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Stock market The FTSE 100’s record-equalling 11-day run peaked at 4,513.3 on 5 January, and the index reached a new 18-month high of 4,518.1 on 19 January. By the end of the month, though, the market had fallen back to 4,390.7, its lowest level since mid-December, the previous day seeing a 56.6-point drop. Oil Cold weather and the further expectations of lower-than-normal temperatures in the United States helped push oil prices up during the first half of the month, followed by comments from Kuwait leading to speculation that the prospect of a second-quarter surplus might prompt OPEC to cut production levels. 20 January saw new ten-month highs after a huge explosion at a liquefied natural gas plant closed Algeria’s largest oil refinery and main export terminal . Algeria was the world’s second-largest exporter of liquefied natural gas in 2002, and is a big supplier of oil products to Europe. By the time Iran indicated that an imminent reduction in output by OPEC members was unlikely, given the sustained strength of oil prices, prices had risen nearly 30% since the cartel’s decision last September to cut production by 3.5% . Brent crude reached $31.12 on 20 January, up 55¢ on the day, but had fallen back to $29 on 29 January, helped by expectations of warmer weather and the strengthening dollar. Interest rates The Bank of England’s Repo rate and the European Central Bank’s eurozone base rate again remained unchanged at 3.75% and 2% respectively. In the United States, the Federal Reserve also held interest rates steady at 1%, but chairman Alan Greenspan’s statement was notable for omitting what had become a regular comment to the effect that rates would remain low “for a considerable period”, prompting speculation of an increase in coming months. Exchange rates The pound broke $1.80 for the first time in 11 years on 5 January, following a comment from the Federal Reserve that the risk of a “dollar crisis” was “not zero”. Sterling then enjoyed a series of new 11-year highs, reaching $1.8505 on 12 January, before ending the month at $1.8221. The dollar made ground against most other major currencies as expectations grew of a rise in interest rates, ending at 0.8035 against the euro, but hit a three-year low of 105.585 against the yen on 27 January. Against the euro, the pound made steady progress and closed at a two-month high of 1.4644 on 30 January. Consumer credit According to consumer advice group Debt Free Direct, Scotland owes more on credit cards, store cards, personal loans and overdrafts than anywhere else in the UK. About half the population has unsecured debts, with the average of almost £8,000 per person about £1,900 more than the national average. The Financial Services Authority has warned that an increase in interest rates will cause problems for large numbers of borrowers. Many people were overestimating their ability to repay their debts, and high levels of cash withdrawals on credit cards indicated that many families were already under financial stress. Figures from the British Bankers Association showed that new mortgage lending in December totalled £5.4 billion, compared with £4.8 billion in November. This brought the UK’s total mortgage debt to £270.6 billion, up by more than £50 billion since the start of the year. According to research by Budget Insurance, in 2003 more personal loans were taken out to reorganise debt than for any other reason and now account for 44% of all new loans, compared with 22% for car purchases and 21% for home improvements. An analysis by credit reference agency Equifax of more than 60 million credit searches carried out last year confirmed the trend for debt reorganisation, with a 39% increase in applications to consolidate borrowing. Consumer spending The British Retail Consortium’s monthly index reflected a disappointing December for high street sales, with total sales growth for the year down to 2.3% compared with 3.6% for the 12 months to November, and 0.2% lower than in 2002. However, the Scottish Retail Consortium reported that retails sales in December were up 6% on a like-for-like basis compared with 2002, with monthly sales growth double the rate for November and the strongest since Easter 2003. The average rise in spending in every month since June has been almost 5% up on the previous year, compared to growth of around 2% for Britain as a whole. Research by Lloyds TSB found that personal savings rose last year by £45 a month, from an average of £241 per month in 2002 to £286. On-line business The Interactive Media in Retail Group reported that on-line retail sales hit new record levels of £1.2 billion and £1.3 billion respectively in November and December, the total representing 7% of all retails sales. IMRG predicted that more than 10% of all UK retail sales could be on-line by the end of this year, and warned that the trend could see a decline in retail outlets and town-centre shopping. This