London Stocks Drop 2.7%, GDP, Barclays Worries

123jump.com Staff
17 Nov, 2008
New York City

The UK industry group lowered its GDP forecast for this year and a higher decline in GDP next year with the estimate of contraction of 1.7% in 2009. UK home prices in November fell 7.1%. London stock index dropped 2.7%. A growing number of investors voice concerns for Barclays capital plan.

[R]1:00AM New York, 6:00PM London- U.K economy is likely to contract 1.7% in 2009. Home prices fall 7.1% to £222,979 in November.[/R]

London stock indexes dropped after industry and trade group forecasted deeper and prolonged recession and higher than expected decline GDP in 2009.

A separate report that showed that U.K. house prices in November fell the most since 2002 in November.

Commodity stocks, retailers and financial stocks fell.

In London trading FTSE 100 plunged 2.7% or 115.5 to 4,117.47.

Of the FTSE 100 index stocks, 11 gains, 87 declined, and 4 were unchanged. ICAP Plc led advancers in the index shares with a rise of 5.7%.

U.K. Economy Forecasted to Shrink

The Confederation of British Industries lowered its gross domestic product forecast for this year from 1.1% to 0.8%, while economic growth is expected to contract by 1.7% in 2009 from an earlier projection of 0.3%.

Household consumption is predicted to shrink by 1.8% next year, while fixed investment is estimated to drop 3.8% on 2008 and 10.5% in 2009.

Also net borrowing for 2008/09 is expected to be £69.9 billion and £93.8 billion in 2009/10, 4.8% and 6.4% of GDP respectively.

CBI says the recession that began in the third quarter of this year will run for most of 2009, and force unemployment to increase to 2.9 million. The jobless rate is projected to soar to 6.5%.

U.K.’s economy is expected to drop quarter-to-quarter 0.8% between October and December this year.

CPI inflation is however forecasted to decline 4.2% in the current year to 1.7% by the end of 2009, and to 1.1% in 2010.

The report says falling inflationary pressure will give the Bank of England the flexibility to slash rates in the coming six months to as low as 1.5%.

CBI Deputy Director-General John Cridland commented, “What is clear is that the short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer lasting. An unwelcome consequence of the downturn will be a significant loss of jobs, many of them in sectors that have been relatively insulated until now.”

House Prices Fall 7% to £222,979 in November

Rightmove Plc reported today that the average house asking prices by new sellers onto the market fell 2.9% from a month earlier and 7.1% from a year ago to £222,979 in November.

The number of new sellers in the month also dropped to 20,000 a week from 35,000 in the comparable year-ago period.

Average number of sales per estate agency fell to 73 in October from a peak of 77 in July on seller disenchantment, low level of successful sales and low number of properties coming onto the market.

Number days for properties on the market before sale declined to 87 from 90 in the previous month.

Gainers & Losers

ICAP Plc led advancers in the FTSE 100 index shares with a rise of 5.7% followed by increases in Petrofac of 2%, in Old Mutual of 1.7%, in Aviva Plc of 1.5%, and Reckitt Benckise of 1.4%.

HBOS Plc led decliners in the FTSE 100 index shares with a fall of 13.9% followed by losses in Royal Bank of Scotland of 12.4%, in Kazakhmys of 11.9%, in Wolseley of 10.9%, and Lloyds TSB Group of 10.2%.

Financial stocks fell also after Pensions & Investment Research Consultants Ltd. said investors must reject the proposed £7 billion capital raising plan by Barclays. The capital plan will dilute the current shareholders. Barclays plan to see nearly one third of the banks to investors in Middle East and pay interest rate of 14% for ten years on preferred stock and option to buy 2.8 billion shares at a discount to the current price. The bank bailout from the UK government requires only 12% interest rate on the preferred stock.

Standard Chartered fell 7%.

Commodity stocks dropped. Gold prices dipped $7.8 to $734 per ounce, while copper prices fell to $1.6520 per ton. Xstrata plummeted 7.5% and Antofagasta shed 6.7%.

Retailers fell on fears over a prolonged recession. Tesco plunged 6.6% and Kingfisher slid 5.6%.

Europe Markets Review

In London FTSE 100 Index closed lower 100.81 or 2.38% to 4,132.16, in Paris CAC 40 Index decreased 109.44 or 3.32% to close at 3,182.03 and in Frankfurt DAX index lower 152.97 or 3.25% to close at 4,557.27. In Zurich trading SMI decreased 188.32 or 3.23% to close at 5,646.43.