Political concerns weigh Sterling down

The Pound has lost ground today as political concerns and the prospect of the Bank of England’s policy meeting later in the week weighed down Sterling.
 

Two UK opinion polls over the weekend showed a general election, which has to held by June, would result in a hung parliament.

This weighed on sterling since many believe that such a result would lessen the likelihood of the UK getting to grips with its rising budget deficit.

Meanwhile, traders were wary ahead of the result of the Bank of England’s monetary policy committee meeting on Thursday.

By midday in New York, the pound fell 0.9 per cent to £0.8740 against the euro, lost 0.1 per cent to Y144.21 against the yen and fell 0.6 per cent to $1.5902 against the dollar.

Meanwhile, the dollar hit a six-month high on a trade-weighted basis, consolidating sharp gains after US growth figures came in stronger than expected last week. 

The figures helped give the dollar an additional boost given that the US currency was already benefiting from increased risk aversion.

Safe haven demand for the dollar was boosted as fears over Greece’s fiscal position and concerns over continued Chinese monetary tightening weighed on risk appetite and global equity markets.

The dollar index, which tracks its progress against a basket of six leading currencies, rose to a high of 79.534, it highest level since July 30. The dollar also rose to a six-month peak of $1.3850 against the euro before paring some its gains to stand down 0.3 per cent at $1.3905 and climbed 0.5 per cent to Y90.77 against the yen.

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Which is the weaker- Yen or Sterling?

Both Sterling and the Yen are being seriously undermined by both political and economic concerns and are racing each other towards the edge of the precipice.

On the Japanese political front, the replacement of Fujii by Kan as Finance Minister was not greeted enthusiastically and as mentioned yesterday the Yen took a little dip in value. 

The major concern, was that the Japanese bond market might take flight and the ability of the Ministry of Finance to satisfy the country’s massive debt mountain could become compromised. 

Added to this, the first official comments from Kan were distinctly Yen negative with him saying he wants the Yen to weaken further (it fell immediately from 91.10 to 91.75) and then adding that many Japanese firms favour the $/Yen rate at 95.00 and that he must work with the Bank of Japan to bring the Yen to appropriate levels. 

Beat that lot, sterling …. Well it did try its best.

On the UK political front, the call from the 2 cabinet members for a secret ballot of Labour MPs to establish Gordon Brown’s position as leader of the party was viewed very negatively by the market on the assumption that a leadership battle this close to the election would be the final nail in the coffin for the Labour party but also, might be enough distraction for them to take their eye off the economy. 

Following on from this, there is a report in the Times this morning headed up, "Cash-strapped Treasury contemplates shining up gilts" which ponders the possibility that the Government might be forced to offer higher returns on its gilts in an attempt to maintain their investment appeal. 

This will obviously have the effect of further increasing the cost of servicing the country’s borrowings from the current forecast of £60 billion per year - and that is just the interest component.

Old Black Eyebrows is seeking to sell a record £225 billion tranche of debt this year at the same time as the Bank of England look to offload the bonds that it acquired via the Asset Purchase Scheme as part of the QE process and against the back-drop of investor concern over the UK’s status as a AAA rated sovereign. 

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UK Jobless households hit highest level since 1997

The number of jobless households has jumped to a record of nearly half a million - the highest level since Labour came to power in 1997.

The figures, published by the Office for National Satistics (ONS), are the latest evidence of the heavy toll being taken on households by the recession, and prompt concerns about the potential dire impact of the economic slump upon children, with nearly two million now in workless homes.

The ONS revealed that the number of households including at least one person of working age but without a job has hit 493,000, an increase of 158,000 on a year ago and the highest number since 1997, when the data was first collected.

The rate jumped by 0.8 percentage points from a year earlier to 2.5 per cent. Remember Stalinist Brown's lie- the end of boom and bust?

The figures relate solely to households where all people are unemployed; that is, both available for work and actively looking for it.

Where jobless households with "inactive" people are included — housewives or husbands, students, the long-term or temporarily sick — the figure rockets to 3.3 million, a 240,000 increase on last year.

The rate among these households increased by 1.1 percentage points from a year earlier, to 16.9 per cent, the higest rate since 1999 and the largest year-on-year increase since 1997.

The number of children in these wholly workless households stands at about 1.9 million, up 170,000 from a year earlier.

The data comes a week after official figures outlined the grim outlook for young people while overall unemployment currently stands at over 2.4 million.

Data revealed that the number of "Neets" — young people not in education, employment or training — has risen to a record 959,000.

In total, 835,000 18 to 24-year-olds are Neets, up from 730,000 from the same time last year, while the number of unemployed school-leavers aged 16 and 17 who are not studying or training is 124,000.

Analysts have prediced the the total number of Neets could rise to more than one million in the third quarter. 