was supported by a report from consultancy BDO Stoy Hayward, who predicted that 1,751 retails firms will collapse this year, more than at any other time in the past eight years. A survey by Heriot-Watt University found that although on-line banking was on the increase there has not been a corresponding decrease in visits to branch banks, with 55% of Scots still making a weekly trip to their local bank. Property market According to banking group HBOS, Scottish house prices rose by 17.1% in 2003, outperforming the UK average of 15.4%, but the last quarter saw an increase of only 2.2% compared with the previous quarter’s 4.9%. The official figures, from the Office of the Deputy Prime Minister, showed that the average sale price slid by more than £2,000 in November, down to £159,480 from £161, 567 in October. In Scotland, the annual rate of house price inflation slowed to 16.1% in November, but the market remains relatively buoyant compared with the 9.2% rate in England. The London housing market showed a rise of just 5.2%, with the north-east and north-west of England showing the highest growth rates at 19.6% and 17.6% respectively. The Council of Mortgage Lenders reported that the number of house repossessions in the UK fell in the second half of 2003 to its lowest level for over 20 years. The total of 3,490 for the last six months represented one in every 1,500 mortgages. The number of borrowers between six and twelve months in arrears was down from 34,030 to 29,060 for the year, and there were 12,850 borrowers who were more than twelve months in arrears, compared with 16,480 at the end of 2002. The Council warned that these levels would rise in response to increases in interest rates. Car sales A record 2.58 million new cars were sold in 2003, up 0.6% for the year, helped by 155,000 new registrations in December, a 7.5% increase on the same month in 2002. Manufacturing Figures from the Office for National Statistics showed a 0.7% fall in manufacturing output for November, the biggest monthly decline since October 2002, and a sharp reversal following the 0.9% growth reported for October 2003. The latest quarterly report from CBI Scotland showed that for the first time since 2001 a majority, albeit a tiny one, of manufacturers’ order books remained steady or improved in the three months to January, and output rose at its fastest rate since April 2000. The number of firms in the UK as a whole whose production levels had increased exceeded market predictions, adding to expectations that the Bank of England would increase interest rates in February. Profitability increase Figures from the Office for National Statistics showed a net rate of return of 12.6% by private, non-financial corporations for the third quarter of 2003, up from 12.0% for the previous quarter. This was the fourth quarterly increase in a row, and the highest rate of return since the fourth quarter of 1999. However, Scottish Business Insider magazine reported a 13% profits slide by the region’s top 500 firms in 2002-03, although sales were up 3% and the workforce headcount up 2%. Improvement is expected for 2003-04, as last year’s decline coincided with very difficult conditions and a spate of “restructuring, repositioning, revitalising and rebranding”. Entrepreneurial Scotland A report by the University of Strathclyde shows that Scotland has moved ahead of the Netherlands, Hong Kong, Italy, Finland, Croatia and France in a study of business creation in 31 countries. The countries are ranked in three Total Entrepreneurial Activity bands, with Scotland now at the bottom of the middle band, having been in the middle of the lowest band in 2002. Unemployment Latest figures from the Office for National Statistics showed unemployment in Scotland at a new 27-year low, with benefit claims falling by 600 in December and the number receiving the Jobseekers’ Allowance down to around 98,200. Pension funds Edinburgh financial performance monitoring group WM Company reported that UK pension funds produced an average return on 16.8% in 2003, the first improvement since 1999, although still under-performing compared to the 21.2% recovery seen in the UK equity market. FSA fine The Financial Services Authority imposed a £1.25 million fine on HBOS for breaches of the rules designed to prevent money-laundering, after Bank of Scotland was found guilty of failing to keep proper records of the evidence of identity collected from its customers. New rules introduced from 1 January require financial institutions to pay such fines from company funds, rather than from insurance claims. Financial services doing fine A survey by the CBI and PricewaterhouseCoopers revealed that 39% of financial services firms said that business volumes had gone up in the last quarter of 2003, with only 12% reporting decreases. Average costs per transaction fell for the third successive quarter, contributing to the fastest rate of profitability growth since September 2000. |
