UK Indexes Weak; Lower Growth Oulook

Marcus Jacob
29 Nov, 2010
New York City

UK indexes declined after investors worried that Ireland bailout may not prevent future bailouts in the euro-zone. UK Treasury watchdog lowered 2011 and 2012 economic growth outlooks.

[R]4:30 PM London – UK indexes declined after investors worried that Ireland bailout may not prevent future bailouts in the euro-zone. UK Treasury watchdog lowered 2011 and 2012 economic growth outlooks.[/R]

Markets in UK and Europe fell sharply as investors looked at the details of bailout conditions for Ireland. Banks fell sharply in Frankfurt and London trading after Germany and France agreed to a watered down measure to spread the cost of future bailouts to bond holders from 2013.

Indexes dropped as much as 2% before recovering in the late trading in London, Frankfurt, Paris and Milan. All top twenty markets indexes in the region declined.

Regulators and bankers rushed on late Sunday night to hammer out the details of Ireland bailout package that has left many with more questions.

Bankers and political leaders also agreed to loan funds to Ireland to stem the widening euro-zone crisis to Spain and spread the future costs of bailout to bond holders.

UK participated in the bailout that to prevent the losses spreading to the UK banks that have provided wholesale loans to Irish banks and also lent to homeowners and local developers.

The European Union and the IMF agreed to a bailout of €85 billion or $113 billion to Ireland as it seeks capital to support its failing banking system. Ireland is expected to spend €35 billion to support its banking system.

Ireland agreed to pay 5.75% interest rate and Germany was seeking rates as high as 7.5% according to the sources in the European Central Bank.

European nations controlled funds will loan a total of €45 billion and the International Monetary Fund agreed to lend €22.5 billion. The remaining €17.5 billion will be provided by the Ireland controlled pension fund.

UK also agreed to directly lend €3.8 billion and additional funds into the IMF loan package with a total loan of €7.9 billion.

European banks fell sharply after investors worried that future bailout may spread the costs to bond holder and banks. Societe Generale, BNP Paribas and Deutchse Bank fell more than 3%.

Bank of Ireland soared as much as 18% to 31.37 euros and Allied Irish plc gained 7.5% to 36.40 euros. The Irish banks advanced on the expectations that as much as 35 billion euros will be loaned by the government to banking industry.

Royal Bank of Scotland Plc increased 1% to 39.02 pence and Lloyds Banking Group Plc fell 1.4% to 60.83 pence.

Unite Group Plc increased 2.6% to 193.6 pence after the company said it sold assets of 143.9 million to Unite UK Student Accommodation Fund.

Gartmore Group gained more than 2% to 105.2 pence after Henderson Global Investors has retained advisors to evaluate the UK fund manager. The news was first reported by the Financial Times website.

UK Treasury watchdog, the Office for Budget Responsibility lowered its 2011 UK growth estimate to 2.1% from 2.3% and 2012 estimate to 2.6% from 2.8%.

The OBR also estimated current year deficit at 148.5 billion pounds, unchanged from the previous estimate but increased the next fiscal year budget deficit to 117 billion pounds, an increase of 1 billion pounds.