From 4,342.6 at the start of December, the FTSE 100 index finished the year with eight successive days of gains which helped ensure that the three-year run of net annual losses came to an end. On 30 December the index closed at 4,470.4, having earlier peaked at 4,477.0, the highest level since July 2002 and 13% up from its level of 3,940.4 at the beginning of the year.

Oil

Oil prices reached their highest level since the Iraq war on 17 December, as US government fuel data showed cold weather drawing down inventories. Brent crude rose 90¢ to $30.87 per barrel before closing at $30.59. The capture of Saddam Hussein had little effect on markets, with analysts warning that this was unlikely to end the attacks on Iraq’s oil infrastructure that have hampered its return to pre-war export levels.

Brent crude was trading at $29.86 on 30 December, up 55¢, as dealers hedged against the risk of violence over the New Year holiday period or a bullish surprise in the latest weekly US inventory data. Prices were still around $1 per barrel cheaper than the post-Iraq war highs reached two weeks earlier, pushed down by warmer weather in the US that should lessen winter fuel demand in the north-east, the world’s biggest heating oil consuming region.

Economic growth

According to the Office for National Statistics, the UK economy grew faster than expected in the third quarter, showing the strongest rate of growth in a year as GDP rose by 0.8% between July and September and 2.1% on the same period last year. These figures were slightly up on previous estimates, and put annual growth exactly in line with the 2003 forecast published by Chancellor Gordon Brown in his pre-Budget report earlier in the month.

North Sea oil and gas production both showed monthly increases in October but overall falls for the twelve months to October.

Interest rates

The Bank of England’s Repo rate remained at 3.75%, following November‘s increase. Most analysts in the City see February as the most likely date for the next increase, which is expected to see the Bank of England raise rates to 4%. US and eurozone interest rates were also held unchanged, at 1% and 2% respectively.

Exchange rates

The US dollar’s slide continued through December, as expectations of an increase in UK interest rates compounded the general weakness of the dollar, not helped by record budget and current account deficits and weak inflation figures. The dollar hit a fresh record low against the euro and a new 11-year low against sterling on 30 December, following an array of weaker than expected US economic reports. The pound closed up 79¢ at $1.7792, and the euro was up 43¢ at $1.2528. Sterling was up 15¢ against the euro at €1.4202.

Balance of trade

Trade in goods was the principal factor in Britain’s current account deficit increasing to £8.1 billion in the third quarter, up from a revised £7.8 billion in the previous three months and the highest deficit since the final quarter of 2000. The balance of payments deficit was £5.9 billion with the European Union and £2.2 billion with the rest of the world.

Public sector borrowing

Chancellor Gordon Brown’s pre-Budget report revealed a £37.4 billion gap between tax and spending, £10 billion more than he projected at the April budget and £27 billion more than forecast at the time of the last election. He also confirmed that public sector net borrowing will reach 3.4% of GDP, which would breach the 3% limit set by the European Union’s Stability and Growth Pact if Britain were in the eurozone.

The Scottish Executive’s annual assessment of the country’s finances showed expenditure of £39.4 billion in 2001/02, with just £31.4 billion raised in taxes. The £8 billion deficit, almost £2 billion more than the previous year, was funded by English taxpayers. Scotland raised just 7% of the UK income tax total, despite having 8.6% of the population and more than 10% of the spending, but at £3 billion the council tax collected in Scotland accounts for 9.2% of the total for the UK. £6,246 per person is paid out on public services in Scotland, over £1,000 more than the UK average.

Consumer credit

The Bank of England reported that Britain’s total mortgage debt rose to a record £748 billion in October, with an increase for the month of nearly £9.5 billion, compared with £9 billion in September. The prospect of an increase in interest rates prompted unusually strong repayments of unsecured debt, with the result that the net increase for the month of just £1.2 billion was the smallest rise since March 2001.

UK individuals are the most indebted in Europe, the personal debt total of £158 billion being more than twice that of any other country in Europe. According to the Bank of England, a fifth of those with unsecured debts admit to being in financial difficulties.

A study by Opus Mortgages reveals that company directors are the most indebted individuals in the UK, with average unsecured debts of £16,096. For directors in Scotland that figure is £14,571, still almost five times the UK average, followed by driving instructors and solicitors with £13,732 and £13,055 respectively. Scottish driving instructors’ debts are more than £2,000 higher than those of their counterparts in England.

Consumer spending

The Office for National Statistics reported that growth in retail volumes in November was the slowest in four months, up just 0.1% on October, compared to increases of 0.7% and 0.6% respectively in September and October.