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UK's debt will quadruple unless drastic steps are taken, says S&P

Britain's national debt will quadruple to peaks only ever seen in the wake of the Second World War unless the labour Government takes drastic steps to address the pensions and ageing crisis, Standard & Poor's has warned.

The ratings agency has calculated privately that the UK's public sector debt could quadruple from its current level of just over 50pc of economic output to 200pc or above within the next four decades as the cost of servicing public sector pensions, ballooning social security costs and healthcare burdens becomes overwhelming, The Sunday Telegraph has learned.

The warning is doubly sobering since S&P last month placed Britain's debt on to "negative outlook" – an explicit signal that it could soon be downgraded.

Although the agency calculated two years ago that the effects of an ageing population, alongside high pensions and healthcare costs could push Britain's net debt up above 150pc by 2050, it now fears the added cost of the financial crisis means the debt mountain could in fact rival that in 1945, when the cost of fighting a world war pushed debt well beyond 200pc of GDP.

The warning coincides with research showing that the true size of the UK's unfunded public sector pensions deficit, which needs to be funded through taxpayer's cash, is now £1,177bn – a staggering £20,000 for every person in the UK.

A study for the highly respected British North American Committee, written by former Bank of England economist Neil Record, finds that the UK shortfall is far more severe than in the US or Canada.

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Britain facing biggest deficit in Western world, warns OECD

Hopes that the biggest post war economic slump will soon end have been dashed after the rich world's leading economic institution slashed its forecasts for economic growth and warned that Britain next year faces the worst deficit in the industrialised world.

In a further blow for Alistair Darling, the Organisation for Economic Co-operation and Development also warned that the Government may have to pump more than £130bn extra into the banking system.

Most economic statistics released in recent months have been better than expected, including the CBI's distributive trades survey yesterday, which was the strongest for a year.

However, the OECD downgraded its forecast for UK growth this year to a contraction of 4.3pc – compared with a previous forecast of -3.7pc.

The cut is significant, since the OECD chose on the other hand to increase its growth forecast for the world's leading industrialised economies from -4.3pc to -4.1pc. It added that the 30 member OECD would grow by 0.7pc next year, while Britain would stagnate, not growing at all.

The OECD said that not only was Britain's fiscal position far weaker than its neighbours, following many years of high borrowing by Gordon Brown, the UK was also more vulnerable to a consumer slowdown associated with falling house prices.

The Paris-based institution said the Government's fiscal deficit next year would climb to 14pc of gross domestic product – higher than anywhere else in the OECD, including Ireland and Iceland. The report urged the Bank of England to keep "the [interest] rate as close to zero as possible up to end 2010."

It also warned that more taxpayers' money may have to be poured into the financial system, saying: "further bank losses may well require substantial further capital injections by governments." It said the UK may have to spend a further 3-9pc of GDP – equivalent to £45bn-£135bn.

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Public borrowing hits record high of £20bn

Public borrowing hit a record £19.9 billion in May as the recession continues to take its toll, official figures revealed yesterday morning.

May's borrowing was nearly double the £10.6 billion borrowed in April. Public sector net borrowing for this financial year is now £30.5 billion — more than twice the level seen at the same stage 12 months earlier.

Even though May is traditionally a weaker month for public finances, borrowing over the month is the biggest figure since the Office for National Statistics’ (ONS) records began in 1993.

Public sector net debt reached £774.8 billion last month, equivalent to 54.7 per cent of gross domestic product (GDP), far exceeding Labour's now defunct fiscal rules which said that debt would never exceed 40 per cent of GDP.

The number of people claiming unemployment benefits has risen by more than 80 per cent over the last year as companies cut jobs in the face of the sharp economic slowdown.

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Sterling slides as pressure on Gordon ditherer Brown remains

Sterling came under renewed pressure on foreign exchange markets on Monday morning as the Labour Party's heavy defeat in the European elections intensified pressure on the liar Gordon Brown.

The results of the European elections, which look set to see Labour trail in third after the Conservatives and UKIP, sent the Pound down by a cent by lunchtime in London.

It weakened by a cent to $1.5880 as dealers in London - where the majority of currency trading takes place - digested the results. The currency also fell against the euro at about 87p.

Sterling has been on the backfoot since a spate of resignations, and last week's local election results intensified speculation about whether Mr Brown can survive in Downing Street. Analysts said that the continued uncertainty is giving dealers good reason to dump the pound.

Investors will be particularly worried that a weakened Government will not be able to drive through the measures required to cut the Budget deficit.

Others caution, however, that the pressure on sterling will be tempered by signs that the UK and the US economies are stabilising after the "free-fall" that marked the six months that sandwiched Christmas. Analysts at Barclays reckon that sterling could claw back to $1.70-$1.80 later in the year.

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Labour's death throes rattle Sterling

Sterling tumbled against the dollar and the euro today on worsening political instability after James Purnell, the Work and Pensions Secretary, stepped down from the Cabinet.

