500,000 will lose jobs in Britain

BRITAIN was on the brink of all-out recession last night with 500,000 jobs predicted to go by the end of the year.

A worker leaves Lehman Brothers headquarters at Canary Wharf London A worker leaves Lehman Brothers' headquarters at Canary Wharf, London

Billions of pounds were wiped off pensions and share values yesterday as the FTSE slumped after US bank Lehman Brothers announced it had gone bust.

In what experts called the worst financial crisis since the 1929 Wall Street crash, £50billion was wiped off FTSE 100 share prices and £9billion came off the value of pensions.

Britain’s 200 biggest defined benefit company pensions – which includes final salary schemes –  were affected, experts said.

The Confederation of British Industry warned some half a million British jobs would be lost by next year, taking unemployment to 2.01million – a rate of 6.5 per cent. Earnings growth will also remain “fairly subdued”, it said. 

A man walks past a FTSE 100 graph in London A man walks past a FTSE 100 graph in London

Director general Richard Lambert said: “Growth in 2009 will be feeble at best.”

Fears also grew that other banks could fail, leading the credit crunch to worsen. Howard Archer of Global Insight said: “Banks are likely to become even more reluctant to lend to each other, thereby increasing the risk that the credit crunch will deepen and last for some considerable time.”

The Tories called on the Government to increase the protection offered to savers if their bank collapses. Shadow Chancellor George Osborne wrote to Chancellor Alistair Darling offering cross-party support for a move to increase the current level of cover under the Financial Services Compensation Scheme to £50,000 from its current £35,000.

There has never been a weekend like this in 25 years

One City analyst

The Bank of England and the European Central Bank yesterday pumped £5billion and $30billion respectively into money markets in a bid to stabilise them.

But analysts warned of “hard times” to come in the next 12 months.

The CBI called on the Bank of England to make interest cuts to help householders already facing crippling mortgage repayments and energy bills. Ian McCafferty, CBI’s chief economic adviser, said: “The Bank of England’s hands have been tied in recent months by the relentless rise in inflation. 

“But with oil prices heading lower, very weak economic activity for a good number of quarters, and little evidence of wage pressure, interest rate cuts will soon be justified and will provide welcome relief to households and businesses.”

Meltdown Monday began with the collapse of Lehman Brothers. The British arm of the bank was quickly placed into administration with 5,000 jobs lost.

As news of the collapse spread the world markets plummeted, and Britain’s FTSE index dipped some five per cent at one point.

Marcus Hurd, senior consultant and actuary at Aon Consulting, said: “Today’s market slump has wiped £50billion off FTSE 100 share prices. In terms of pension schemes, this translates to asset losses of £9billion for the 200 largest UK privately sponsored pension schemes.”

The pensions fall was the fifth biggest in a single day this year, and leaves the schemes collectively facing a £35billion funding shortfall, compared with £26billion last week.

One City analyst said: “There has never been a weekend like this in 25 years. For Wall Street, it has probably been the most extraordinary 24 hours since the late 1920s.”

Terry Smith, chief executive of finance information brokers Tullett Prebon, said: “It may be past time to panic already. These are certainly seismic events.” Market strategist Art Hogan said: “This is unprecedented.”

Wall Street giant Merrill Lynch last night announced it had agreed to be taken over by the Bank of America to save it from becoming the next bank to fall.

Senior Liberal Democrat Vince Cable yesterday branded the Prime Minister “a twitching corpse”. He told the Lib Dem conference  Gordon Brown’s record for economic competence was “dissolving by the day in the acid bath of recession”. 

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