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a personal view of the week's news from Erithacus
As the US Federal Reserve announced the a drop in interest rates of 0.5%, the second cut this year but this time not unexpected, stockmarkets generally failed to respond as positively as many had predicted. The FTSE100 finished the week 38 points lower at 6256.4, while in the USA the Dow Jones index had managed to gain 1.9% although the Nasdaq saw its worst week this year and had lost 4.3% of its value by the close on Friday. Nervousness about the US economy continued to have a damaging effect on financial markets worldwide, and in particular the lack of confidence from American consumers remained a major concern. In the UK, however, preliminary figures from retailers for January indicated substantial increases in spending, although the figures are expected to drop in February. The US cuts in interest rates are expected to be followed by the Bank of England next week, with analysts predicting a cut of 0.25% and some suggesting that it could be as much as 0.5%.
While caution remains on UK and European financial markets, and sentiment in the USA seems to lurch from deep depression to unfounded optimism, a report from the London-based National Institute of Economic and Social Research seems to contain a remarkable amount of common sense. The report, released yesterday (Friday), says that fears of a global recession are misplaced. Although, says the report, a decline on Wall Street is "the main risk to the world economy" and growth of global output will slow from 4.7% in 2000 to 3.5% in 2001 with increase in trade slowing from 13% to 8.4%, the worries about a US recession are "overstated". It also believes that Europe will escape the worst of any slowdown, and in a "worst case" situation where US equities were to fall by as much as 20%, Europe would maintain an overall growth of 2.3% this year. A worse fall in the US, the report continues, would produce a situation where the European Central Bank would need to cut interest rates by 1% more than the 0.25% cut already widely predicted for the middle of the year. Japan, however, will be slow to recover, and will see a further drop in growth this year as exports suffer.
Nearly one million taxpayers in the UK are expected to face fines of £100 each as around one-tenth of the self-assessment tax forms had failed to reach the Inland Revenue on time despite an extension of the January 31st deadline. Further fines and surcharges will follow for those who do not complete and return the forms. A new system this year also gave the option of completing and returning the forms on-line, but although Inland Revenue experts had expected around 200,000 people to use this facility, only 38,884 had done so by the 31st January deadline. It has been suggested that there is, perhaps, a fundamental flaw in a system which results in such a large percentage of defaulters.
Britain was shocked this week by the surprise announcement from Corus, the Anglo-Dutch company which includes the former British Steel, of closures and job losses as a result of "a strategic review of its UK carbon steel activities, which seeks to ensure their return to profitability through margin enhancement and cost reduction measures". Closures include operations at Llanwern, Ebbw Vale, Shotton, Teesside and Bryngwyn, although only Ebbw Vale and Bryngwyn sites will close completely. The job losses at these sites was given as 3,000, with a further 3,050 jobs to go in other operations. The impact of these job losses was said to be particularly serious as many would be in areas of already high unemployment. Corus’ share price rose by more than 13% to its highest level since last August on the news, but fell back towards close on Friday. It seems there will be substantial resistance from the unions to both job losses and closures, and Tony Blair has joined in condemning the move by Corus and has urged the company to "begin discussions with Downing Street to save the jobs".
Finally for this week, we are all delighted to hear that after five
weeks of studies in Antarctica, environmental research scientist Richard
Stone is able to report with confidence that penguins do NOT lose their
balance and topple over when peering into the sky as aircraft fly
overhead. "Some waddled away", he reported, "Some became
quiet. They didn't appear to turn around and look. A few minutes later,
they waddled back". These findings are, no doubt, a great relief to
so many of us. The cost of the research was not reported.