U.K. Economy Shrinks, World Markets Tank

Contraction Is First For Britain Since 1992; Recession Fears Ignite Global Investor Panic

(CBS/ AP)  Britain's economy shrank in the third quarter as the global credit squeeze took its toll, according to figures out Friday, confirming that the country is on the brink of its first recession since 1991. The pound plunged.

Also, world stock markets tumbled Friday on growing alarm that a global recession will ravage corporate profits.

Britain's economic output declined by 0.5 percent last quarter, according to the Office for National Statistics. Analysts expect the economy to further shrink, reports CBS News correspondent Richard Roth.

The contraction in growth in the July to September quarter had been widely expected but the 0.5 percent dip was greater than anticipated, sending share prices and the British pound spiraling downward.

"Every business, every individual - we have to live within our means," warned British Treasury chief Alistair Darling as the statistics showed that businesses from financial services to hotels and catering are in decline.

The growth figures for the third quarter mark the first half of the definition of a technical recession used by government: two or more consecutive quarters of negative economic growth. Economists say that the current quarter, October to December, is certain to continue the trend.

"The economy is already in recession," said Hetal Metha, a senior economist at the Ernst & Young Item Club. "We'll get confirmation in January when the Q4 numbers are out, but today's figures highlight how serious the situation is."

Prime Minister Gordon Brown and his central bank chief, Mervyn King, tried to ease the blow earlier this week by breaking ranks with many other world leaders to use the dreaded "r-word," declaring that a recession was almost certain.

However, the London Stock Exchange and the British pound, which had already fallen after those comments, extended losses as the fall in economic output was larger than the anticipated 0.2 percent.

The pound dropped to a five-year low against the U.S. dollar as investors bracing for interest rate cuts in the wake of the economic data took their money elsewhere in search of higher yields. The currency plunged to $1.5264 before recovering slightly to change hands at $1.5590 at midday, down some 3.6 percent on the day.

The FTSE 100 index of leading British stocks plunged nearly 8 percent to 3,766 as traders bet that the country's economic contraction will make it more difficult for companies to pocket profits.

The contraction in economic output - the first since the second quarter of 1992 - is a blow for Brown's previously unbroken record of growth since the Labour Party came to power in 1997. Brown, first as Treasury chief then as prime minister, has prided himself on providing "stability" to ordinary Britons who have until recently benefited from rising house prices and low unemployment.

Meanwhile, Wall Street's recovery after an initial plunge helped drag European indexes out of the depths Friday. Germany's benchmark DAX index closed 4.96 percent lower, or 224 points, at 4296, after being down more than 10 percent at one point. The French CAC40 closed 3.54 percent at 3194. It also traded over 10 percent lower during the trading day. Britain's FTSE 100 closed down 5.0 percent at 3,883.

Russia's two exchanges were shut down early because of excessive losses and officials said they wouldn't resume trading until Tuesday — the MICEX was 14.2 percent lower and the RTS down 13.7 percent. Japan's Nikkei 225 stock average closed down 9.6 percent to 7,649.

The pressure on stocks was a combination of poor earnings reports as well as fear among investors that the financial crisis will turn into a global recession that will endanger small economies previously uninvolved in the credit crunch.

Profit warnings have come thick and fast across all industries. Shares in Europe's automotive companies fell hard on worrying third quarter figures, with truck-maker Volvo AB down 17 percent and PSA Peugeot-Citroen falling 5.9 percent. Daimler AG and Fiat Spa also warned about profits.

But heavy industry was not the only sector to feel the pain, with the likes of Sony also warning of tough times ahead. Its shares slid 14 percent in Asia.

The sudden gloom over growth expectations is having the added impact of putting small economies and currencies under extreme pressure. Investors are pulling money out of countries in Eastern Europe, Latin America and Asia on fears vulnerable countries will not only be hit hard by the financial crisis but may also default on debt.

"Volatility and uncertainty seem to be the watch words at the moment," said Matt Buckland at CMC Markets in London.

He suggested the market sell-off may now be overdone, but urged caution.

"There's perhaps a question to be asked as to whether more value can still be taken out of the market, but we had the same debate when the FTSE 100 was around the 5,000 level and history shows us that indeed it could," he said.

As investors flee economies they view as less stable, this rush for the exit to repatriate money has boosted the dollar to the detriment of smaller currencies.

"For now this means much of the focus is on the International Monetary Fund and what it might have in mind to insulate emerging markets, given that they are now the clearest pressure point," said Maher.

Markets are afraid that the world may see more countries go the way of Iceland, whose financial sector collapsed earlier this month.

In Europe, Hungary, Ukraine and Belarus are all, like Iceland, in talks with the IMF to discuss possible loans. Iceland received a $2 billion loan Friday.

