MPW Chartered Accountants

MPW Chartered Accountants

http://www.mpwca.com

Stock market
Oil prices
North Sea oil
Manufacturing
Interest rates
Borrowing
Business taxation
Scottish Amicable
Airline passengers
Call centres

Stock market
The FTSE 100 index dropped to 3,287 on 12 March, its lowest point since June 1995, after a spectacular trading session saw Ł40 billion wiped from the value of leading shares. This 5% fall mirrored heavy losses across Europe, reflecting investor uncertainty over the Iraq situation.
As coalition forces commenced operations in Iraq, a week-long rally added almost 600 points, or 17%, and the index reached a two-month high of 3,861.1. This represented a 17% revival, a magnitude not seen on the Stock Exchange since the Battle of Britain in 1940.
However, expectations of an early end to the war receded, and disappointing economic news from the United States helped to drive stock markets down sharply on both sides of the Atlantic by the end of the month. Far Eastern markets added to the jitters with traders expecting the SARS virus outbreak to put further pressure on the economy. The FTSE 100 index closed down 95.2 points at 3613.3 on 31 March.

Oil prices
As the build-up to war with Iraq continued, the price of a barrel of crude plunged by more than $9 in March to below $27. However, the price rose strongly as it emerged that Iraq had halted its illicit supply of crude to Syria, which the country had used in its domestic refineries to export more of its own production, and a strike in Nigeria was also partly behind an 83˘ jump to $27.18 a barrel at the end of the month.
Iraq produces about 2 million barrels of oil a day out of a total world market of around 75 million. It has the largest reserves after Saudi Arabia, and could pump much more than it has been if its oil fields were properly developed by Western companies. No oil is being exported at the moment, with the UN's oil-for-food programme having been suspended before hostilities commenced.
The allies have said Iraq's oil will be held in a trust administered by the United Nations for the Iraqi people, and seizure of the Iraqi oil reserves by America and Britain would be a huge blow to Opec, the Arab dominated cartel which holds the price high by restricting production.

North Sea oil
The North Sea oil industry was given a boost when Energy Minister Brian Wilson launched the second phase of the Fallow Initiative, which requires operators to invest in 40 blocks and 37 discoveries which have neither been drilled nor seen significant activity in the last four years, or sell them to others prepared to exploit them.

The UK Offshore Operators' Association 2002 economic report, Competing in a Global Economy, anticipates a rise in information technology and knowledge management jobs, as well as drilling and sub-sea wellhead construction posts. The report indicates that 265,000 jobs were supported by the UK offshore oil and gas industry in 2001 - one-third of them in Scotland, representing 6% of the region’s total employment - and says that subsequent increases in expenditure suggested that total oil industry employment last year was maintained or increased.

Manufacturing

Corus, the steelmaker which employs 26,000 people in the UK, expects to report a 2002 operating loss of Ł393m and has warned that it is to close more plants in the UK, with the loss of up to 3,000 jobs.

Elsewhere, production in the country's factories rose by a better than expected 0.3% in January from the month before to stand 0.3% lower than the same month a year earlier, according to the Office for National Statistics.

Input prices rose 5.9% in the 12 months to February, with the figure up 1.4% on January fuelled largely by a 45% increase in the cost of crude oil since February of last year.

Interest rates

Interest rates in the UK remained at 3.75%, although economists are increasingly speculating that the Bank of England's Monetary Policy Committee will ease rates further in the months ahead, possibly taking them as low as 3.0%.

The US Federal Reserve also held rates unchanged at the 40-year low of 1.25%. Meanwhile, the European Central Bank cut eurozone interest rates to 2.5%, although this was less than the hoped-for reduction to 2.25% to help prop up Europe’s slowing economies.

Borrowing
Official figures showed consumers continued to take advantage of low interest rates in February, with net consumer credit growing by Ł1.49 billion compared with January.
Growth in mortgage lending remains 30% up on the same time last year, but fell back slightly from January's Ł7.7 billion to Ł7.2 billion.

Business taxation

A survey by the Institute of Directors reports that the majority of British businesses have not benefited from the tax breaks introduced over recent years. 79% of UK businesses are now paying more tax, with only 3% paying less, while 77% are spending more time and money on tax-related administration.

Staff cuts, a halt in future recruitment and a pay freeze are among the options currently being considered by company bosses ahead of the Budget, with the expected National Insurance increase causing widespread concern. Only 23% of employers said they would absorb the cost in full without taking any drastic measures.

Scottish Amicable

Scottish Amicable has been fined Ł750,000 by the Financial Services Authority for mis-selling 33,781 mortgage endowment policies through formally appointed estate agents and mortgage brokers between January and December 2000.

The mis-selling verdict does not relate to any policies sold via independent financial advisers. In addition to the fine, Scottish Amicable said it had agreed with the FSA that it would set aside Ł11 million to compensate the affected policyholders.

The FSA, which has fined four companies a total of Ł4.25 million for endowment mis-selling, is expecting a surge of mis-selling claims from endowment holders as more red warning letters go out.

Airline passengers

Airport operator BAA's seven airports handled a total of 8.7 million passengers in February, 6.3% more than in the same month last year.

The biggest rise was at Stansted airport, where passenger numbers were up 24.2%. Scottish airports saw growth of 13.6% at Glasgow and 12% at Edinburgh.

Overall, domestic passenger numbers rose 12.7%, while scheduled European traffic was up 8.6% and European charter traffic increased 4.7%.
North Atlantic traffic was up 1% while other long-haul services were up 0.6%. Only passenger numbers to and from the Irish Republic showed a fall, dropping by 1% compared with the previous February.

Call centres

BT is the latest in a series of firms, including insurers Aviva and Prudential, to transfer call centre operations to India, where costs are up to 30% lower than in the UK.

The firm is to open two Indian call centres as part of plans to reduce the number of UK-based centres from about 100 to 31, with the number of workers falling from 16,000 to 14,000.

The Indian call centre industry employs more than 100,000 workers who are often trained in the culture and customs of the foreign markets they service. Many of those dealing with UK customers are have been given accent training, and taught about pubs, football and running storylines in popular soap operas so that they can hold conversations with callers.