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Their presence was proof that the recession is good for collectors. Severini painted the work shortly after his marriage in , and inscribed this study to his wife, Jannot. The painting is now in the Peggy Guggenheim Museum in Venice. This study was passed down through the family and has only once appeared at auction, in The winning bidder, Mr Nisinson, often acts on behalf of the Guggenheim, raising speculation that the study may be about to join the painting it inspired.

The contemporary-art sales that followed on directly from the Italian lots also saw some notable successes. Sell-through rates at Sotheby's , which included works by a number of Arab and Iranian artists, came to At Christie's , where the offering was more conventional, the sell-through rate by vale was The foot-wide depiction of the bar that attracted David Bowie, Iggy Pop and Andy Warhol was consigned by Charles Saatchi and has never been seen at auction before.

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Contrary to widely held expectations that the economy had started to recover over the summer, it shrank by 0. Even before this unexpected setback the recession was proving harder to shake off in Britain than elsewhere. Helped by the resilience of China, the world economy turned the corner this spring. Germany and France returned to growth in the second quarter. Figures due next week are expected to show that America, unlike Britain, emerged from recession in the third quarter.

Earlier this year Britain, rather surprisingly, seemed to be suffering less in the downturn than some other big countries.

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Germany and Japan had taken a hammering when world trade plummeted after the near-death experience of Western banking systems late in Their economies were hit especially hard because they specialise in producing investment goods and cars, demand for which had evaporated. Now their prospects are brightening as the inventory cycle turns and global trade starts to recover. By contrast, the continuing slump in Britain reflects the vulnerability of an economy especially laden with debt and with a particularly troubled banking sector.

Britain's households are the most over-borrowed in the G7. Its banks have been among the worst affected in the financial crisis as a result of unsound financing practices a heavy reliance on fickle wholesale funding rather than steadier retail deposits and insufficient capital to support over-extended lending.

The prolonged recession may well lead the Bank of England to extend its programme of quantitative easing when the monetary-policy committee MPC meets in early November. Ahead of the meeting, the markets were starting to expect a halt to this policy of buying financial assets predominantly gilts with newly created money. The programme of asset purchases was introduced in March in order to give an additional monetary boost to the economy after interest rates had been brought down as low as feasible. With the economy apparently poised to emerge from the recession, this looked to be enough, but that calculation is now obsolete.

If Britain's central bank does increase the target for quantitative easing in November, this is likely to push sterling down, just as occurred over the summer after the MPC's decision in August. A weaker pound is often seen as a problem, but in fact it is part of the solution for a still floundering economy as it will promote exports and curb imports at a time when domestic sources of demand are still weak.

The prolonged recession will weigh on politics as Britain prepares for a general election.


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The Labour government has been floundering, too, as Gordon Brown's unwise boasts to have vanquished boom and bust have returned to haunt him. Mr Brown had been hoping to tell a story of recovery to the electorate when Britain goes to the polls next year, probably in May. Even if the economy does at last pull out of the mire in the final quarter of , as the Treasury expects, that will be a flimsy platform for Labour in the election campaign.

The company has co-operated with the SFO but finally refused the deal, judging the figure too high and the case too weak. The investigation is the biggest and most contentious in British corporate history. Arms sales are a famously dirty business and allegations that BAE, like some of its rivals, paid kickbacks to get foreign contracts have long swirled. In a separate investigation into payments to Saudi officials and members of the royal family supposedly in exchange for a large arms contract in the s was shelved by the SFO, on concerns that Saudi Arabia would otherwise cease to help combat terrorism.

BAE has maintained throughout that it made no irregular payments there or anywhere else, though it admitted last year that it had not always been ethically fastidious. That may now cost BAE dear for Britain, accused for years of dragging its feet where corporate bribery is concerned, seems bent on making up for lost time.

Though Britain signed the OECD convention against bribery in and passed a law against it in , the first successful prosecution of a British company for the offence of overseas corruption was concluded only on September 25th. The company, which replaced five of its eight directors last year, reported itself to the SFO in February , hoping for leniency. This is the model that the SFO hopes will prevail as it cracks down on corporate bribery: confession, co-operation and penalties set high enough to punish and deter but not so high as to cripple.