Currencies saw massive swings as markets sought to identify which countries are most at risk, while some investors took bets on cheap bargains. The euro, which analysts consider exposed to the vulnerable Eastern European markets, fell to a two-year low against the dollar, dipping below the $1.25 level before recovering somewhat to trade at $1.2680. The British pound dropped as low as $1.5264 against the dollar, the weakest since August 2002, before rallying back to $1.5830.

Ashraf Laidi at CMC Markets noted that the pound's early fall was the biggest intraday move since exchange rates became freely floated in 1971.

Although the dollar has enjoyed huge gains against most other currencies throughout the past month of financial crisis, it has tumbled against the yen. It fell Friday as low as 90.89 yen, the weakest since August 1995. The dollar likewise recovered some of those losses, rebounding to 93.00 yen.

The dollar's drops in against the yen are due to the fact that traders borrow in yen to fund riskier investments, so when investors are scared of losing money in emerging markets they buy the yen back, boosting its value.

"We are getting used to wild swings in the markets, but today's moves verge on the bizarre," said Julian Jessop, chief international economist at Capital Economics.

Hong Kong's Hang Seng index fell 8.3 percent to 12,618. Markets in India, Thailand, Indonesia and the Philippines were also down sharply as investors bailed out of emerging markets to cut their exposure to risky assets and meet needs for cash at home.

"Funds are pouring out of emerging markets," said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. "A lot of money that flowed into the region during the last five years from the U.S. and Europe is being cashed out.

On top of all this, the Organization of the Petroleum Exporting Countries Friday cut its output by 1.5 million barrels a day in an effort to keep oil prices higher.

This had little effect on markets, with the price of light, sweet crude for December delivery slumping $4.69 to $63.15 a barrel, over 50 percent less than this year's historic heights.

[toolmangler-2009]

Lots of people will starve before figuring out how to grow food.
Posted by SmugBachelor at 02:54 PM : Oct 24, 2008


Not if the internet still works. Those that have it will prosper if they aren''t lazier than ''fecal matter''

[ricklf1]

...and all the Kings horses, and all the King''s men couldn''t put Humpty-Dumpty back together again!

Maybe try having even another $700B bailout, because the last few bailouts, to correct this failing economy, were duds!

To all who are up for election this term, who voted for the bailout: enjoy your early retirement, because after the Nov 4th election, your HISTORY! The silent majority in this country shall have their say.

[shimano35]

Look at the bright side--Fuel is going down and the price of Lobster has plummeted!!! ENJOY!!

[spadeisspade]

Reality check, One American- the rest of the world loves Obama. Secondly, Obama hasn''t been behind McCain in the polls overall since he was nominated. Good try, though! I bet Ann Coulter told you that one, huh?

[smugbachelor]

I believe it was around September of 06 when I first became aware of people predicting a 2nd Great Depression. I just thought there could be another recession coming with all the jobs that keep leaving America. The summer of 07 was the first time I tried growing potatoes in my backyard garden. Grew even more of them with my tomatoes in 08. When I was a kid, my very cautious grandparents told me about being teenagers in the 1930''s. They grew lots of potatoes which were easy to store for 4 or 5 months. Grew green beans that needed to be canned. Most of the corn went to cornbread. If there was extra corn, they could use it to feed chickens. I''m afraid we are headed back to similar times. Lots of people will starve before figuring out how to grow food.

[noloyalisti]

The Republicons are ripe for a fascist right wing takeover. As happened in Nazi Germany, all that is left is for the currency to crash. Then a firm father figure fuhrer can fool the fanatics and grab power.

[noloyalisti]

Mission accomplished for the Republican Neo Con party, the party of death and spending.

[palin08o8]

You know what I changed my mind about Obama! I think he will be better for national security and the economy!

Plus sarah palin $150,000.00 on clothes, most Americans could have bought a home for that amount!

Besides I think Sarah Palin is really a Terrorist

Breaking News: The Terrorist Group AKA Alaska Independent party Calling on Russia to help secede from the Union
www.chilitoz.com
Extremists Mark Chryson and Steve Stoll former leaders of the Alaska Terrorist group AKA Independence Party and friends of Sarah Palin are calling on Russia to help them gain independence from the United States.

Watch video of Sarah palin addressing The Alaska Terrorist Group also known as The Independence party. They are calling for a civil war against the mainland.
www.chilitoz.com

[noloyalisti]

Hillaryin012 don''t be such a frightened little person, it does not do you well. At all. If we left others alone and quit trying to have our Republican crime cabal steal from them, we would do better.

I am glad the right wing Republicon tool Greenspan lived long enough to see their out of control corporate policies sink the ship. Too bad Ray Gun did not live long enough to see his complete failure.