The pound, which this week hit a seven-month high of $1.67, fell by 1 per cent to $1.6031 as Gordon Brown began an emergency reshuffle after the departure of three Cabinet minister this week. One euro is now worth 88.42p.

Despite the downward trend on sterling, blue-chip stocks were positive, with the FTSE 100 lifted by the mining sector.

The leading index gained 69.29 points, or 1.52 per cent, to 4,456.23 in early trading, with Rio Tinto the strongest riser, up 12 per cent to £30.52, after it walked away from a deal with Chinalco, the Chinese state-owned metals group, that had been unpopular with shareholders. Instead, investors will be able to participate in a $15.2 billion rights issue.

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UK ministers 'to blame' for financial crisis

UK Governments and central bankers must take the blame for the financial crisis - not bankers, investors and others in the market, according to a new study.

The Bank of England has a whole variety of counter-cyclical policies it could have used to avert the crisis, say economists.

In a comprehensive analysis of the causes for the financial and economic crisis, the Institute of Economic Affairs (IEA) has concluded that the disaster was caused by authorities' mistakes rather than market failures.

In an associated letter to The Daily Telegraph, the IEA, supported by a number of leading economists, including Tim Congdon and John Kay, said that despite these failures regulators were being rewarded with more responsibilities.

The study suggests that hedge funds and tax havens should not be unduly punished, and that in the future central banks and regulators should pay greater attention to imbalances building up in the economy.

The detailed analysis, Verdict on the Crash, will come as a further blow for Gordon Brown, claiming that the system he created to monitor the financial and economic system was found entirely wanting and is in need of a major overhaul.

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UK Budget 2009- Britain's debt will not be under control until 2032

The unprecedented burden of UK public debt built up by Gordon Brown will not be brought under control for nearly a quarter of a century, economists have said.

”Debt freedom day”, when the national debt returns to sustainable levels, will not be reached until 2032 - another 23 years away, the respected Institute for Fiscal Studies said.

Families could soon find themselves paying at least another £1,400 a year in tax as part of the Government’s attempts to bring public debt back under control, the IFS predicted.

It said there was a gap between the amount of money that would be raised by the tax measures in this week’s Budget and the amount the Government will need to fund its spending plans.

This secret “blackhole” could end up adding another £1,430 each year to the average families’ tax bill, it said.

The stark warning of a generation of austerity ahead came as Alistair Darling admitted he could not be sure his optimistic forecasts for a quick economic recovery would be realised.

“It is very difficult to be absolutely certain as to what will happen,” he admitted.

The Chancellor’s predictions for growth to resume by the end of this year and to reach boom levels again by 2011 have been widely questioned, with the International Monetary Fund suggesting the British economy would actually shrink next year - despite Mr Darling’s forecast of modest growth. “The crisis is far from over,” it said.

The IFS warned that despite the tax rises and spending cuts announced in the Budget this week, future chancellors would be forced to raise even more money to fill a “breathtaking” long-term hole in the public finances.

The scale of the problem is so great that even with years of tax rises and spending cuts, the national debt will not be low enough to meet Gordon Brown’s now-abandoned “sustainable investment rule” until 2032.

This “golden rule” dictated that Government debt should not rise above 40 per cent of Gross Domestic Product (GDP).

In the Budget however, Mr Darling said he would borrow another £700 billion over the next five years, pushing the accumulated stock of Government debt to £1.4 trillion, equal to almost 80 per cent gross domestic product.

The golden rule on borrowing, which Mr Brown actually announced when he was Chancellor, has been “temporarily suspended” as the UK economy endures the worst recession for 60 years.

Mr Darling has set out plans for debt to peak at 76.2 per cent of GDP in 2013/14. Paying the interest on that debt could cost as much as £58 billion a year by then, more than annual spending on schools in England.

Bringing the debt back to the level Mr Brown once said was necessary for economic stability will take another 23 years, according to Carl Emmerson, an IFS economist. “Public debt will remain high for a generation,” he said.

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Alistair Darling's UK Budget derided as fantasy

UK's Alistair Darling's 2009 Budget has been derided as a stew of unrealistic forecasts and missed opportunities, after the labour Chancellor conceded the current slump is comparable with the Great Depression but insisted it would be over by Christmas.

Mr Darling cemented his reputation as the Chancellor with the worst forecasting record in modern history after he slashed his projection for British economic output this year to -3.5pc.

Unveiling the biggest increase in government borrowing since the Second World War, he conceded that Britain's national debt will double to around £1.2 trillion in the coming years, and that the budget would not return to balance until 2018 or later.

In what economists described as a "fantasy Budget", Mr Darling imposed swingeing new taxes on those who earn more than £150,000, which will raise as much as £5.5bn a year by 2012 – one of the biggest per-capita tax increases in recent history.

