Developing global recession exacted a heavy toll on the UK stock market yesterday � sending the FTSE-100 share index tumbling more than 100 points.
Developing global recession exacted a heavy toll on the UK stock market yesterday - sending the FTSE-100 share index tumbling more than 100 points.
The week got off to a bad start when official data showed the Japanese economy had fallen into recession for the first time for seven years.
Sentiment was hampered further by a quarterly survey from the Federal Reserve Bank of Philadelphia showing that private sector economists believe the US entered recession in the spring and that the world's largest economy will suffer a sharp fall in output in the current quarter. The economists are forecasting the US recession will last for 14 months - starting last April.
This would be the longest US contraction since the 16-month US recession in 1982, according to the US National Bureau of Economic Research. The NBER, a not-for-profit, private sector research organisation, is the arbiter of US economic cycles.
The International Monetary Fund rattled nerves with its declaration that it would need at least $100bn in extra funding to fight the global economic crisis.
And US banking giant Citigroup sent shudders through the financial sector by declaring it would cut 52,000 jobs - one of the biggest corporate lay-off programmes in history.
Its actions will add to fears over the extent of job cuts at Scotland's two big banks, HBOS and Royal Bank of Scotland.
HBOS is being acquired by Lloyds TSB, in what is viewed by the City as a rescue takeover. A majority of Royal looks set to end up in the hands of the government, which is underwriting this institution's latest capital-raising programme.
News of Japan's fall into technical recession, which dispels any lingering hopes of Asian "decoupling" amid the global economic turmoil, came hard on the heels of confirmation on Friday that the 15-nation eurozone had suffered the same fate of two consecutive quarters of contraction.
Sterling rebounded against the euro yesterday, recovering a small part of heavy losses sustained against the single currency last week amid mounting worries over the health of the UK economy. Some currency experts have claimed that sterling's downside against the euro is limited by the single currency bloc's own economic troubles.
The euro was last night trading around 84.3p - down about 1.4p on its close in London on Friday.
Sterling, also unperturbed by controversial comments from Shadow Chancellor George Osborne about a "run on the pound", was last night up nearly two cents on its pre-weekend close in London against the US currency at $1.5040.
In a newspaper interview published on Saturday, Osborne highlighted a 30% fall in the value of the pound over recent months against a basket of currencies, and said government policies were creating the "danger of having a proper sterling collapse, a run on the pound".
The UK's FTSE-100 index of leading shares finished 100.81 points weaker at 4132.16 yesterday. Banking and commodity stocks were hit particularly hard.
The weekend meeting of the leaders of the world's 20 largest economies failed to produce a fillip for stock markets.
New York's Dow Jones Industrial Average finished 223.81 points lower at 8,273.50.
Government data showed that Japan's economic output contracted at an annualised pace of 0.4% during the July to September period after falling by an annualised 3.7% in the second quarter. This was the first time Japanese gross domestic product had shrunk for more than one quarter since a three-quarter run of decline ended in December 2001.
Julian Jessop, chief international economist at consultancy Capital Economics, said yesterday: "Japan's Q3 GDP data confirmed the slide into recession and there is more bad news to come in the next few quarters as the global downturn hits hard.
"Looking ahead, we expect two more quarters of negative growth, 2008 Q4 and 2009 Q1, as exports take a big hit from the global downturn. We had already cut our GDP forecasts to just 0.3% (growth) in 2008 and a decline of 0.2% in 2009. Today's numbers are consistent with these forecasts."
He added: "This would still be the least bad performance of any G7 economy next year and we continue to expect Japan to be one of the first to recover, with growth of 1.2% or so in 2010. In particular, domestic demand will soon start to see the benefit of sharp falls in inflation as the global commodity price shock unwinds."
UK gross domestic product fell by 0.5% in the third quarter.
The British Chambers of Commerce and Confederation of British Industry are both forecasting that this will be the first of five consecutive quarters of contraction in the UK.
