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exchange The month began with the FTSE 100 index falling for a record eight successive days, from 4,185.4 on 28 November to 3,925.0, and by 18 December had reached 3,835.2 following a volatile week. Factors included: a profits warning from Barclays and hefty provisions by Lloyds TSB for bad corporate debts and for mis-sold endowment mortgages and pensions, on top of a record £1 million fine imposed on its Abbey Life subsidiary for mis-selling mortgages in the 1990s; a 21% slump in BAE Systems on the back of warnings of cost overruns and delays on two Ministry of Defence contracts; and electronics retailers prominent amongst other high street names suffering amid worries about pre-Christmas price cuts and slow trading. Last minute shopping by pension and hedge fund managers prompted a recovery to 3,899.9 by close of business on 20 December. Oil prices The general strike in Venezuela and continuing tensions over Iraq maintained the upward pressure on prices, despite Russian output having reached a ten-year high of 8 million barrels per day. Venezuela is currently the world’s fifth largest oil exporter, and normally supplies 13% of the USA’s import requirements. With global output running at around 3 million barrels per day over target, Opec agreed to cut back oil production and restore its discredited quota system. By 20 December, Brent crude had reached a two-month high of $28.34 per barrel as the strike in Venezuela entered its fourth week, during which the cost of crude rose by 20%. Interest rates The Bank of England continued to resist pressure from industry for a cut interest rates to help boost manufacturing, and maintained the 4% level reached in November 2001, the longest period unchanged for 43 years. The European Central Bank cut its key refinancing rate from 3.25% to 2.75%, its lowest level for three years, but warned that any further stimulus to growth must come from structural reforms in the 12 eurozone member states. The move was seen as insufficient to boost the German economy, but likely to worsen the situation in countries experiencing high inflation such as Ireland, Spain, Portugal, Greece and the Netherlands, which if they had to apply now would fail to meet the admission criterion for admission to the euro of an inflation rate within 1.5 percentage points of the average of the lowest three rates among member countries. Balance of trade October saw Britain’s worst ever trade deficit in goods, with a shortfall for the month of £3.56 billion compared with about £2.7 billion in September, as exports fell nearly 4% and imports were up 1.3%. A surplus in services of £941 million, down from £982 million the previous month, gave an overall deficit of £2.62 billion, the worst since September 2001. House prices With house price inflation at an annual 25.5%, the highest level for 13 years, the average British homeowner is earning more from the rise in value of his house, even after mortgage payments, than from work. The ratio of house prices to average annual earnings is at an all-time high, and with first-time buyers committing a greater proportion of their earnings to mortgage payments there are fears that this could lead to more people struggling with debt than there were during the 1989 slump. Statistics from the Registers of Scotland show that the average price of property rose by 11% to £87,436 in the year to August. Prices in Edinburgh were up 20% to £136,349, and the Royal Institute of Chartered Surveyors predicts that areas such as Fife, the Borders, Tayside and Inverness will benefit as buyers seek homes farther afield. Kinross has overtaken Peebles to top the table with an average of £144,892, an increase of more than 25%. The Council of Mortgage Lenders expects prices to rise by about 7% next year, and 4.6% in 2004. Mortgage lending is forecast to increase by £10 billion to £225 billion, a third of which is expected to be accounted for by continuing strong levels of remortgaging. However, Capital Economics warned that although the house price boom would continue throughout 2003, this would be followed by falls of up to 20% from its peak by the end of 2006. Europe Unemployment in Germany has risen to 4.16 million, at 11% of the workforce the highest level since 1998, and is expected to worsen while the economy continues to stagnate. The Dutch economy is also close to stagnation, with growth forecasts having been halved to 0.25% for this year and 0.75% in 2003. The European Court of Justice has insisted that Germany must claw back €807.7 million in state subsidies to leading public sector bank Westdeutsche Landesbank. Commercial banks have been campaigning against state guarantees to public sector banks, arguing that they distort competition and contravene EU law. Ireland’s budget has moved into deficit for the first time since 1997, with a predicted €1.9 billion shortfall next year despite big rises in stamp duties and the basic rate of VAT being increased from 12.5% to 13.5%, and its inflation rate, already twice the EU average, is forecast to increase from 4.7% this year to 4.8% in 2003. However, there are no measures in the latest budget to reduce house price inflation; average prices