But while he will try to trim some departmental budgets, he will nevertheless increase the total amount the labour Government will spend this year and the next by £37.6bn. This indicates that if he does intend to balance the nation's books, he will do so not with spending cuts but with tax rises.

However, the proposed tax and spending measures pale into insignificance against the scale and extent of the economic and fiscal crunch mapped out in the Budget small print.

The documentation reveals that this year's economic contraction will be the worst in any year since the end of the Second World War. Indeed, according to the International Monetary Fund, this year is likely to be the worst since the 1930s, as countries around the world slump into a synchronised slowdown.

The Chancellor predicted that despite shrinking by 3.5pc this year, the UK economy would start growing again "towards the end of the year", with 1.25pc growth next year and 3.5pc from 2011 onwards. Last night economic historians were trying in vain to find examples of developed countries that had stomached so significant a one-off drop in growth and yet managed to recover within 12 months.

As the IMF pointed out last week, recessions associated with financial crises tend to be more protracted and virulent than almost any other type, and that is precisely what the UK faces.

Indeed, alongside many City economists, the IMF expects the UK economy to shrink by a further 0.4pc next year – significantly below even the Chancellor's revised forecasts.

Dig a little deeper into the Budget and it becomes clear that the Treasury expects nothing short of a full-scale consumer recovery – if not boom – in order to satisfy its projections. Such a prospect seems unrealistic if not outlandish, according to City experts.

"It's just wishful thinking," said Peter Spencer, chief economic adviser to the Ernst & Young Item Club. "It's impossible to find a period when that sort of recovery has actually come through … If you believe that, you'll believe anything."

Even taking at face value the Chancellor's forecasts, the UK will have to borrow some £175bn this year and £173bn the next to make up for the shortfall in tax revenues and extra demands on the public purse from increased social welfare spending.

At over 12pc of gross domestic product, these represent the worst years for the public finances since the 1940s. However, the optimistic economic forecasts are doubly significant in this case because higher growth means a lower deficit. Should the Chancellor's economic projections be proven wrong, the eventual outcome for the national accounts will be worse still, according to City analysts, with total borrowing likely to surpass £200bn and not to peak until next year.

"This leaves the already horrendous borrowing projections looking too optimistic," said Ross Walker, an economist at Royal Bank of Scotland. Michael Saunders, chief UK econmist at Citigroup, said: "I shake my head in despair. As the Chancellor faces a terrible fiscal position no one outside the Treasury will believe the forecasts. When I saw the public spending plans I nearly fell off my chair," he added.

The tidal wave of extra debt will push up Britain's net national debt from below 40pc – one of the ceilings set by Gordon Brown in 1998 but since abandoned – to almost 80pc.

The Treasury said it still had no plans to reinstate any fiscal rules to bring its borrowing back under control in the future. In fact, it said it did not expect the budget to come back into balance until 2018 or beyond.

The Budget came amid continuing bad economic news, with the Office for National Statistics announcing that unemployment jumped by 177,000 to 2.1m in the three months to February, taking the jobless rate to 6.7pc.

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Tens of thousands of home owners evicted since labour spin of help

Tens of thousands of home owners have been evicted from their homes since Gordon ditherer Brown first span a package of measures to help them.

Calculations suggest up to 28,000 households -across Britain have had their homes repossessed despite the measures being announced last December.

The Homeowner Mortgage Support Scheme, intended to help home owners by allowing them to delay their mortgage payments, was announced by the Prime Minister with great fanfare at the end of last year as a way of helping struggling families across Britain remain in their homes as the recession took hold.

However, almost five months has passed, and the delay in launching the scheme has meant it is too late for tens of thousand of borrowers who were unable to keep up with their mortgage repayments.

The figures have prompted mortgage experts and politicians to describe the delay in launching the scheme as "outrageous".

They accused the labour Government of trying to "spin a headline" rather than provide genuine help amid the housing slump.

Grant Shapps, the shadow housing minister, said: "The Prime Minister just doesn't seem to appreciate the urgency of the situation in the housing market. People are suffering now, and looking for urgent help.

"The trouble is that home owners believed the hype – and as a constituency MP I'm often approached by people who say they thought there was a scheme out there to help them.

The figures calculated by the Conservatives are based on data from the Council of Mortgage Lenders, which forecasts that 75,000 will be repossessed this year.

But it has come too late for many home owners who have lost their homes during the past five months.

Melanie Bien, of mortgage brokers Savills Private Finance, said: "While the scheme has admirable intentions in trying to save home owners from repossession, it is outrageous that it has taken so long for it to be implemented.

"There has been precious little detail on this scheme from the start and desperate homeowners have been waiting for some clarification: this will come too late for many."

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Doubts on quantitative easing policy as rates keep rising

Once again ditherer brown's incompetence is being highlighted.

It is only a few weeks since quantitative easing programmes were launched on both sides of the Atlantic – but already the effectiveness of the measures is being questioned.

