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Stock market The FTSE-100 index responded positively to the latest increase in interest rates, gaining 50 points over two days’ trading to close at 4,434.4 on 10 February before a measure of profit-taking later in the week. 17 February saw the biggest one-day improvement since 1 December, the 53.4 rise representing 1.2% of the market’s value. Half of this was contributed by Vodafone shares after the mobile phone group pulled out of a potential bidding war for its US rival AT&T Wireless. This was followed by a 1.6%, 72.7-point surge through the 4,500 barrier on 19 February to 4,515.6, the index’s highest close since 19 January and the biggest daily gain since 1 October. This time the banking sector was the big contributor, spurred by record profits from the Royal Bank of Scotland. Thereafter, another spate of profit-taking and more weak economic data from the United States saw the FTSE-100 slip back to 4,492.2 by the end of the month. Oil Prices rose during February by more than $3 a barrel after OPEC, the cartel which controls half the world’s oil trade, unexpectedly announced that its production limits were being reduced by 4% to 23.5 million barrels a day from 1 April, in a move designed to shore up prices as winter demand in the northern hemisphere eases back. OPEC also said that it was currently pumping around 1.5 million barrels a day more than its official limit, but that it would take immediate action to clamp down on this. The cut in production quotas was confirmed later in the month, despite the current high prices well in excess of OPEC’s target range of $22-$28 per barrel. Brent crude had reached $32.24 by the end of February. Interest rates The Bank of England raised interest rates for the second time in three months, citing fears over the level of consumer debt as a major factor. The European Central Bank kept rates at 2%, amid speculation that a possible cut in eurozone interest rates later in the year would further boost the value of sterling and reduce the need for further increases in the UK. The Federal Reserve also maintained US interest rates unchanged at 1%, despite concern at the continuing weakness of the dollar against major world currencies. Exchange rates Sterling continued to strengthen against the dollar, boosted by the increase in UK interest rates, and peaked at $1.9082 on 17 February 傚 its highest level since September 1992. Contrasting fortunes for the euro saw it rise to an all-time high of $1.2824 on 17 February but lose ground against sterling, which hit €1.50 for the first time in twelve months. Balance of trade The UK narrowly avoid a new record international goods trade deficit in 2003, but the overall deficit in goods and services hit a new high as traditional British strengths such as banking and insurance did less well than usual to redress the balance. The Office for National Statistics reported a smaller-than-expected December trade gap of £4.16 billion, bringing the deficit for the full year to £46.4 billion, just short of 2002’s record £46.6 billion gap. The trade surplus with the US rose to £6.2 billion from £3.3 billion in 2002, helped by robust demand from the recovering US economy, but the deficit with the EU widened to a record £23.8 billion. Figures from the Scottish Executive show Germany as being Scotland’s most important foreign market, with an estimated £2.42 billion of imports accounting for 13% of all overseas sales of goods and services. The USA is in second place with 11% and France third with 9%. The total for the European Union was estimated to be £11 billion. The biggest sales by sector were in electrical and instrumental engineering, and chemicals and mineral products. Economists at Mackay Consultants in Inverness estimate Scotland’s GDP to have been about £70.5 billion, of which about 27% was exported. The proportion for the UK as a whole was 21%. Economic growth The Office for National Statistics has upgraded its figures for growth in GDP for 2003 from 2.1% to 2.3%, after collecting new data from business, government and consumers. This is more than had been forecast by Gordon Brown, whose own 2.1% prediction had been widely regarded by economists as over-optimistic. Inflation The Office for National Statistics announced that the annual rate of inflation as measured by the CPI scale rose to 1.4% in January, after two months at 1.3%. The Bank of England expects inflation to have reached 2% by the end of 2005. Public sector borrowing Government income exceeded spending by about £4.4 billion in January, according to the Office for National Statistics, reducing total borrowing in the tax year to £30.6 billion. The Chancellor’s most recently-revised forecast was for a deficit of £37.4 billion for the full year. Consumer credit The average worker spends 45 days a year just to pay off the interest on their credit cards and loans, according to research from IFA Promotion. Citizens Advice Scotland said that levels of personal debt in Scotland had jumped 64% in the last two years, with a growing trend of low earners becoming seriously indebted, and a record number now owe so much that they will never be able to repay it all. The average owed by people seeking help from CAS is £13,380 but one in five has debts in excess of £20,000. Consumer spending The CBI reported that high street spending in January was the strongest since April 2002, but only after stores resorted to widespread discounting to attract shoppers. The British Retail Consortium said that total sales climbed by 6.8% in January compared to the same period last year, the biggest gain since last April, but volumes began to drop off as the sales period wound down. Economists warned that the prospect of higher interest rates could affect high street sales as the year progresses. Figures from the Office for National Statistics show a monthly increase of 0.6% in retail volumes in January. Sales were up 6.4% year-on-year, the biggest rise since December 2002. According to Visa, the amount of money being spent via the internet has almost doubled during the past year. Total spending on goods and services in the last quarter of 2003 was £1.8 billion, 91% higher than in the same period in 2002. Spending on travel was up 112% at £366 million, and entertainment up 180% at £41 million. Property market Figures from the Land Registry showed that the average cost of a house in England and Wales rose by 12.6% to £163,584 between the final quarters of 2002 and 2003. In London, 760 properties were sold for more than £1 million during the last three months of 2003. Nationwide reported a 3.1% rise in UK house prices in February, the biggest one-month gain for nearly two years and the second largest since 1991. The average price rose by £3,924 to £138,730. House-price inflation for the twelve months to February was up to 17.1%, the highest since July last year. Pay rises Pay consultants Industrial Relations Services reported that average UK pay rises remained at 3% for the tenth successive quarter in the three months to the end January, compared with the official consumer price inflation rate of 1.4%. In Scotland men are earning 29% more than women, the widest pay gap in the UK, according to Payfinder.com. The UK average is 20%, with Northern Ireland showing the narrowest gap at 15%. Company liquidations Two reports show a reduction in the level of business failure in Scotland. Grant Thornton’s research revealed that 631 Scottish businesses went under in 2003 compared with the previous year‘s 788, an improvement of 20%, while KPMG announced that the number of company liquidations in Scotland was 36% fewer in the last quarter of 2003 than for the same period in 2002, with receiverships being down 30%. |
