Who said the high-end would hold up best?

Upmarket Sloane Square department store has been the worst performing outlet in the John Lewis group this year

"The crisis of confidence among City bankers and dealers is hammering sales at upmarket Sloane Square department store Peter Jones...Last week, according to new figures released by the company, sales were down more than 19%. Over the first seven weeks of the group's new financial year sales at the store, which recently had a £100m refit, have been down 11% on last year's levels...The store is in the heart of Kensington and Chelsea. It is the wealthiest residential area in the UK and home to thousands of City workers and West End-based hedge fund managers. The John Lewis department store chain [is] regarded as a bellwether for the retail sector."

Yikes! Sounds like the rich boy's wives are getting their credit cards cut up. Hardly surprising the top end of the market is getting hurt first, given the speed of layoffs in the City. I fully expect it to filter down through the rest of the economy pretty quickly.

Over in the housing sector, the public are pretty quickly coming round to the idea that the end is nigh. On the front cover of every London commuters favourite morning read, The Metro, was splashed "Britain faces worse housing crash than US". While the story didn't particularly have any pressing details, the fact that UK household debt is running at 175 per cent of disposable income, compared with only 128 per cent in the States, suggests the headline could be right (although personally I think the recourse lending here will stop the UK falling as hard as the US, as I point the finger at the crazy non-recourse nature of most mortgages out there for the speed and depth of the crash). It will certainly add to the reports on the BBC News every night this week talking about mortgage lenders withdrawing a significant number of their mortgage offerings, and anecdotal evidence points to rates being priced such that no-one will take them up on them. Sounds like the banks are about a year late to deal with the problem, and even today you can still find 95% mortgages (have a browse at www.moneysupermarket.com to see rates, although I believe it's getting difficult to actually get them).

Elsewhere, the top dogs of the 5 biggest banks are meeting Mervyn King, BoE governor, today, begging for more money. Well, they've already had £10bn this week, how much more do they need? Well savers (like me) can expect another kick in the teeth pretty soon, as 2 of the 9 on the Bank of England MPC voted to cut rates at the last meeting, so I fully expect they'll be cutting by the next one, as the general economic newsflow is only going to get worse, as is the housing market (inflation is creeping up, but central bankers don't seem fussed about that these days).

And finally, and probably the reason that FTSE futures were off so much early this morning, one of London's leading brokers, is raising margin limits dramatically:

MF Global informed clients yesterday that the "margin" on contract for differences (CFDs) was increasing on certain stocks from 25pc to 90pc. The clients have been given until this morning to put up the extra cash or close positions.

Looks like leverage continues to be unwound with great speed.

Today's UK economic forecast...mostly gloomy, with a few bright spots:

FSA to launch probe as rumours hit UK banks:

"The Bank and the FSA are believed to be livid with what they see as short sellers trying to profit by spreading inaccurate stories.....HBOS appeared to be the main target of this morning's speculation. Its shares tumbled as much as 17pc on rumours that it had applied for emergency central bank funding despite a clear denial."

Sounds reasonable, although looking at the HBOS chart for the last year, there is clearly something wrong in this company.



The company came out to completely deny the rumours, and stated "HBOS is one of the strongest financial institutions in the world with a balance sheet of £660bn". Well I don't know about you, but I don't know if admitting to having £660bn of what will mostly be loans and mortgages within a crumbling UK economy and a faltering housing market is a good thing!

In other gloomy news for the UK, and possibly a good tell on the econony, pubs are having problems...

Shares in Mitchells & Butlers crashed today after a City analyst suggested the owner of the All Bar One and O'Neills chains may be running out of money...(the) shares tumbled as much as 18%.

If All Bar One, a chain that seems consistently busy whenever I go, is having problems, I'm guessing all the pubs are. In fact just 12 days ago, Wetherspoon's were out with a 13 percent fall in profits, with like-for-like revenue down 2% year-on-year (so I'm assuming in real terms, or in units sold, down a good bit more than that). A sign of a discretionary spending slowdown? Perhaps.

On a positive note, UK manufacturers defy the gloom:

"Strong overseas demand for British manufactured goods is driving growth in the sector, while prices are rising at the fastest rate since 1995."
"Textile firms and chemical and food manufacturers in particular reported higher export orders."

Well I am shocked. I didn't even know the UK still had a manufacturing sector! I'm not surprised the weak pound is helping though, Sterling has plunged against the Euro, from 1.48 six months ago to 1.27 today (or if you prefer the inverse, 0.675 to 0.79). I even read somewhere that the pound actually did worse than the dollar in 2007, on a trade-weighted basis.

Well I'm glad it's working out for someone, because my European holidays have become a lot more expensive and my income from savings is about to take a hit as interest rates are set to be cut:

"The Bank of England is poised to cut interest rates as soon as next month, experts have predicted after it emerged that two Monetary Policy Committee members voted for lower borrowing costs a fortnight ago."
"The minutes coincided with data from the Office for National Statistics showing that unemployment remains at a record low and wage inflation has yet to pick up to worrying levels. A survey from business lobby group the CBI also showed that the manufacturing sector unexpectedly gained strength in March."

Not entirely sure how cutting interest rates, record low unemployment, wage inflation to pick up and the manufacturing sector go together, but it seems that's the way central banks work nowadays. Except Australia, which look set to hike rates from 7.25% to 7.50% to control inflation. Now there's a real central bank. I could see a real breakout of GBP/AUD happening, indeed it seems to already be underway: