In the earlier phases of the crisis, financial weakness was the driving
force; real economies, which were initially resilient, succumbed only gradually.
But the post-Lehman plunge changed the situation radically. Financial easing has
failed to underpin the real economy. Instead, huge falls in activity threaten to
unleash new financial turmoil.
US job losses totalled 2.6 million in 2008, of which 1.9 million occurred in the
last four months of the year. The position will probably worsen early in 2009.
First official estimates for fourth quarter 2008 GDP, due in the next few
weeks, are expected to be awful. The US, the eurozone, and the UK will all
register quarterly declines of 1% to 2%. It is clear that this recession will be
worse than that of the early 1990s.
Only forceful measures may ensure that the downturn is not as bad as in the
The US Fed has cut its key policy rate to a range of 0% to 0.25%, a record low.
With rates effectively at zero, quantitative measures are now the main focus of
US policy, particularly action to reduce mortgage rates. Other key economies
will continue to act more slowly than the US. In January, the European Central
Bank (ECB) cut its key rate from 2.5% to 2.0% and the UK has lowered rates from
2.0% to 1.5%. While further cuts are expected soon, towards 1%, both the ECB and
the UK will move slowly to quantitative easing, along the lines adopted by the
Recent financial improvements have not totally dissipated. Narrower spreads
between inter-bank and official rates signal easier liquidity and credit
conditions. But new fears over banking sector stability are emerging. Citigroup
reported its fifth consecutive quarterly loss, and is splitting its business.
Bank of America announced its first loss since 1991 and cut its dividend to one
cent per share, after receiving new emergency government funds in mid-January.
Ominous reports outside the US include a record quarterly loss at Deutsche
Bank, big job cuts at Barclays and a broker’s warning that HSBC might need to
raise up to $30bn and could halve its dividend. Bank shares are facing renewed
Unless governments can stabilise the relentless decline in real economic
activity, we could face a new and more dangerous financial crisis.
Wolseley is to cut up to 800 UK jobs and close around 80 branches costing the company about £100 million, the plumbing and heating supplier said on Tuesday despite reporting rising sales and profits
GoCompare is to demerge from esure and and be floated on the London Stock Exchange with the aim of boosting growth and performance
Three former Tesco executives, including the former finance director of Tesco UK, have been charged with fraud in relation to a £263m accounting scandal at the supermarket chain
Co-operative Group is trialling a new blockchain technology that can be used to track food from source to ensure its authenticity and sustainability