That is because the purchase of government bonds by both the US Federal Reserve and the Bank of England is not helping sustain lower yields.

And it raises the prospect that the central banks will have to increase their fire power.

“The Fed’s problem is that the market realises that $300bn in Treasury buy-backs is just a drop in the bucket compared to $2,500bn in net Treasury issuance this fiscal year,” says William O’Donnell, strategist at UBS. “It’s a $300bn thumb in a dyke springing leaks everywhere.”

After falling to 2.5 per cent from 3 per cent when the Fed confirmed it would start buying Treasuries, the yield on the 10-year note is currently back around 2.9 per cent. This week’s selling of stocks has helped lower yields, but the move has been muted for now.

If 10-year US yields rise above 3 per cent, it may negate some of the recent decline in 30-year fixed mortgage rates, which are at historic lows for US home owners.

In the UK, the effectiveness of quantitative easing is also in doubt, after a euphoric start to the programme that saw benchmark yields plunge.

Yields on 10-year UK bonds have risen by about 50 basis points from a low of 2.91 per cent after the Bank of England announced plans to buy up to £75bn ($110bn) of gilts on March 5.

The increase in yields is partly due to signs of risk appetite returning to the markets, which takes away a natural support for gilts and Treasuries. The recent rebound in equity markets, amid hopes of green shoots appearing in the economy, has also put pressure on government bond prices on both sides of the Atlantic.

The rise in Treasury yields has been accompanied by rising inflation expectations as investors worry that the Fed’s outright purchases of Treasuries and mortgages under quantitative easing will ultimately spark inflation.

The expected average inflation rate for the next 10 years recently touched a six-month peak of 1.5 per cent, up from 1.1 per cent last month. Such an inflation expectation, however, is very low and dealers say supply is the main issue for the Treasury market.

The Fed’s planned purchases in Treasury debt this year is a fraction of the overall $6,000bn in outstanding debt and expected hefty supply due in the coming months and years.

For dealers, competition between the Fed and the Treasury creates a favourable trading environment at a time when dealer ranks have been thinned and bid-offer spreads are wider than normal, enhancing profits.

Trading opportunities have also flourished in gilts as dealers report that most sellers to the Bank of England have been hedge funds or bank proprietary desks. Many of these groups have sold bonds at high prices to the Bank of England and then bought them back at lower prices to book quick profits, which has no impact on the economy.

That is preventing the Bank of England from driving yields on 10-year gilts down to 2.5 per cent, a level where so-called real money accounts, such as life insurance companies, are likely to sell. It is hoped that these funds will then buy sterling corporate bonds, lowering the funding costs for UK companies and helping to stimulate the wider economy.

The rise in UK gilt yields comes amid worries that the Bank of England is not as committed to quantitative easing as dealers first thought following comments by Mervyn King, the Bank’s governor, to a parliamentary committee that the programme could be eased should signs of inflation emerge.

The Bank may make further comments on quantitative easing after its rate setting meeting today.

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Recession keeps tight grip on UK economy, NIESR warns

The UK recession kept a tight grip on the British economy in the first three months of the year, a leading economic forecaster warned.

New forecasts from the National Institute of Economic and Social Research (NIESR) estimate that the economy contracted 1.5pc between January and March.

If the think-tank is correct, it would mean the recession remained as severe in the first three months of the year as it was in the final quarter of 2008, when gross domestic product fell 1.6pc.

The gloomy figures reinforced fears that gross domestic product data due to be published by the ONS on April 24 will show that the recession showed no sign of easing in the first quarter.

NIESR added that so far the fall in output has taken a similar path to the recession which began in the summer of 1979. "If the 1980s profile were followed, output would continue to decline for up to another year and it would take two further years before the level of output enjoyed at the start of 2008 would be reached again," it said.

Figures yesterday showed British manufacturing sector shrank the most since records began in 1968 in the three months to February, dragged down by a dwindling car industry.

On a slightly brighter note, the ONS said yesterday that on a monthly basis manufacturing output fell by a smaller-than-expected 0.9pc in February, a significant improvement on the 3pc fall in January and its lowest rate of decline in six months.

Economists had been expecting a 1.5pc fall and said that although the figures signalled another difficult period for manufacturers, the improvement in February suggested the rate of decline was starting to moderate.

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G20 summit- European demands threaten to wreck deal

France and Germany delivered a late threat to derail Gordon stalinist Brown’s efforts to secure a global recovery deal last night by demanding new concessions from the United States on financial regulation.

In a classic show of eve-of-summit brinkmanship, Angela Merkel and Nicolas Sarkozy joined forces to give warning that they would refuse to sign any agreement that did not meet their “red lines” on tax havens, hedge fund regulation, tracing “securitised” assets sold around the world and capping bankers’ remuneration.

