The Bank of England Monetary Committee voted on the 5 December to retain the Banks base rate at 4%. The Committee voted 7-2 in favour of maintaining rates at their current levels, probably indicating that the Banks rate cutting cycle is at an end, unless the US economy slides even further into recession. The Committee believe there is no domestic case for cutting rates any further and many in the city believe rates will start to rise around the middle of next year as the UK economy outgrows other leading industrial nations.

Business Banking

A voluntary code to regulate how the main clearing banks deal with small businesses has been produced by the UK’s leading banks.

The release of the code is widely interpretated as being an attempt to pre-empt a tougher set of rules expected to be suggested by the government following the Competition Commissions report into banking practices.

The Abbey National have announced it will launch a new small business account this year. The HBOS have already introduced a small business current account paying interest. The Halifax is to launch its small business account in January.

House Boom

The Nationwide Building Society have released figures showing a 14% increase in House Prices during 2001. The average house price rose by Ł11,000 to Ł93,544.

The Governor of the Bank of England has said that he will if necessary raise interest rates to stop the biggest consumer boom since the 1980’s. In addition to the surge in house prices a separate report from the CBI has indicated that retailers had enjoyed their best Christmas since 1987.

Employment

UK recruitment specialists Manpower have stated that they expect a sharp deterioration in employment prospects in the first quarter of 2002.

The report, based on employers predictions, highlighted those in the leisure industry as the most likely to be hard hit, with most regions and sectors being affected. The healthcare and construction sectors however, are showing signs of confidence.

UK Inflation

A consumer spending boom in December and surges in house prices are being seen to be indicators that consumers have responded to the interest rate cuts of recent months.

The Bank of England have however warned that if the inflation target of 2.5% is to be met then the current pace of consumer spending would be unsustainable. In these circumstances an interest rate increase would be necessary.

Stakeholder Pensions

Stakeholder pensions are proving to be very attractive for wealthy taxpayers. Those who can afford to are setting up Stakeholder Pensions for their children and partners, including those already on a good salary and paying into an occupational scheme

The Ł3600 maximum contribution can be used in addition to the 15% of earnings into an occupational scheme. This is because the stakeholder rules broke the link between earnings of the pension fund member and the level of contributions. It does not matter from whom the Stakeholder contributions come from. The use of the stakeholder provisions for setting up a pension scheme for a child could be worth considering. If maximum contributions were made from birth to age 18 the parent would pay in Ł50,544 and the Inland Revenue Ł14,256 giving a total of Ł64,800. With reasonable growth rates and statutory low levels of charges this could provide a substantial pension on retirement.

Air Travel

British Airways announced a 10.4% fall in passenger numbers in December but remained upbeat about market conditions. The rate of decline has continued to slow and showed a measurable improvement on the previous month.

It is hoped that the affects of September 11^th would seem to be bottoming out and that the affect on next years tourist industry in the UK, would not be as widespread as originally feared.

Interviewee Right of Access of Interview Notes

The Office of the Information Commissioner are to issue a code to give right of access to job applicants, to the notes made during interviews for a job.

The employer will be legally obliged to release the notes but can make a charge of up to Ł10 a copy for providing the notes.

Abbey National to bid for Alliance & Leicester

Rumours abound that the Abbey National are about to make a bid for the Alliance & Leicester.

Britain and the Euro

Gus O’Donnell has backtracked from his statement that the decision whether the UK joins the Euro would be political rather than economic.

The treasury have re-iterated their position that “Any government decision on the Euro will be based upon a thorough and rigorous assessment of the five economic tests. The economic case must be clear and unambiguous.”

Many experts believe Mr O’Donnell’s alleged remarks are indictive that the treasury is likely to deliver a no verdict.

Euro Launch

The Euro will be launched in 12 European Countries in the Eurozone, on 2 January 2002. The change to the Euro will affect approximately 300 million people.

By 1 March the Euro will be the only currency in use in the eurozone, different countries having different transitional periods up to that date.

The only 3 countries not participating are the United Kingdom, Denmark and Sweden. Even in the UK it is believed that certain stores in London will accept the Euro as currency, subject to handling charges.

European Economy

Wim Duisenberg the European Central Bank’s President, has predicted growth in the Eurozone will be static in the first quarter of the new year. He stated;

“We expect the first quarter to be pretty much the same as the last two quarters of last year”. Gross domestic product only grew by 0.1% in the third quarter of 2001 and not at all in the last quarter. Analysts are interpreting to the comments as an indication that a cut in the banks base rate may be likely before the end of January.

Mr Duisenberg remained upbeat about the eurozones economic outlook for the second half of 2002 but cautioned any european recovery could be de-railed by the weakness of the United States and global economies.

European Commission Support for Small Businesses

The European Commission have appointed Timo Summa as their SME envoy. The envoy’s roll will be to foster transparency and listen personally to the concerns of SME’s and their representatives. The office will act as a link between small businesses and government providing feedback and presenting policy initiatives.

US Economy

The US unemployment rate reached a six year high in December standing at 5.8% confirming fears that the US job market was in the depths of recession. December saw a further 124,000 jobs lost

The US recession, which began in March has seen 1.4 million jobs lost. Manufacturing was particularly hard hit with many companies shedding 10% of their workforce.

On a more positive note, home sales grew in November and renewed consumer confidence was demonstrated by retail sales, particularly in expensive goods, in December