UK Budget Deficit Soars; Commodities Rise

Mayank Mehta
20 Aug, 2009
New York City

UK reported record budget deficit in July after revenues declined 15% and expenses surged 7.5%. The pound and gilt fell. Retail sales in July increased 3.3% from a year ago and edged higher 0.4% from June. Mortgage approvals increased. A jump in commodities prices lifted the benchmark index.

[R]4:00PM London, 11:00 AM New York – UK reported record budget deficit in July after revenues declined 15% and expenses surged 7.5%. The pound and gilt declined. Retail sales in July increased 3.3% from a year ago and edged higher 0.4% from June. Mortgage approvals increased in the month. A jump in commodities prices lifted the benchmark index.[/R]

Higher retail sales, rising mortgage approvals and commodities prices lifted the benchmark index higher at close.

In London FTSE 100 Index closed higher 65.16 or 1.3% to 4,754.75 and the pound closed at $1.65 and 1.15 euros.

Retail sales in July increased 3.3% from a year ago month and sales in the three months to July increased 1.6% compared the period a year ago. Sales increased 0.4% from June.

Budget Deficit Surges

UK reported its largest monthly budget deficit in July as tax revenues declined and cost of unemployment increased. Budget deficit in the month was £8 billion compared to surplus of £5.2 billion a year ago, according to the Office for National Statistics.

Total government receipts decreased 15% and cash receipts from corporations declined 38% and value added tax collection fell 34%. Government spending increased 7.5% and social benefits that include unemployment compensation increased 10%.

UK 10-year gilt fell to yield 3.61% and the pound edged lower to $1.661 but recovered at end to $1.6478.

The IMF estimates UK deficit to surge to 11.2% trailing the 13.5% deficit in the U.S.

UK government debt burden including the commitment for financial companies’ bailout is approaching £800 billion or 56% of its gross domestic product.

Gainers & Losers

Carillion plc climbed 2.8% to 293 pence after the support services group controlled joint venture has signed a letter of intent with BT Group Plc''s Openreach for a £1 billion support services contract.

Capital & Regional plc plunged 48.9% to 50.00 pence a co-investing property asset manager said first-half revenues fell 48.7% to £20.2 million from £39.4 million a year ago. Net loss for the first-half was £134.7 million or 194 pence per diluted share compared to net loss of £201.4 million or 286 pence per share a year ago.

Cineworld Group plc decreased 2.1% to 161.50 pence after the cinema operator said first-half revenues rose 18.2% to £161.9 million. Pre-tax profit for the first-half rose 33% to £11.6 million compared to net profit of £8.7 million a year ago.

Emerald Energy plc was unchanged at 739.00 pence after the oil explorer based in Syria and Colombia discovered oil in the second slim-hole well in the Capella field.

IP Group Plc advanced 6.5% to 40.50 pence after the intellectual property marketing company said first-half revenues fell 27.3% to £0.8 million from £1.1 million a year ago. Net loss for the first-half was £4.6 million or 1.84 pence per diluted share compared to net profit of £15.8 million or 6.34 pence per share a year ago.

ProStrakan Group plc climbed 0.2% to 122.50 pence an international specialty pharmaceutical company said first-half revenues rose 40% to £37.0 million from £26.4 million a year ago. Net loss for the first-half was £9.9 million or 4.9 pence per diluted share compared to net loss of £11.8 million or 5.9 pence per share a year ago.

Rio Tinto plc rose 2.3% to 2,365.50 pence after the mining and exploration company said first-half revenues fell 30.5% to $18.9 billion from $27.2 billion a year ago. Net profit for the first-half fell 65% to $2.45 million or 155.7 cents per diluted share compared to net profit of $6.95 billion or 440.6 cents per share a year ago.

Redrow plc the residential and commercial property development surged 2.9% to 205.30 pence.

SIG plc gained 5.2% to 131.50 pence after the insulation and construction materials supplier said first-half revenues fell 10% to £1.34 billion from £1.49 billion a year ago. Net loss for the first-half was £7.2 million or 2.1 pence per diluted share compared to net profit of £39.4 million or 23.9 pence per share a year ago.

smartFOCUS Group plc rose 16.0% to 11.60 pence after the marketing software provider announces release of multi-channel marketing software in Japan.

Spirax-Sarco Engineering plc decreased 0.5% to 946.50 pence after the first-half revenues rose 5% to £251.6 million. Net profit for the first-half fell 26.6% to £20.7 million or 27.1 pence per diluted share compared to net profit of £28.2 million or 36.8 pence per share a year ago.

TT electronics plc surged 10.6% to 44.25 pence an electronic components supplier said first-half revenues fell 19% to £237.0 million from £292.0 million a year ago. Net loss for the first-half was £15.4 million or 9.9 pence per diluted share compared to net profit of £11.1 million or 7.1 pence per share a year ago.

Vedanta Resources plc added 2.9% to 1,759.00 pence after its India based subsidiary lifted its offer for Asarco LLC based in Arizona, USA by $500 million to $2.2 billion.

Wellstream Holdings PLC lost 10.8% to 479.00 pence after the pipeline products maker said first-half revenues rose 11.8% to £202.7 million from £181.4 million a year ago. Net profit for the first-half fell 40% to £16.8 million or 16.7 pence per diluted share compared to net profit of £28 million or 27.8 pence per share a year ago.

FTSE 100 Index Movers

Of the stocks in the FTSE 100 index, 93 increased, 9 declined and none were unchanged.

Man Group Plc decliners in the FTSE 100 index with a loss of 1.20% followed by losses in Land Securities Group Plc of 1.05%, in The British Land Company Plc of 0.55%, in AstraZeneca Plc of 0.45%, in British American Tobacco Plc of 0.43%.

WPP Plc led gainers in the FTSE 100 index with a rise of 7.27% followed by increase in Thomas Cook Group Plc of 5.76%, in Schroders Plc of 5.58%, in Antofagasta Plc of 5.29%, in The Sage Group Plc of 5.09%.