have risen to €200,000 from €75,000 six years ago, and with the average in Dublin now €250,000 many city workers are living in rented accommodation in the capital and buying properties to let in their home towns. Manufacturing Despite an increase in domestic demand, the UK manufacturing sector, which has been under pressure for a number of years now because of the strong pound and weak performance in the eurozone market, in November came to close to recording a contraction as measured by the Chartered Institute of Purchasing & Supply’s manufacturing output index. Following a sharp drop from 53.0 to 50.9 in October, the index for November was down to 50.0; any reading below that level indicates contraction. Exports slipped to 47.6, their weakest level this year. However, figures from the Office for National Statistics showed that the cost of raw materials fell by 3.4% in November, the biggest monthly amount for nearly two years, due mainly to a 13.7% drop in the price of oil. National Statistics also reveal that there were 30,200 manufacturing redundancies in Scotland between autumn 2001 and summer 2002, the worst figure in four years during which more than 100,000 jobs were lost in the sector. E-commerce A survey by Scottish Enterprise has found that despite a rise in computer ownership from 71% last year to 80%, and two-thirds of firms having an internet connection in the workplace, 40% of Scottish companies see e-mail as not relevant to their business and one in six do not have a website. Nevertheless, a separate study from the Department of Trade and Industry ranks Scotland third in the world for adoption of e-commerce applications, behind the United States and Germany. Audit reports Following the judgement in July against PriceWaterhouseCoopers which appears to allow banks to sue auditors of a bankrupt company to reclaim lost loans, the firm has changed the wording of its audit reports to limit the reliance that banks can place on company accounts. PcW expects other audit firms to follow suit. Air travel US carrier United Airlines, the world’s second biggest airline has become the latest casualty of the global economic slowdown and the after-effects of the 9/11 terrorist attacks, filing for bankruptcy protection after the US government rejected the airline’s bid for federal loan guarantees. United has lost $4 billion since the attacks, contributing to total losses for the industry of $10 billion last year and a further $7 billion expected this year. The growth of budget airlines helped boost passenger numbers at BAA’s Scottish airports (Glasgow, Edinburgh and Aberdeen) by 8.4% to 17.1 million. Edinburgh reported the biggest increase, up 13.8% to 6.8 million, with Glasgow’s total up 7% to 7.7 million and Aberdeen’s down 0.3% to 2.6 million. Transatlantic air traffic is recovering but still down on its pre-9/11 levels. For the UK as a whole, passengers crossing the pond were up 21.4% on last November but down 10.3% on November 2000. For other long-flights, numbers were up 12.7% on a year ago but down 1.5% from November 2000’s total. Domestic and European flights have been less affected by the terrorist attacks and global economic slowdown, passenger numbers showing increases of nearly 15% since last year and around 5.5% on two years ago. Commuting According to a study by Trafficmaster, rush-hour car travel between Edinburgh and Glasgow now takes 14% longer than it did four years ago, and journey times are likely to increase by a further 12% over the next four years. Entrepreneurial Britain According to the Global Enterprise Monitor: • the number of business start-ups in the past year in the UK has been exceeded world-wide only in Canada and the USA; • most new businesses employ 11 or more staff; • although men are still more than twice as likely as women to start a new business in the UK… • the gender gap between male and female entrepreneurs has narrowed by nearly 40% in the past year; and… • UK entrepreneurs are twice as likely to be of Asian origin as white Britons, Caribbean people three times as likely and Africans five times. Recruitment A survey by Abbey National finds that more than half of small business owners think that young workers are lazy, want too much pay and more glamorous jobs. Firms recruit staff on average six times a year at a cost of £764 in fees and advertising. Accidents at work Scotland continues to have the UK’s highest rate of deaths at work, and although the total of 27 in 2001-02 was ten fewer than for the previous year the number of fatal accidents in the current year is likely to be higher, according to figures from the Health & Safety Executive. Office hours A survey of office workers by the University of Hertfordshire reveals that: • 80% of fathers work late at least once a week or at weekends; • 40% of fathers work more than the 48 hours per week specified by the EU working time directive; • 33% of fathers spend more than 50 hours per week in the office, compared with 25% of childless men and 5% of childless women; • 80% of workers have difficulty finding time for family duties and household tasks; but… • less than 40% said they would prefer to work fewer hours; of those, 66% wanted to spend more time with their family. |