BoE Lowers Growth, Pound Falls

123jump.com Staff
13 Aug, 2008
New York City

The Bank of England lowered its economic growth estimate for UK economy to 0.1% from 1% in the first quarter of 2009. The lowered economic expectations dragged British pound to the lowest level in nearly two years. Interest rates are likely to fall in the coming months as economy falters. Financials fell after ING reported a earnings fall of 28%. Barclays, Royal Bank of Scotland and HSBC declined.

[R]2:00PM New York, 7:00PM London – The BoE lowers GDP forecast to 0.1% in Q1 of 2009.[/R]

Market Sentiment

In London trading FTSE 100 fell 1.55% or 85.9 to 5,448.60.

Of the 102 FTSE 100 stocks 25 rose, and 77 declined. Anglo America led advancers in the index shares with a rise of 4.18% as crude oil prices rebounded to $117 a barrel on an unexpected drop in crude oil stockpiles in the U.S.

Inflation to Peak to 5%

The Governor of the Bank of England Mervyn King reported in his latest inflation report press conference that inflation is likely to peak to 5% in the coming months on rising retail gas and electricity prices, which will further squeeze consumer spending and may contribute to the weakness in house prices.

King also added that the country’s economy growth will decelerate to 0.1% in the first quarter of 2009 from a previous estimate of 1%.

As credit supply conditions improve and exports increase with the weakening sterling will sow the seeds of economic recovery. The Bank of England suggested that the increases in commodity prices will be contain or may decline in 2009 and may not contribute to inflation unless wage pressures and other prices rise.

Employment Rate Decline 0.1% in Quarter to June

The Office of National Statistics reported today that the working age employment rate fell 0.l percentage points from the three months to June and increased 0.3 percentage point to 74.8% in quarter to June.

In addition, the employment level rose 20,000 from the three months to March to 29.56 million in the quarter to June 2008, and advanced 384,000 from a year earlier.

The number of people in full-time employment rose 26,000 from the previous quarter to 22.05 million in the three months to June 2008, while number of people in part-time employment fell by 7,000 from the previous quarter to 7.50 million in the review period.

Public sector employment was down 20,000 from December 2007 to 5.76 million in March 2008, and private sector employment rose 96,000 from December 2007 to 23.80 million.

Also the unemployment level increased 60,000 from the previous quarter to 1.67 million in the three months to June 2008.

Total hours worked per week dropped 6.3 million from the three months to March to 942.0 million in the quarter to June 2008, as the average weekly hours worked in the three months to June 2008 declined by 0.2% to 31.9 in the period.

Gainers & Losers

Anglo America led advancers in the FTSE 100 index shares with a rise of 4.18% followed by increases in Kazakhmys of 3.34%, in BHP Billiton of 3%, in Vedanta Resources of 3% and Xstrata of 2.81%.

Anglo America increased after the company said it will invest $3.36 billion in two iron ore mines in Brazil. Other commodity stocks gained as oil prices rose to above $117 a barrel.

Enterprise Inns led decliners in the FTSE 100 index shares with a fall of 11.20% followed by losses in ITV Plc of 10.08%, in Marks & Spencer of 10.05%, in Kingfisher of 9.97%, and London Stock Exchange of 9.67%.

Other retailers also fell. Next shed 8.29% and Sainsbury slumped 7.48%.

Financial stocks declined after ING Groep’s underlying second quarter net profit fell 28.8% to 1.9 billion euros on lower investment income. HBOS declined 7.25%, Barclays dropped 7.13% and Standard Chartered dipped 6.42%.

Homebuilders also tumbled. Hammerson slid 9.22% and British Land Co. declined 8.67%.

Europe Markets Review

In London FTSE 100 Index closed lower 85.90 or 1.55% to 5,448.60, in Paris CAC 40 Index decreased 115.51 or 2.56% to close at 4,402.97 and in Frankfurt DAX index lower 163.68 or 2.49% to close at 6,422.19. In Zurich trading SMI decreased 108.34 or 1.48% to close at 7,193.50.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 280.55 or 2.11% to 13,023.05, Hang Seng index in Hong Kong decreased 347.57 or 1.61% closed to 21,293.32. ASX 200 index in Australia decreased 102.00 or 2.02% to close 4,951.60. The KL Composite index in Malaysia decreased 6.25 or 0.56% closed to 1,112.53.

The Kospi Index in South Korea decreased 14.40 or 0.91% to close at 1,562.72, SET index in Thailand closed lower 1.33 or 0.19% to 701.60 and JSE Index in Indonesia increased 5.94 or 0.29% to 2,063.52. The Sensex index in India decreased 119.01 or 0.78% closed to 15,093.12.