They also wanted the “naming and shaming” of tax havens that refused to go along with tougher regulatory rules, which is being opposed by the United States.

In a reminder of former confrontations between America and the countries of Old Europe, Mr Sarkozy suggested that Europe would not take economic direction from the US. He appeared to suggest that America would have to compromise, adding pointedly: “The crisis didn’t spontaneously erupt in Europe, did it?”

The firm stance of Mr Sarkozy and Ms Merkel and the language used in a joint press conference took negotiators by surprise as they prepared to work through the night on the communiqué to be released today.

Mr Sarkozy has already threatened to walk out of the gathering if he does not get his way and said last night that the German-Franco demands on regulation were “non-negotiable”. Both added that the “new financial architecture” must come today rather than be foisted off to another G20 summit.

Mr Sarkozy said that the summit provided a once-in-a-lifetime opportunity to give capitalism a conscience.He added: “Germany and France will speak with one and the same voice. The objective is a simple one — we demand results; we want hard and fast results.”

Ms Merkel said that the two countries wanted to see “a new architecture and new regulations for financial markets” spelt out very clearly in the final communiqué of the summit. She added: “We have come in a constructive mood. We don’t want results that have no impact in practice but results that change the world as we know it.”

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Tapxpayers left with £600m exposure to cover the failure of Dunfermline Building Society

UK taxpayers are on the hook for as much as £600m to cover the failure of Dunfermline Building Society after Scotland's largest mutual became the first lender to be dismantled under the Government's new "special resolution regime".

Following a deal brokered by the Bank of England and the Treasury over the weekend, the Government will transfer £1.6bn of state funds to Nationwide Building Society, which is taking £2.35bn of Dunfermline's deposits and £250m of treasury investments in return for absorbing £1bn of its prime residential mortgages.

The transfer is being made because the assets Nationwide is assuming are £1.6bn less than the liabilities.

However, the cost will be split between the industry-backed deposit protection scheme and the taxpayer. Both the Treasury and the Financial Services Authority refused to reveal how much the Financial Services Compensation Scheme will cover, but insiders said it was "between £1bn and £1.5bn".

In the worst case scenario, that would leave the taxpayer liable for £600m although any final loss is more likely to be in the tens of millions of pounds.

The labour Government's reluctance to detail either the possible exposure or the potential loss drew criticism from the Conservatives. George Osborne, the shadow Chancellor, demanded to know: "What is the maximum possible loss for the taxpayer? What is the maximum exposure?"

Alistair Darling would only say there was "a small residual exposure for the Government".

However, a further £650m of troubled commercial property loans as well as £150m of toxic self-certified mortgages bought from GMAC and Lehman Brothers has been placed with administrators KPMG.

The Government triggered the special resolution regime, which has been in place just a month, after the FSA judged that it needed £60m more capital to meet regulatory requirements and the authorities decided that "even with an injection of £60m, the society would need to come back for more", Mr Darling said.

The authorities were prompted into action because a £250m floating rate note matured on Monday and the authorities did not want to risk a refinancing failure.

Nationwide is taking over Dunfermline's 34 branches, head office and 534 employees. It has guaranteed there will be no job cuts at branches for three years but is expected to reduce staff numbers in the head office.

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G20 unity spells end of Brown’s New Deal

Gordon ditherer Brown’s plans for a $2 trillion (£1.4 trillion) “New Deal” to revive the global economy have been quietly dropped to preserve the facade of unity as world leaders gather in London for the G20 summit.

The US and Britain have both backed away from spending proposals worth 2pc of global GDP, accepting that each country must find its own way. White House officials confess that there is no chance of a deal that entails further public debt.

“Nobody is coming to London to commit to do more right now. No single number is sacrosanct,” said Michael Froman, the US deputy national security advisor.

British Foreign Secretary David Miliband disowned a leaked draft retaining talk of a $2 trillion boost, insisting that it was an old document that merely lists spending packages already under way across the world. “This G20 summit was never about writing national budgets. Let us not hear that somehow the Anglo-Saxons are for fiscal policy and the other Europeans are somehow for regulation – you have got to do both,” he said.

The pledge to uphold free trade has already been cast into doubt by China, which announced a raft of export tax rebates on Friday to shore up exports.

The protectionist move is likely to irk Washington. There is grumbling on Capitol Hill that the US stimulus is leaking out to surplus states in east Asia and northern Europe which seem to be counting on American demand to rescue the world again.

But the two sides are so far apart in their diagnosis of this crisis that no real agreement seems possible. German Chancellor Angela Merkel said over the weekend that the “German economy is very reliant on exports, and this is not something you can change in two years. It is not something we even want to change”.

Czech premier Mirek Topolanek, holder of the EU presidency, attacked the US fiscal plan last week as the “road to Hell”. Europe’s leaders insist the region is already doing enough since generous unemployment payments – starting at 80pc of earnings in Germany – act as an automatic stabiliser.

