UK Indexes Down; Budget Deficit Revised

Arthi Gupta, Mayank Mehta and Sanjay Barot
21 May, 2010
New York City

The FTSE 100 index plunged as low as below 5000 but managed to close down 0.2% as euro-zone financial crisis remains in focus. U.K. deficit surges to a new record in April but business investment grows. Germany passes euro-zone rescue bill. British Airways reports record annual loss.

[R]4:00 PM London, 11:00 AM New York – The FTSE 100 index plunged as low as below 5000 but managed to close down 0.2% as euro-zone financial crisis remains in focus. U.K. deficit surges to a new record in April but business investment grows. Germany passes euro-zone rescue bill. British Airways reports record annual loss.[/R]

FTSE 100 index dropped below 5,000 on the growing European debt crisis to fiscal crisis worries. U.K. logs record budget deficit for April but business investment grows. British Airways record net loss of £425 million for fiscal year 2010.

The pound remained flat but rose 0.7% to $1.4363 but fell 0.3% to 87.29 pence per euro.

German lawmakers passed for the country''s contribution to a €750 billion or $938 billion rescue plan for the euro-zone. Out of €750 billion, Germany may contribute at least €123 billion in the form of loan guarantee

After its earlier passage in the lower house today, by 319 votes to 73 and 195 abstentions, the package was sent to the upper house.

German Finance Minister Wolfgang Schaeuble described the passage of the bailout bill as crucial. He said the bill must be approved ""because markets trust it only once it has actually been implemented,"" adding that ""It is a reality that markets look more at Germany than at Cyprus or Malta.""

The German parliament approval of the bill comes two weeks after the nation ratified to pay its share of a €110-billion bailout deal for Greece.

In an attempt to depict the rescue package as an important step this week, Merkel said the euro was ""in danger"" and warned of ""incalculable consequences"" for the EU if the euro were to collapse

In commodities trading this morning, crude oil for July delivery is down $0.99 to $69.81 a barrel and gold for June delivery is dropped $7.70 to $1,180.90 an ounce.

The U.K. budget deficit hit its biggest level for April on record, while the borrowing figure for last year was sharply revised lower due to higher tax receipts.

Public sector net borrowing was £10 billion in April compared to £8.8 billion in April 2009, according to the Office for National Statistics.

The net borrowing forecast for 2010/11 is £157 billion. Total borrowing for 2009/10 was revised down by more than £7 billion to £145 billion. The ONS said the revision was largely due to higher tax receipts. Excluding financial interventions, net borrowing was lowered to £156 billion from around £163 billion.

Prime Minister David Cameron said his coalition government agreed to have £6 billion of public spending cuts this fiscal year.

In a speech to the Confederation of British Industry late Wednesday, the new Chancellor of the Exchequer George Osborne said he plans to cut corporate tax and simplify the system. He also intends to raise personal income tax allowance in the budget.

At the end of April 2010, public sector net debt was £893.4 billion, which was equivalent to 62.1% of GDP. This was larger than the £755.4 billion debt or 53.9% of GDP as at the end of April 2009.

The public sector net cash requirement was £8.8 billion, a £4 billion higher net cash requirement than in April 2009, when there was a net cash requirement of £4.9 billion. PSNCR stood above the expected £7 billion.

The public sector current budget was in £9.3 billion deficit in April. This was bigger than the £7.6 billion shortfall recorded during the same period of last year.

Businesses in the United Kingdom boosted their investment spending for the first time in two years, during the first quarter, raising the prospect of an upward revision in the economic growth figure.

Business investment, measured in chain volume terms, increased a seasonally adjusted 6% quarterly in the first quarter, a report by the Office for National Statistics showed on Friday.

This is the first increase since the second quarter of 2008. In the fourth quarter, investment was down 4.3%. The total business investment amounted to £28.97 billion in the first quarter, larger than the £27.33 billion in the previous quarter.

Year-on-year, the business investment decreased 11% in the first quarter.

The business investment by private and public sector manufacturing dropped 0.9% sequentially to £2.39 billion in the first quarter and was down 29.3% compared to the previous year.

Investment in the construction sector, meanwhile, jumped 27.9% sequentially to £560 million in the first quarter, while business investment in services rose 8.2% to £20.29 billion. Investment in other production rose 0.9% to £4.81 billion.

Compared to the previous year, investment in the construction and other production increased 8.9% and 16.7% respectively in the first quarter. But, investments in other services were down 13.3%.

Meanwhile, non-manufacturing business investment for public corporations fell 3.1% from the previous quarter and was down 18.9 compared to the previous year.

The British economy grew at a slower pace in the first quarter as the poor weather hampered services and production. Growth in the first quarter was 0.2%, down from a 0.4% sequential rise in the previous quarter.

The U.K.''s M4, the broadest measure of money supply, grew just £0.6 billion on a monthly basis in April, data released by the Bank of England showed today. The monthly change in M4 was flat in April compared to a 0.1% rise in the previous month.

British Airways PLC announced preliminary results for fiscal year 2010, reporting a record loss, despite aggressive cost-cutting efforts. The airline''s revenues declined double digits affected by a slew of factors, including pension deficit and lower premium travel.

In London, the FTSE 100 index closed lower 10.20 or 0.2% to 5,062.93 and the pound edged lower to close at $1.435 and edged higher to close at €1.148.

Gainers & Losers

British Airways Plc rose 1.2% to 188.20 pence. The international airlines said fiscal year 2010 revenues fell 11% to £8.0 billion from £9.0 billion a year ago. Net loss for the year was £425 million or 38.5 pence per diluted share compared to net loss of £358 million or 32.6 pence per share a year ago.

BTG plc increased 5.1% to 162.80 pence after the international specialty pharmaceuticals company said fiscal year 2010 revenues rose 16.2% to £98.5 million from £84.8 million a year ago. Net profit for the year was £11.3 million or 4.4 pence per diluted share compared to net loss of £13.1 million or 7.1 pence per share a year ago.

Close Brothers Group plc, the merchant bank fell 0.8% to 699.00 pence.

London Stock Exchange Group Plc fell 0.08% to 649.50 pence after the fiscal year 2010 revenues fell 6% to £605.6 million from £644.7 million a year ago. Net profit for the year was £90.4 million or 33.5 pence per diluted share compared to net loss of £338.0 million or 126.1 pence per share a year ago.

Rensburg Sheppards plc rose 0.2% to 759.50 pence. The wealth management group said fiscal year 2010 revenues fell 0.8% to £118.0 million from £118.9 million a year ago. Net profit for the year fell 6% to £20.0 million or 45.3 pence per diluted share compared to net profit of £21.2 million or 48.4 pence per share a year ago.

SOCO International plc, the oil and gas firm fell 0.7% to 1,575.00 pence.

United Utilities Group PLC rose 0.7% to 530.50 pence after the water company said fiscal year 2010 revenues rose 0.4% to £2.44 billion from £2.43 billion a year ago. Net profit for the year rose 125% to £403.5 million or 59.2 pence per diluted share compared to net profit of £179.1 million or 26.2 pence per share a year ago.