Oil prices
US interest rates
US economy
Europe
Trade deficit
Interest rates
Inflation
Economic growth
Manufacturing
Retail sales
Consumer credit
House prices
Accounting reforms
Accounting fraud charges
Internet monitoring
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Stock exchange January saw the FTSE 100 index suffer an unprecedented 11-day slide and reach a new seven-and-a-half year low of 3.483.8 on 29 January as investors ditched heavyweight banking and telecoms stocks on fears a war in Iraq and global economic woes would slam UK companies. The record-breaking dive took 13.6% off the value of the index, leaving the market at around half the level it reached in late 1999. Oil prices February US crude futures set a two-year high of $35.20, marking a $10-a-barrel climb since mid-November, before oil prices eased as dealers pocketed profits from a two-month bull run sparked by the growing momentum for war in Iraq. Many oil traders now fear war is inevitable. US interest rates The US Federal Reserve kept rates at 1.25%, a 41-year low, ignoring suggestions that economic conditions have worsened since its last report. US economy America's economy has slowed to a snail's pace, increasing fears that another downturn could be around the corner. US Treasury figures show that gross domestic product rose by just 0.7% in the three months before Christmas, the lowest since the third quarter of 2001 when the country was in the middle of recession. Unemployment has risen to an eight-year high of 6% and consumer confidence is at its lowest since the early 1990s. Europe European officials are becoming increasingly alarmed by the surging value of the euro, fearing that it could prove fatal for scores of struggling companies and drive Germany deep into recession. While the European Commission and Central Bank both welcomed the 25pc rise in the euro against the dollar over the last year, clear dissent is emerging from those states hit hardest by the economic downturn and those that depend heavily on exports outside the eurozone. Bernard Connolly, a former European Commission official who worked on the euro and is now chief economist for AIG International, said Portugal, Ireland and the Netherlands were all being hit hard by the rising euro since their economies are already uncompetitive after years of high inflation induced by interest rates too low for their needs. Trade deficit Figures from the Office for National Statistics show that Britain's trade deficit in goods widened to a record £3.982 million in November from the previous record of £3.626 billion in October. The market had predicted a narrowing to £3.2 billion. The increase in the deficit was driven by a rise in the trade gap with non-EU countries which rose to £3.072 billion from October’s £2.383 billion. This was much larger than market expectations and was the highest shortfall since August 2001. The ONS said the rise in the non-EU deficit was a result of a sharp fall in exports to the United States, particularly of crude oil. Interest rates The Bank of England maintained rates at their 39-year low of 4.0% for the 14th month in a row. Inflation The official rate of underlying inflation, which excludes mortgage interest payments, dropped back slightly last month to 2.7% from 2.8 % in November but remained above the Bank of England’s 2.5% target for the second month running. Economic growth The economy expanded by a provisional 0.4% in the fourth quarter of last year, in line with market expectations, bringing growth for the full year to 1.7%, the worst performance since 1992. Many economists consider growth of 1.7% for 2002 to be a reasonable showing given the global economic slowdown. The German economy grew by just 0.2% last year. The fourth quarter figure was lower than the 0.9% in the third quarter, which enjoyed a boost from extra output as firms made up for time lost during extended closures in June for the Queen's golden jubilee celebrations. Without the Jubilee effect, statisticians said, the third quarter figure would probably have been similar to that for the fourth quarter. Manufacturing 74% of British manufacturers are now operating below capacity, the worst figure for 20 years, and firms are gloomier than ever about orders, output and investment, according to the latest quarterly by the Confederation of British Industry. Ian McCafferty, the CBI's chief economist, predicted that manufacturers would shed another 42,000 jobs in the first quarter of this year after cutting 45,000 in the fourth quarter of 2002, with external demand showing no sign of a pickup and the German economy worsening. Rising oil prices have been exacerbated by problems in Venezuela and uncertainties in the Middle East. Retail sales The Office for National Statistics said seasonally adjusted sales rose 1.1% in December to stand 6.4% higher than a year ago. Both figures are the best since last April. The monthly rise confounded expectations, economists having been predicting a fall of 0.2%. Consumer credit Britons borrowed £100 billion last year, twice the amount of the year before and more than the economic output of Ireland, according to the Bank of England. Consumer credit rose by a higher than expected £1.917 billion in December, compared with a rise of £1.426 billion in November. Mortgage loans were up by £7.474 billion, a record 13.3% increase on a year earlier, and total personal borrowing rose by nearly £9.4 billion to £827 billion, up 13.6% on the year, also the highest since the series began in April 1993. House prices Nationwide announced that prices rose by 1.7% in January, taking the annual rate to 26.5%, the highest since 1989. Their figures also show that nearly 1.6m homes changed hands last year, more than in any year since 1988, when 2.2m homes were sold. According to the Halifax, the average house price in December was a seasonally adjusted £121,794, which Reuters calculate as being 23% higher than a year earlier but down from a 29.2% rise in the year to November. The Bank of England’s Monetary Policy Committee is forecasting house price growth to slow to zero over the next two years, but has admitted that there is great uncertainty. Some pundits are predicting a sharp correction to the past few years of strong growth, and surveys indicate that house prices in London are already down 10%. A paper released by the Centre for Economic and Business Research think-tank said 20,000 jobs had been cut in the City since 2000 and predicted another 15,000, or 10% of the City's workforce, would go this year. This has had the effect of hitting house prices in wealthy parts of the capital. Accounting reforms The Government's long-awaited reform of the accounting profession, launched in the wake of the Enron and WorldCom scandals last year, was published on 29 January. Both the CBI and the Institute of Chartered Accountants in England & Wales have expressed their support, although the ICAEW warned that rotating the lead audit partner every five years and other key partners every seven would add about 5pc to the audit fee. Central to the reforms will be for a newly empowered and more independent Financial Reporting Council to take over the role of the Accountancy Foundation. The FRC, which currently oversees the Accounting Standards Board, will take charge of ethical, disciplinary and standard-setting issues as well as monitoring auditor independence. The FRC will be funded in equal thirds by the Government, accounting firms and companies through the FSA's listing levy. The Foundation, set up less than four years ago and never fully operational, was not considered fully independent because it was financed by the accounting profession. Other key reforms are to ban former partners from joining their audit clients for two years after leaving accounting firms, to require accounting firms to publish an annual report and to strengthen the role of the audit committee. To the profession's relief, audit firms will still be allowed to offer tax services. Practitioners hope that the measures, in particular the emphasis on independence, will help Britain's case against interference from the US. Accounting fraud charges Four partners of “big four” accounting firm KPMG have been charged with conspiring with photocopier maker Xerox to manipulate their accounts in a $3 billion fraud. The Securities & Exchange Commission believes that sales were manipulated to meet targets so that Wall Street analysts could continue to praise the shares. Xerox has restated its books from 1997 to 2001 as part of a settlement with the SEC that resulted in a $10m fine and a public reprimand. KPMG insists it acted properly. Internet monitoring A recent report by law firm KLegal and the magazine Personnel Today found e-mail and internet abuse is the biggest cause of disciplinary action in the British workplace, accounting for more sackings than violence, dishonesty and health and safety breaches combined. 20% of firms said they monitored employee e-mail and internet usage every day, compared to 11% 18 months ago. Despite the risks, workers spend an average of nearly two and a half hours a day on personal e-mails and the internet, according to a survey for electronics group Amstrad. |