[docpeter1953]

Posted by LloydBest1 at 10:10 AM : Oct 24, 2008
____________

Very well stated. I have been warning friends and relatives for over four years now that the markets were over inflated and way over valued, that the markets cannot withstand the rapid and continued growth and expansion -scientific fact, you can only grow so many cultures in a pitre dish until there is nothing left to sustain it- it is this equivalent we are now experiencing, BUT now it may be too late to correct it. Should it have been regulated like they do when Wall Street and the DJ falls too much in one day, when they hit the circut breaker and turn it off. It is hard to tell others "Guess what you have made enough $$ today and you cannot make anymore." It flies poorly in the face of free market and capitalism.

[presjfk]

Country First, Politicians Second, Big Business Third, Other Special Interests Fourth....

...way down the list Middle Class American Citizen, maybe 550th...

[lloydbest1]

I posted this on another thread but it''s also relevant here:
"...Most of it (debt) comes from traders specualting on stocks and other commodities, with money they did NOT have, assuming the market will rise indefinitely. It only takes a few souls coming off that binge to wake up and realize, "What if....(insert whatever catastrophe here)". That''s what we are seeing, now.
And we are a LOOOOOONG ways from hitting bottom.
In previous posts I touched on the emotional aspects of this panic; that traders, whizzing in their jeans, are falling all over themselves trying to get out of the market - regardless of cost. Unfortunately debt does not decease as values crash. Those obligations will either have to be paid or written off...
Choose your poison; either way we are facing an extended period of time where our economy, as well as the rest of the world''s, will very likely not only not grow; but will be in severe decline and contraction. How long this will last is anybody''s guess but 30 to 40 years before we even begin a turnaround is not too unreasonable..."
The value of anything (including non-perishables) is only what one is willing to pay. Brian''s comment about OPEC maintaining Oil at $100+ is relevant only if we can somehow miraculously maintain our living standards. We won''t. As the economy goes so also go living standards. Within a year or two they will fall to the point that OPEC will have trouble pricing oil above the present cost of extracting it.

[rickwar]

This headline brought to you by the RNC

"U.K. Economy Shrinks, World Markets Tank"

I''m George Bush and I approve this message
I''m Sarah Palin and I approve this message. PS. I helped the economy by using RNC funds and went shopping!

I''m John McCain, "maveick" "deregulator" and 93% George Bush supporter and I approve this message
Hell folks I have to I helped pass all the laws that caused this, and I stand by my decision.

Remember "Country First!"

[afmca]

Bush''s legacy - worldwide recession. Must make his daddy proud.

Hopefully some of the Wall Street jackels will see some serious jail time for their corruption. Others need to be banned for life from running any type of financial institute. Finally, there better not be any bonuses in the financial sector for those companies taking tax payer money to cover their incompetence. It appears Wall Street still lives in a world were responsibility and accountability have no meaning.

[t_barr]

Wake-Up Call

Bloody Friday is here

Dow, Nasdaq, S&P ALL LOCKED AT LIMIT DOWN. They have tripped the Circuit Breakers in Futures Trading.

Marketwatch Lead Story;
A Global Rout
Stampede of selling to swamp U.S. stocks!
Their claws sharpened, bears pass the baton from Asia to Europe and now North America.
S&P 500 trigger ''limit down'' circuit breaker
Russia''s RTS halted | Sterling drops on GDP | Yen rallies against dollar...

www.marketwatch.com

[g-gfather]

Non-perishable ? OIL ?? I think not my friends.
Oil greases the skids into extinction.Tis'' a slippery
slide this dinosaur dance we humans are addicted to.
I wish you all wisdom,to return to lives sustainable. WHAT FOOLS WE MORTALS BE.....!!!!!

Great-Grandfather.....for the children

[ybotheratall]

Oh how the mighty fall like dominoes. Nothing would give me more pleasure than seeing the rich get a taste of panic and struggling. They have NO idea what it''s like for the real working people. Jealous? Probably, but I won''t lose any sleep over their problems.

The governments of this world and the CEOs they coddled and the illegal and devious practices they ignored/condoned are to blame for this, not the hard working families of this country (save for the ones who took the home loans they KNEW they couldn''t afford; full blame for them too).

[brianbwb-2009]

"OPEC better ride this one out and not touch production. While housing mighted have started all this mess $150 oil did not help. They would see demand drop like a stone." Posted by lewiston14

The problem with a non-perishable is that sooner or later it will be sold, even at the higher price. OPEC saw that speculators drove up the price, OPEC was not the beneficiary, the speculators were.

Now OPEC has seen the ceiling, and they will cut production to try to maintain at least $100-115 per, because they know the market will bear it.

[lewiston14]

OPEC better ride this one out and not touch production. While housing mighted have started all this mess $150 oil did not help. They would see demand drop like a stone.