However, the Scottish Retail Consortium reported that sales for November were up 6% on the same month last year, compared with a 3.4% rise across the UK. Factors put forward to explain the differences include the relative buoyancy of the housing market in Scotland, and the greater use of internet shopping south of the border.

Inflation

The annual rate of inflation measured by the Consumer Price Index, the new indicator adopted by the Bank of England, fell to 1.3% in November, down from 1.4% in October, against market expectations and far short of the 2% target set by Chancellor Gordon Brown. The largest downward impact on the CPI came from clothing prices, up 0.6% for the month but down 4.5% on November 2002.

Property market

UK property prices are expected to have risen by 16% in 2003, compared with 25% in 2002, and bankers HBOS predict an 8% rise overall in 2004 although their forecast for Scotland is 12%. Figures from property consultant FPD Savills showed that the average house price in Scotland rose to £104,000 in the third quarter, up 19.8% on the previous year, while the Registers of Scotland reported that the average price for the third quarter was £102,177, 15% up on the same period in 2002.

According to building society Nationwide, fewer people bought their first home in 2003 than at any time since the early 1980s, with the number of first-time buyers dropping from 521,000 in 2002 to about 360,000. Nationwide expects UK house prices to rise by an average of 9% next year, with most of the growth in the first half of the year before rising mortgage rates and slow income growth dampen confidence. The UK growth rate is expected to be mirrored in Scotland.

The Council of Mortgage Lenders announced that first-time buyers accounted for just 26% of the £24.6 billion borrowed for home loans in November, compared to 39% in the same month last year when the total borrowed was £20.5 billion.

Qualified opinion for Scottish Parliament’s accounts

In his audit of the accounts of the Scottish Parliament Corporate Body for the year to 31 March 2003, the Auditor General for Scotland, Robert Black, highlighted a number of key weaknesses including ineffective financial reporting and failure to perform timely and complete reconciliations between the organisation’s two main bank accounts and its main accounting ledger. Although the accounts were considered to give a true and fair view, the Auditor General was “unable to place sufficient reliance on the corporate body’s internal controls to form an unqualified opinion regarding the regularity and propriety of transactions”.

Declining population

New figures from the Registrar General show that the population of Scotland will drop below 5 million in less than a decade if the current downward trend in the birth rate continues, while the next 25 years will see an 8% drop in the number of people of working age to 2.88 million and a 25% increase in the number of pensioners to nearly 1.2 million. The total of 51,270 babies born in 2002 is the lowest figure since records began in 1855, and represents a 43% fall since 1951.

The figures have prompted fresh worries that a smaller and older population in Scotland will lead to economic problems, with fewer people paying tax and increased health demands.

The outlook for the region is in sharp contrast to the rest of the UK, where increases are predicted. The UK’s population as a whole is expected to rise by nearly 10% from 59.2 million in 2002 to 64.8 million in 2031.

Skills deficit

Research carried out by the Bank of England indicates that 87% of Scotland’s small to medium-size companies are concerned that the population’s lack of basic skills could have a detrimental effect on the economy.

In the UK as a whole, oral communication skills were considered to be more important than writing skills, and only around a quarter of owner-managers said they included literacy and numeracy testing as part of their screening process for new recruits.

Unemployment

Unemployment in Scotland rose by 6,000 between August and October, taking the total to 148,000. This figure is still 16,000 lower than at the same time last year, and the claimant count has dropped by 800 to 98,800, the lowest total since September 1975.

For the UK as a whole, the number of people out of work dropped by 33,000 in the quarter, to 1.47 million.

A survey by recruitment specialist Manpower found that firms across the UK plan to take on more staff in the next three months, although the manufacturing sector expects to continue to make cuts.

Homework

According to market analyst Datamonitor, the number of people in the UK who work from home will reach a total of 8.2 million by 2005, an increase of 26% since 2002.

Spam, spam, spam, spam…

A survey of 174 businesses carried out by the University of Nottingham found that a third of respondents reckon that an hour a day is wasted by staff clearing unwanted spam e-mails and unnecessary personal messages from their inboxes.

Christmas cards

Changes in fashion and the wildcat postal strikes were the main factors responsible for a 40% drop in sales of corporate Christmas cards in 2003, according to the Charity Christmas Card Council, the UK’s largest supplier of charity cards. A survey by the council of more than 10,000 companies in 2002, which saw a 25% fall, revealed that nearly 50% “could not be bothered with Christmas cards”.