America's Department of Justice, meanwhile, has also taken a robust interest in BAE's overseas affairs. Since it has been looking into payments to officials in Saudi Arabia and elsewhere. There is no firm evidence that BAE's American business has yet suffered as a result but the firm appealed last month against the award of a contract for trucks to an American rival. THE recession that swept around the world and through Britain last year may now be ending but, like a great storm, it has destroyed much in its wake. Jobs have been carried away, firms felled, fortunes lost.

Even in a landscape littered with economic wreckage, Britain's public finances stand out for the battering they have taken. Yet both these shortfalls, so alarming at the time, will be dwarfed by borrowing in , projected by the Treasury in April to reach Even that forecast may prove on the low side, given the scale of borrowing in the first five months of the fiscal year. The deterioration in Britain's public finances is also worse than in other leading economies.


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The build-up in debt between and will also be the biggest see chart 1. Although its public debt was relatively low before the financial crisis started in August , Britain was ill-placed because it was running a sizeable deficit at what turned out to be the peak of the economic cycle.

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That shortfall reflected Gordon Brown's decision, as chancellor of the exchequer, to embark on a spending spree a decade ago. Taxes were more cyclical, reflecting the slowdown after the dotcom crash.


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  8. They failed to keep pace with the surge in spending despite being boosted by buoyant revenues from a booming financial sector and frothy property markets see chart 2. These have been especially hard hit by the collapse in finance and housing markets, but also by the temporary cut in the main rate of value-added tax VAT charged on purchases of goods and services, which was part of the fiscal stimulus. Some of this comes from the usual effect of a recession in boosting payments to the unemployed, together with some special measures to support the economy.

    But most reflects plans for higher spending made in better times. Much of the deficit is structural, which means that it will not go away as the economy recovers, generating more revenues and lowering payments for the unemployed. Moreover, inflation in the near term will be less than previously expected: a vital point, because taxes are levied on nominal national income. Public spending has continued to pile on weight but the suit of tax revenues has shrunk. Something must give. How to clear up this mess is now obsessing British politicians as they prepare for the general election which must be held by June 3rd next year.

    At the annual round of party conferences that began this week people will speak of little else, and with a startling degree of invective. Before the summer break Mr Brown had trotted out his familiar election-winning trope, contrasting Labour's commitment to higher spending with the budget-cutting proclivities of the Tories. The prime minister brought himself to mention the C-word publicly only on September 15th. David Cameron, the Conservative opposition leader, has accused Mr Brown of hiding the truth about Labour's secret plans to squeeze spending.

    But how much should spending be cut or taxes raised, and which specific bits on either side of the ledger should be changed? Neither main party has come clean about its intentions. More is at stake than party rivalries. Britain stands at one of those turning-points in its history when the decisions it takes may determine the league it plays in. Its economic ebullience before the recession seemed to disprove those who had long argued that it was fated to inevitable decline.

    Failing to fix things properly now could put the doomsayers back in business. Forty years ago Britain had to slash its global military presence to match its diminished economic status. Since then the defence budget has shrunk in importance while spending on domestic public services has become more prominent.

    A similar reckoning looms now, but in the firing line today are elements of the welfare state that have defined post-war Britain, not least the National Health Service, still loved at home if less admired elsewhere.

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    That reckoning can be deferred, but only until a new parliament begins. Financing Britain's burgeoning borrowing has not been a problem while the economy is so weak, private demand for funds is low and the central bank is pumping money into the system by buying large quantities of gilts. That rap across the knuckles should make the Treasury nervous. With debt shooting up, it is vital to contain the costs of servicing it. A downgrade would make that harder, since investors would demand higher interest rates to buy bonds seen as riskier. What bond investors fear is not that Britain will default on its debt, like Argentina, but that it may be tempted, in time, to inflate its way out of trouble.

    So it is important for a new government to set out a credible plan for mending the public finances over the life of the next parliament, moving as fast as is feasible once economic recovery is solid. Making that call will be hard. Although there are signs that a recovery began in the third quarter of this year, it is likely to be a pallid affair, threatened by still-rising unemployment and over-indebted consumers.

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    Could a premature or overenthusiastic fiscal tightening stifle the recovery? Ben Broadbent, an economist at Goldman Sachs, thinks this worry is overdone, as the economy will still be supported by a weak pound. But the important thing is to make a public commitment to a credible medium-term plan, and carry it out as soon as economic circumstances safely permit.