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Brown's reckless UK spending plans in trouble

The UK gilt auction by the debt management office failed to sell the small total £1.75bn on offer.

This is the first time such an auction has failed since 2002 and identifies probable concern over the health of public finances.

The failure in the auction will concern the labour government and follows a warning from Mervyn King on additional fiscal stimulus for the UK economy.

Future such auctions will be watched closely to gauge if yesterday’s failure was a one off or more failures will follow.

US stocks rose yesterday and the US economy was helped with a glimmer of hope from new home sales and durable goods coming in better than expected.

The dollar fell sharply for a brief spell yesterday as treasury secretary Tim Geithners comments were misconstrued by the market.

The basis of the comments was the suggestion of the US exploring Chinese proposals to incorporate a global reserve currency and so reduce reliance on the USD as a reserve currency.

Naturally the dollar was sold on this suggestion before clarification had filtered through to the media though this really shows how fragile and reactive the markets are in the present economic climate.

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G20 summit: Gordon Brown's G20 dream fades amid European hostility

Gordon Brown’s hopes of leading the world out of recession at next month’s pivotal summit in London were undermined yesterday when European leaders flatly rejected calls for a further massive stimulus package.

The lying Prime Minister has been forced to lower expectations for the G20 summit, where leaders of the richest 20 countries will gather.

Mr Brown has stopped comparing his event on April 2 to the Bretton Woods meeting in 1944 which set up the postwar world financial system. He recognises that there is no appetite to create new global institutions in the face of reservations in the European Union and the US.

The London meeting risks being overshadowed by a dispute between Europe and the US over public spending.

A series of leaders at an EU summit led by Angela Merkel, the Germany Chancellor, refused yesterday to go along with American calls for greater borrowing and spending by Europe.

Amid scaled-down ambitions for the G20 Mr Brown is backing a doubling of resources for the International Monetary Fund (IMF), the lender of last resort to bankrupt governments that Bretton Woods set up.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Gordon Brown and Bernard Madoff are separated by a single detail – Bernie's pleaded guilty

Gordon Brown and Bernard Madoff are separated by a single detail – Bernie's pleaded guilty.

Wise Money believes that the Prime Minister's mismanagement, which has brought us a dysfunctional state as well as financial disaster, will prove far more costly than any Ponzi scheme.

What's the difference between Bernard Madoff and Gordon Brown? Answer: one has drained fortunes from gullible victims, plundering their income and savings to create an illusion of prosperity. The other is going to jail.

Mr Madoff has thrown in the towel. His Ponzi scheme, whereby he needed to suck in ever greater quantities of other people's money in order to maintain a semblance of competence, collapsed under the weight of undeliverable expectations. Nobody knows for sure how much has gone missing, but Wall Street scribes are calling it a $65 billion fraud.

Not bad for peddling fresh air. It is, however, a nickel-and-dime swindle when set alongside the 12-year con trick perpetrated by Mr Brown on British taxpayers. That, too, has been a form of Ponzi, but with many more zeroes and little chance of the mastermind ending his days in what Americans call Crowbar Hotel.

The Prime Minister is nothing if not a man of vaulting ambition, with a desire for power which, like Macbeth's, "o'er leaps itself". While Big Bucks Bernie was snaffling billions, Mr Brown had his sights trained on trillions.

Five trillion, to be precise – that's £5,000,000,000,000 – which is how much Labour has taxed and spent since it came to power.

In 1998-99 its Budget was £333 billion. By 2008-09, the Government's annual expenditure had grown to £618 billion. Every year, the sums required to shore up the house of cards became bigger and bigger. But while the good times rolled, too few cared to notice what was really going on.

We await with trepidation this year's stab in the dark. On the basis that bad numbers take longer to add up than good ones, it is ominous that the Chancellor has put back his annual showpiece to April 22, the latest it has been for many years. One fears that fiscal discipline has been thrown over the fence, replaced by a confection of guesstimates, wishful thinking and spin.

Though the scale of their operations was very different, the sales techniques of Mr Madoff and Mr Brown were remarkably similar. Mr Madoff persuaded clients that he owned the secret of everlasting growth, a way of defying financial gravity. His unique selling points were, yes, stability and prudence.

Over the years, Mr Madoff stretched the credulity of his constituency well beyond what a rational man might have thought possible. Those who tipped cash into his coffers seemed anxious, in some cases perversely determined, not to ask difficult questions. The trompe l'oeil was too delicious to be questioned. For a while, fantasy economics passed for reality in New York and London.

When the elastic finally snapped, so did Mr Madoff's resolve. Rather than conjure yet more elaborate excuses to cover the hole where his clients' investments were supposed to be, the old rogue confessed. He could no longer bear the strain of living a lie. Coming clean, it seems, was a relief.

