Turmoil grips markets but UK is economic ‘oasis’ says Cable
After days of market turmoil over fears for the US and eurozone economies, Business Secretary Vince Cable tells Channel 4 News the UK is an oasis in the present financial turmoil.
Markets have fallen across the world in response to the deepening eurozone sovereign debt situation, as well as fears over the weakness of the United States economy. However, concerns over the US economy have been allayed after new unemployment figures were slightly better than expected.
The FTSE 100 Index has suffered its worst week since the height of the banking crisis in October 2008. It fell by 2.7 per cent at the close today, but over 10 per cent this week – wiping £150bn off its value.
Germany’s DAX closed down almost 2.8 per cent while the CAC 40 in France fell almost 1.3 per cent.
Meanwhile in Italy, Prime Minister Silvio Berlusconi pledged to bring forward austerity measures in an effort to ensure Italy’s budget is in balance by 2013. This is a year ahead of the original plan and widely seen as a bid to stem the turmoil in global markets.
Italy’s government bonds and shares have been sold heavily in recent weeks as the country has become embroiled in the euro zone debt crisis after doubts about its ability to control a public debt burden which is among the highest in the world.
UK reaction
In the UK the banking sector has suffered the greatest falls in London – including a drop of almost 7 per cent for Royal Bank of Scotland, which published half-year results revealing a £794m loss.
Britain is an oasis of calm in the middle of what are global financial upheavals. Vince Cable, Business Secretary.
Foreign Secretary William Hague responded to the unfolding crisis on behalf of Prime Minister and Chancellor, who are away on holiday, admitting today: “Clearly there are major problems in the world economy.”
He said no country was immune to the problems but insisted Britain was in a strong position.
“We in Britain are not in the firing line of these problems because of the difficult decisions we have taken in the last year, to bring spending under control, to bring our borrowing down and to control debt.”
That view was reiterated by Business Secretary Vince Cable, who told Channel 4 News: “We’re not at the centre of this crisis. Britain is an oasis of calm in the middle of what are global financial upheavals.
“We are seen as a safe haven because our public finances are under control.”
The FTSE registered its biggest fall of the year on Thursday, shattering pensions and savings funds as it wiped £50bn off its value, while Wall Street’s Dow Jones Industrial Average plunged 4.3 per cent, one of its worst falls.
The picture was as bleak in Asia on Thursday where Japan’s Nikkei 225 slid 3.7 per cent and Hong Kong’s Hang Seng dropped 4.3 per cent.
In early trading on Friday, the Dow fell further, by around 1.5 per cent.
Eurozone and US fears
The plunge in share prices came amid rising fears that Italy and Spain, the eurozone’s third and fourth largest economies, could default on their debt and require EU-funded bailouts. Investors are not convinced that leaders are doing enough to tackle the eurozone crisis which has spread after bailouts for Ireland, Greece and Portugal.
Eurozone leaders are set to discuss the problems today by telephone, and European Union Monetary Affairs Commissioner Olli Rehn has already held a press conference in Brussels to try to calm fears.
Mr Rehn said market unrest was “not justified” and promised they were “doing what was necessary… working night and day to put flesh on the bones” of an agreement to deal with the eurozone’s problems.
Investors also have concerns over weak economic data from the US. America narrowly avoided default earlier this week but the crisis has highlighted wider problems in the world’s largest economy.
Buckle up, it feels like August 2008 again…
“It feels like August 2008 all over again. Thin markets, sharp movements in stock prices and credit markets. Europe’s leading bank shares slumping by up to 10 per cent. The world’s financial leaders on holiday.
“Today was a rather remarkable day in global economics… a lack of harmony in the eurozone is spooky enough. If this sort of discord is echoed across the globe, then get your seatbelts on.”
Get the analysis from Channel 4 News Economics Editor Faisal Islam here