The Ultimate Pound Store

Woolworth's has the dubious distinction of turning itself into the ultimate pound store, as it puts its 815 retail stores up for sale for £1.

Woolworths has about £295 million worth of debts, and has entered takeover talks which could see its retail division sold to Hilco.

Timid

It seems that the Bank of England's recent 1.5% cut in rates was not as bold as some commentators had first believed.

According to minutes of the Monetary Policy Committee (MPC), members had wanted to cut rates by 2%. However, they were afraid that such a cut would be too much of a shock for the financial markets.

We are facing the worst recession in decades, under these circumstances assertive bold leadership is required; yet the Bank continues to dither.

The upside to the dithering is that clearly another rate cut is on the way.

Inflation Falls More Than Expected

The Consumer Price Index has fallen by more than expected, from 5.2% to 4.5%.

The fall in inflation is being attributed to the reduction the price of fuel, food and utility bills.

This is the first fall since July 2007, and opens the way for the Bank of England to cut rates further and faster.

The question remains as to whether the Bank of England will act with courage, and cut rates aggressively in order to stave off the worst effects of the recession.

Icleand Deal Agreed

Some good news for some of the hapless individuals who placed their life savings offshore in an unprotected environment.

Iceland's prime minister, Geir Haarde, said that an agreement had been reached (a 'common understanding') with EU member states that will see it cover savers' deposits in return for financial assistance, including agreeing on a stabilisation package from the International Monetary Fund (IMF).

The government of Iceland will "cover deposits of insured depositors in the Icesave accounts in accordance with EEA law."

I would express some words of caution here, before people start to pop open the champagne, until the money is back in a UK bank account don't bank on this happening.

As per the PM's website:

"talks between Iceland and several other EU member states, led to a common understanding that will form the basis for further negotiations".

This is not a done deal by any means.

The PPI Rip Off

The Competition Commission is finally looking to get its teeth into the con trick of payment protection insurance (PPI), as it issued a statement yesterday calling for a ban on sales of the policies when people take out loans and credit cards.

The Commission wants banks to wait for 14 days before approaching borrowers to sell PPI, and wants to ban financial providers increasing interest paid by charging for the entire cost of a policy at the start of a loan.

Martin Lewis, the personal finance campaigner, estimates that half of the policies in force may have been mis-sold (estimated to be worth £10BN).

Needless to say the Association of British Insurers isn't best pleased, and claimed that the Commission would "kill the PPI market".

So what?

The policies rarely pay out (the Competition Commission said only 14% of premiums are returned to policyholders, compared with 54% for home insurance and 78% for car insurance) so what is the point of them?

Halifax Profiteers Out Crisis

Halifax decided to ignore government pleas to pass on rate cuts, and instead chose to double the margins on some of its most popular mortgages last night.

Halifax reintroduced two year tracker deals for borrowers with a 25% deposit at a rate of 5.14% (2.14% above base, Halifax's best tracker a month ago was 1.04% above base).

Halifax's five year tracker for borrowers with a 25% now has a rate of 5.39% (2.39%, a month ago Halifax was offering five year trackers at 1.25% above base).

Shades of profiteering?

Halifax, needless to say, blame Libor.

Oddly enough Libor is at it lowest point in four years.

Maybe someone should tell Halifax that?

Back on Track

Three mainstream mortgage lenders have relaunched their tracker mortgages, since last week's mass exodus following the 1.5% cut in interest rates.

- Abbey has introduced a two year tracker at 4.99% (1.99% above base, being 0.7% higher above base than its previous tracker)

- Lloyds TSB has introduced a tracker at 4.79% (1.99% above base, being 0.7% higher above base than its previous tracker)

- Alliance & Leicester has introduced a new tracker at 4.89% with a 1% fee.

Strange that they increase their margins, when the rates are falling. However, borrowers should be grateful for small mercies that they are at least offering trackers.

Meanwhile a survey of more than 200 cards by Defaqto, a banking research group, found that the cost of borrowing on credit cards rose to 17.6% cent and rates on store cards rose to 25%, with some companies increasing rates by up to 10% overnight.

How strange!

Surely the credit card companies are not trying to profiteer from this crisis?

Sales Collapse To 1978 Levels

The Royal Institution of Chartered Surveyors (RICS) latest survey shows that estate agents in England and Wales have sold an average of 10.9 properties per firm in the 12 weeks to the beginning of November.

That is the lowest level of sales since the survey began in 1978.

The Times reports that, in response to the recession, Gordon Brown is to use this weekend's financial summit in Washington to call for co-ordinated tax cuts across the world's major economies to help reduce the depth of the global downturn.

The most effective for of tax cut will be that of cutting VAT, thus providing a direct stimulus to the consumer based economy. Cutting mainstream taxes will not achieve the same effect, as people will save part or all of the cut.

Bankers' Blacklist

Be warned, according to The Times, bankers are drawing up secret black lists to ban businesses from overnight borrowing.

Seemingly hundreds of clients have been included on the lists, which include international trading and commodities companies that supply the small-to-medium-sized business sector.

Were the banks still private companies, this would be a matter between them and their borrowers. However, now that the government has effective control over a number of them, this is now a matter that directly affects government policy and credibility wrt its attempts to limit the impact of the recession.

The banks will find that, unless they modify their behaviour, Brown and Darling will become very hands on "directors".

Called To See The Headmaster

As predicted, despite the 1.5% cut in rates yesterday, the high street banks have been a tad tardy in passing on the cuts to their hard pressed borrowers.

Needless to say, the government is not best pleased as it will be blamed by the voters for this (not least because it now has effective control of a number of these banks).

Alistair Darling therefore summoned the CEOs of HSBC, Barclays, Lloyds TSB, HBOS and Abbey to Downing Street this morning to demand that they immediately pass on the rate cut to their customers.

Bradford & Bingley (B&B), Lloyds TSB and Abbey have now passed on the rate reduction.

I suspect that before the day is out, we will hear from the other banks that the rate cuts will be passed on.

Bank Finally Acts

The Bank of England has finally taken bold action to try to ease the pain of the recession, it has cut interest rates by 1.5% to 3%.

Here is the announcement in full: Bank of England

The question is will banks and building societies pass this rate cut on to their borrowers, or merely cut their savings rates?

Change

Congratulations and good luck to President elect Obama.

He has one hell of a task on his hands wrt the economy (US and world economy). He at least will hit the ground running, by announcing his treasury team in the next few days, and will not wait until January before implementing a number of initiatives.

This may be the turning point, if other countries and their central banks also do their bit.

Mandy Piles on The Pressure

Lord Mandelson, Business Secretary, has put pressure on the banks today, by warning them that their customers will not be best pleased if the interest rate cuts are not passed on.

This warning comes after David Hodgkinson, chief operating officer of HSBC (who travelled with Gordon Brown to the Gulf), warned consumers they might not see any benefits if the Bank of England cuts interest rates this week.

Lord Mandelson, who is also in the Gulf, is quoted in The Times:

"I have to say when official rates are being cut it's not unreasonable for the customers to expect to see some benefits.

People want to feel the benefits of that action. And if it appears the banks are standing in the way of what the government is doing then I think many banking customers are going to be asking difficult questions of the banks.

I must say one of the things that has struck me going round the Gulf is the extent to which our own British PM is now being looked to as someone who will lead the rest of the world out of this mess.

If we can't even have a response in our own country to his moves, to his decisiveness, that will come as a surprise to many."

When Libor comes down so will interest rates charged by banks to customers, that is the key.

Silly Money

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