It's at this point that comparisons to Mr Brown come to an end. For not only is there no prospect of the Prime Minister pleading guilty, he refuses to acknowledge any aspect of his catastrophic mismanagement.

It may seem impossible to believe, but Mr Brown, far from recognising that he has ruined Britain, still has self deluded plans to save the world.

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RIP Prudence, Zimbabwe here we come

The Bank of England opens a new front in its effort to ward off deflation today as it prepares to buy government bonds with newly printed money.

The central bank will purchase as much as £2bn of gilts, its first deployment in a three month plan that may see it waste £75bn. The final results of the operation will be released after 2:45pm. today in London.

The move marks a new departure for British monetary policy after officials cut the interest rate to a record low of 0.5pc on March 5, requiring them to seek new tools to stop the economy’s downward spiral.

While Governor Mervyn King hopes that pumping new money into the financial system will work, he’s relying on banks battered by the crisis to pass it onto lenders.

The Bank of England says it will give details of the auction this morning in London, without being more specific. The bank unveiled the plan last week after delivering a final cut in the key interest rate to a record low of 0.5pc.

Policy makers such as Andrew Sentance are concerned a “prolonged and deep recession” will stoke deflation and the National Institute of Economic and Social Research said today that the slump deepened in the quarter through February.

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UK nationalised banks to add £1.5 trillion to public debt

Royal Bank of Scotland and Lloyds TSB, the two banks bailed out by the UK's communist Government, are to add between £1 trilion and £1.5 trillion to the public debt, the equivalent of between 70 and 100 per cent of GDP, the Office for National Statistics indicated this morning.

Britain’s public sector net debt is already a record high, hitting 47.8 per cent of GDP in January, official figures show. This is the highest level of debt recorded since the ONS started recording data in 1993.

The ONS said that it had decided to add the banks to the labour Government's books because "the Government has the ability to control the respective banks’ general corporate policy through the conditions associated with the agreements signed relating to recapitalisation."

Howard Archer, of IHS Global Insight, the economic consultancy, said: "Given the rate at which the UK public finances are deteriorating and new measures are having to be introduced to try to support the financial sector and the economy, it is frankly anyone's guess as to how high the public deficits may go over the next couple of years."

The massive debt will cause problems for the labour Government, which has already seen Northern Rock's debts added to its accounts. Analysts said that it would probably have to revise up its borrowing forecasts in April's budget.

Andrew Goodwin, Senior Economic Adviser to the Ernst & Young ITEM Club, said: "We expect the Chancellor to be forced to make significant upward revisions to his borrowing projections when he presents the Budget."

The public sector showed a surplus on current budget of £8.4 billion in January 2009, compared with a surplus of £15.3 billion in January 2008.

Between April 2008 and January 2009, the public sector recorded a deficit of £42.5 billion. At the same stage of the 2007-08 financial year, a deficit of £7.0 billion had been recorded.

Mr Archer said: "The public finances for January are terrible, coming in even worse than feared. January always sees a surplus on the public finances at is a bumper month for tax receipts.

"Unfortunately though, bumper hardly describes the tax receipts for this January as they have been decimated by sharply contracting economic activity, declining profitability, rising unemployment, reduced bonus payments, December's VAT cut and substantially weakened housing market activity and prices.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Sterling plunges on brown's comments

We open this morning with Sterling looking almost sprightly following a couple of failed attempts overnight to force the rate down towards the 1.60 support level.

The fact that we bounced off 1.6150 a couple times makes that level a weak support for the moment but given current sentiment, is unlikely to provide significant resistance ahead of the weekend.

The Yen remains the Market's favourite for now with further gains provoking Finance Ministry comments already this morning.

Well we know exactly how the strong Yen and the global downturn are affecting the economy.. 3 consecutive negative quarters for Industrial Production and very a very downbeat outlook from Sony gives us a bit of a clue.

Elsewhere the flight by investors/speculators (call them what you will) from commodities, commodity based currencies, stock markets and almost anything else that moves leaves us with a big question.

Where on earth are these funds going? Given that yield appears no longer a priority then it might go someway to account for the stronger Yen and the very low level of short date Dollar rates.

The Fed yesterday went someway to put a floor under the latter by tinkering with the formula by which they reimburse Banks' excess balances held by the Central Bank.

In theory good, in practice we have still seen overnight Dollars offered at sub 1% this morning.

The MPC minutes revealed that, as expected, the vote to cut rates was unanimous. Given the committee wide agreement on the current problems that best the UK economy, there is a great possibility that we see a further 50bp cut at the November meeting and expectations abound that we will have Base Rate at 3% by some time in the 3rd Qtr 2009.

Given the magnitude of the expected total cut, one can see how short term investors are shying away from holding Sterling.

On the other hand, there must be a growing feeling that buying Sterling here and locking in the higher yields down the curve would prove to be a good strategy going forward. We will see which sentiment prevails.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.