6 million.

The fact that the remainder of the shares has been bought by the government, means that taxpayers have made an immediate paper loss of £2.4 billion, based on yesterday’s closing share prices.

Stephen Hester, Chief Executive of the RBS has said: “We regret that existing shareholders did not take up their pre-emptive rights but understand that the market sentiment towards the banking sector made this uneconomic in the short term.

“There remain substantial uncertainties and challenges outside our control but for our part the job is underway.”

At a meeting last week, shareholders of RBS voted to take the government money, even though there will be strings attached, such as the bank losing freedom in areas like executive pay and dividend policy.

It was also agreed that normal lending practices would be resumed. Therefore, the Bank is announcing that it will guarantee overdraft rates and contracts for its business customers for at least a year.

UK Financial Investments Ltd will hold the government’s shares of the Bank. This is in an effort to maximise value for taxpayers and try to prevent politicians from making business decisions about the Bank.

The chair of this company will be Philip Hampton who is also chairman of Sainsbury’s and was also the director of Lloyds TSB.

The Royal Bank of Scotland is, unfortunately, just one of many banks that has been exposed to the debt on the US sub-prime loans and felt the negative effects of this association.

The Bank has also felt the effects of the collapse of the inter-bank lending, as the whole industry worried about which fellow bank they could afford to lend to.

Critics are also saying that the Bank also paid too much for ABN Amro last year, which is another reason for its current problems.

The Bank led a group that paid 71 billion Euros (the equivalent of £61 billion) for the Dutch bank in October last year.

Prime Minister Gordon Brown has pledged that the government will work hard to ensure that struggling high street store, Woolworths, will remain open over the Christmas period.

He also told reporters that plans were being discussed so as to ensure that employees currently threatened with redundancy will be helped to find more work in the future.

This comes shortly after the most recent blow that the chain of stores has had to deal with recently, as lottery operator Camelot stopped selling tickets to stores.

Camelot declares its decision to suspend trading with Woolworths will become effective immediately, “pending the company finding a satisfactory resolution to its current trading difficulties.”

This means that Woolworths will no longer be selling National Lottery Tickets, scratchcards or process prize claims.

The chain will now be staying open until after Christmas, but there is still concern for the 30,000 employees that the chain currently employs.

The Prime Minister has said that: “the important thing is in the long-run that employees in this company – where the businesses and the shops are not going to stay open in the longer term – can get other jobs quickly.

“That’s why we’re going to move in immediately to give advice to employees in the company.”

Deloitte, the accountancy firm that has been appointed the administrator for the high street chain, has said that it is searching for a suitable buyer for the stores.

Dan Butters from the administrator said that: “In the last 24 hours, we have received expressions of interest from a number of parties for both the retail and wholesale businesses.”

The company did try to sell itself to restructuring firm Hilco, which would have taken the firms debt, but this deal fell through.

Deloitte has promised that though things are bad, it promises that employees will get paid.

Currently, Woolworths has 815 stores and four distribution centres, which employ around 25.000 people. It also owns Entertainment UK, which supplies DVDs to supermarkets across the country, and employs around 5,000 people.

2 Entertain is currently jointly owned by Woolworths and BBC Worldwide. Woolworths is currently trying to sell its 40% stake in this venture to BBC Worldwide.

Woolworths is just one of a few high street stores currently struggling, and analysts predict that worse is to come.

An analyst at Hargreaves Lansdown Stockbrokers has said: “the eye of the storm has moves in from the banks to the retailers.”

Other struggling stores include: MFI, who have also gone into administration.

Computer and Technology outlets, Currie, and PC World DSG International are blaming “tough and volatile” trading environments for their “29.8 million half year loss.

Kingfisher has also claimed that their profits at B&Q had fallen 9%.

Some fear that the ending of Woolworths could spark a price war if administrators try to cut prices in order to move the company’s stock, which could then lead to worse problems for smaller, weaker competing stores.

The Woolworths chain is currently struggling under its £385 million debt.

Its biggest problems started after having to pay cash for goods from suppliers, after trade credit insurers were no longer prepared to insure the suppliers to Woolworths.