Britain was facing a deepening economic crisis today as the FTSE plunged into a so-called ‘bear market’ for the first time in five years and a series of reports laid bare the full extent of the problems facing the nation’s economy.
In a Black Tuesday for the stock market, shares fell across the board while a gloomy new report warned that a recession could be on its way within a matter of months.
A separate report from accountants KPMG shows the number of permanent job vacancies fell in June for the first time in five years.
In further bad news for the economy, shares in struggling bank Bradford and Bingley plunged 25 per cent to just 30p at one stage this morning.
In its report, the British Chambers of Commerce describes Britain’s economic outlook as ‘grim’ and warns the UK could slide into a recession within months.
It says it has uncovered evidence of a ‘menacing deterioration’ in the economic outlook.
At one stage today the FTSE 100 dropped more than 150 points to 5358.7 in early trading in a knock-on effect after a sharp overnight drop on Wall Street.
One City analyst warned the housing market could take 20 years to recover from the credit crunch.
At its worst point, it had fallen 20 per cent since its last peak in October – the
standard definition of a bear market.
The previous bear market lasted from autumn 2000 to spring 2003 when share values halved.
The term refers to a situation where shares fall more than 20 per cent from a recent trading high, which then develops into a vicious circle because traders are continuing to sell, bringing prices down even further.
At one point today all 100 firms listed in the FTSE were down but a late morning rally left the blue chip index only 70 points lower by lunchtime.
Some of the biggest fallers included household names such as Royal Bank of Scotland and ITV, both down five per cent.
Bradford and Bingley shares also continued to plummet, with some experts claiming their shares were now worthless.
Speculation two U.S. mortgage providers might have to raise more capital and make more writedowns triggered the American sell-off yesterday.
The Dow Jones opened lower today but quickly bounced back thanks to a sharp pullback in oil prices and reassurances from the Federal Reserve.
In early trading, it had risen more than 40 points – 0.39 per cent – up to 11,275.76.
After Wall Street opened strongly this afternoon the FTSE was down 97.5 at 5415.2 at 4pm.
Back in the UK, the list of woes grew with beleaguered housebuilder Persimmon confirmed it was having to lay off 1,100 jobs so far this year because of the housing crisis.
The firm revealed its sales had fallen 31 per cent in the past six months as it confirmed it had cut 1,100 jobs so far this year and said the past six months had ‘undoubtedly been the most challenging period’ in its recent history.
Average selling prices had fallen to £181,500 in the first half of the year from £189,255 in the same period last year, it added.
Persimmon, which is one of the UK’s biggest housebuilders, said half-year sales revenues were down by more than a third at £1billion.
The 1,100 job cuts come as part of an overhaul to save money amid the housing market woes.
Its announcement came after the British Chamber of Commerce had said the number of people being put into permanent jobs by recruitment agencies had fallen at its sharpest rate in more than five years.
The group’s report also warned another 300,000 workers could lose their jobs over the next 18 months unless the economic situation improves.
This is equal to 550 losing their jobs every day, including weekends, by the end of 2009.
David Frost, director general of the business lobby group, said there is ‘a real risk of recession in the coming months’.
He said: ‘The outlook is grim. We believe that the correction period is likely to be longer and nastier than anticipated.’
Nearly 5,000 firms took part in the research for the BCC report.
Low unemployment has been a feature of recent years, but official figures have started to show that the jobless total is beginning to increase.
The number who do not have a job – but want to work – jumped 38,000 to 1.64million in the three months to the end of April.
The KMPG report, published jointly with the Recruitment and Employment Confederation, said there is worse to come.
Alan Nolan, director of KPMG, said: ‘This really is a sobering set of figures proving the credit crunch has finally taken its toll and is now severely weakening the UK jobs market.
‘Many employers now seem to be accepting the inevitable – they will have to cut costs by laying off people because their businesses won’t be growing as much as they could have expected a couple of months ago.’
Thousands of redundancies in the City and the housebuilding sector are just the start, he added.
The report involved interviews with 400 recruitment and employment consultancies. The official definition of a recession is two or more consecutive quarters of negative economic growth.
David Kern, economic adviser to the British Chambers of Commerce, said he is expecting negative growth for the rest of the year.
He does not expect growth to return to normal levels until 2010 at the earliest.
The deepening economic crisis has also left the Treasury facing a £7.5billion black hole in its Budget next year, according to a respected research body.
The figures, collated by the National Institute of Economic and Social Research, will increase anxiety among Labour MPs that they are heading towards a general election with the public finances in turmoil.
Such a deficit – if proved to be that large – will mean that Chancellor Alistair Darling will either have to put up taxes, cut spending or borrow more.
The black hole is the equivalent of cutting 57,000 teaching jobs, cancelling two giant aircraft carriers ordered by the MoD and closing five hospitals.
There was some good news amid the gloom today. Marks & Spencer share values soared amid talk of a possible bid for the retailer.
M&S has been hammered since a shock profits warning last week, with around £1.7billion wiped off the value of the business.
But the firm rose as much as seven per cent to the top of FTSE 100 Index after rumours of possible takeover candidates including supermarket Sainsbury’s, Delta Two – the Qatari fund which attempted to buy Sainsbury’s last year – and billionaire retailer Sir Philip Green.