UK Mulls

123jump.com Staff
07 Oct, 2008
New York City

UK stocks gained a fraction after dropping the most in a single day in the previous session in seven years. The UK government is at advanced stages of discussion to pump between

[R]1:00AM New York, 6:00PM London - U.K. factory output falls 0.4% in August and industrial production drops 0.6% in the month. UK government plans 40 billion pound bank bailout.[/R]

London market averages gained marginally buoyed by a rebound of commodity and energy stocks.

The Bank of England and UK Treasury are discussing various plans to recapitalize three largest British banks. The current state of talks remains highly fluid but involves capital injection in Barclays Plc, Royal Bank of Scotland Lloyds TSB. The amount of capital injection discussed has varied from as low as 30 billion pounds to 40 billion pounds and may take a form of the government taking warrants or preferred stake in the banks, dividend suspension and a review of executive salaries. The news was first reported by Bloomberg News service on its Web site.

The sources in UK Treasury confirmed that Royal Bank of Scotland may need the more capital than other two banks and a decision may be taken as early as this weekend.

Royal Bank of Scotland fell 40% in trading today, after the rating agency S&P lowered its rating on debt.

Market Sentiment

In London trading FTSE 100 rose 0.35% or 16.03 to 4,605.22.

Of the FTSE 100 index stocks 66 rose, 37 declined, and 3 were unchanged. Friends Provident led advancers in the index shares with a rise of 13.33% followed by Vedanta Resources gaining 11.17% after oil prices edged up to $90 per barrel.

Factory Output Falls 0.4% in August

The Office of National Statistics reported on its Web site today that manufacturing industries index dropped 0.4% between July and August as output in the transport equipment industries plummeted 2.3%.

Output of the production industries slumped 1.1% in the three months to August from the previous quarter.

In the quarter under review, mining and quarrying output slid 2.1% from the previous quarter and was 7.8% lower from the comparable period a year earlier.

Between July and August mining and quarrying output fell by 0.7% as oil and gas production declined.

Manufacturing output in three months ended August also plunged 1.1% from the previous three months, with notable declines of 3.1% in the electrical and optical equipment industries and 1.6% in the food, drink and tobacco industries.

There was a significant increase in output in chemicals and man-made industries of 1.8%.

Output of the electricity, gas and water supply industries in the latest three months fell by 0.2% compared with the previous three months.

Between July and August, energy supply output dropped by 1.6%, but rose 0.4% in the latest three months.

The ONS also noted that output in the consumer non-durable goods industries declined by 0.8% in the quarter to August but was 1% higher than the same period a year ago.

In addition, output of the capital goods industries fell by 1.4% compared with the previous three months and was 1.9% lower than the same period a year ago.

The report noted that industrial production that includes utilities, mining and oil extraction fell 0.6% on the month and dropped 2.3% from a year earlier.

BoE Urged to Cut Key Rate by Half Percent

The British Chambers of Commerce reported recently that the monetary policy committee must cut its benchmark rate by half percent to 4.5% on Thursday next week as conditions in the financial markets deteriorate.

The BCC believes that the central bank must continue lowering the rates to 4% in the following 3 to 4 months.

Economic Adviser to the British Chambers of Commerce, David Kern said, """"""""The persistent falls in house prices will hit consumers and further damage bank balance sheets. Although CPI inflation is likely to increase to a 5% peak later in October, alleviating the financial threats must be the overriding priority.
The MPC cannot afford to wait; it must set aside other considerations and concentrate all its efforts on stabilizing the banking system and minimizing the damage to jobs and output.""""""""

Earnings Review

N Brown Group plc, the internet and catalogue home shopping company said first-half revenues rose 12.6% to £322.8 million from £286.8 million a year earlier. Net profit in the first-half increased 0.40% to £24.6 million or 9.03 pence per diluted share compared to net profit of £24.5 million or 8.99 pence per share, a year earlier.

N Brown Group plc, in the last one year traded as high as 319 pence in October 2007 and as low as 167.50 pence in July 2008. Based on the yesterday’s closing price the company has a market cap of £1.26 billion.

Michael Page International dropped 7% to 218.25 pence after it reported third quarter gross profit declined 8.3% to 44.9 million pounds. The company did not release other financial details. The company blamed the soft environment in the financial services has further spread to manufacturing and other services industries.

Gainers & Losers

Friends Provident led advancers in the FTSE 100 index shares with a rise of 13.33% followed by increases in Vedanta Resources of 11.17%, in SABMiller of 10.60%, in Standard Life of 9.91%, and Eurasian Natural of 8.18%.

Vedanta Resources rose as oil prices rose to $90 per barrel. Also gold prices increased to $880.50 a troy ounce from $857.45 an ounce yesterday.

HBOS Plc led decliners in the FTSE 100 index shares with a fall of 41.54% followed by losses in Royal Bank of Scotland of 39.23%, in Lloyds TSB Group of 12.93%, in British Airways of 11.59%, and Barclays of 9.24%.

Financial stocks slipped on continued worries over the crisis in the credit markets.

Alliance & Leicester Fined £7 million for PPI Failings

The Financial Services Authority reported on its Web site today that it has fined Alliance & Leicester Plc £7 million for serious failings in its telephone sales of payment protection insurance.

The lender is accused of not explaining to clients that PPI was optional and instead pressured them to accept them. According to FSA, these actions resulted in non-compliant sales and high risk of unsuitable sales over the three year period.

In the three years from January 2005 to December 2007, the financial institution sold approximately 210,000 PPI policies to customers seeking a personal loan at an average price of £1,265.

Europe Markets Review

In London FTSE 100 Index closed higher 16.03 or 0.35% to 4,605.22, in Paris CAC 40 Index increased 20.24 or 0.55% to close at 3,732.22 and in Frankfurt DAX index lower 60.38 or 1.12% to close at 5,326.63. In Zurich trading SMI decreased 30.96 or 0.48% to close at 6,427.76.