Oil
Economic growth
Recession in Europe
Interest rates
Exchange rates
Inflation
Consumer spending
Consumer credit
Housing market
New cars
Manufacturing
Unemployment
Red tape
Consultancy cutback
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Stock market September was a month of two halves for the FTSE 100 index. From 4,161.1 at end of August, the index responded to positive economic data from the USA, boosting optimism that the economic recovery there was picking up speed, and climbed through the 4,300 barrier to close at 4,314.7 on 18 September after reaching an intra-day twelve-month high of 4,329. Thereafter, the picture changed with the next batch of US data proving unexpectedly gloomy and fuelling fears that the economic recovery across the Atlantic might have stalled. A steady decline saw the FTSE close at a seven-week low of 4,091.3 on 30 September, the fall of 51.4 points on the day representing 1.2% of the value of the index. Oil Having reached a five-month high of $30.59 per barrel on 6 August, Brent crude futures plunged from $29.50 at the end of the month to $27.85 after the Labor Day holiday in the United States on 1 September marked the traditional end of the summer driving season in America. The announcement by the Saudi oil minister on 3 September that OPEC’s output ceiling was unlikely to be changed, followed by the threat of Hurricane Isabel to US oil installations, prompted a brief rise before the publication of US data showing a record increase in imports and a bigger-than-expected build-up of stocks saw the price fall to a four-month low of $25.70 on 17 September. As it turned out, on 24 September OPEC surprisingly agreed to cut output by 900,000 bpd to 24.5 million from 1 November to prevent a build-up of petroleum stocks during the fourth quarter. By the end of the month prices had risen by 7.5% in response to this news, with Brent crude reaching $27.62. Economic growth The IMF has cut its economic growth forecast for the UK to 1.7% for the year, down from the 2% forecast in its spring report and well below Gordon Brown’s prediction of 2-2.5% growth. The UK’s economic performance is expected to improve in 2004, and in the meantime continues to outperform the eurozone, but has fallen behind the US which was showing a strong recovery from its recession. However, the Office for National Statistics announced on 30 September that a gross error in figures from the Department of Trade and Industry had prompted it to double its growth estimates for the first half of the year from 0.4% to 0.8%, and with the new data showing growth of 0.6% in the second quarter analysts are now expecting the rate for the year to reach 1.8-1.9%. Recession in Europe The Netherlands has threatened to take legal action against the European Commission if it fails to fine France and Germany, both in recession, for breaching the Stability and Growth Pact, which limits budget deficits to 3% of GDP. Interest rates Interest rates in the UK, United States and the eurozone remained unchanged in September at 3.5%, 1% and 2.5% respectively. The Bank of England pegged rates at 3.5% despite concerns about the record levels of consumer credit, preferring to let the economy accelerate than to curb household spending. However, analysts are expecting UK rates to increase to between 4% and 4.5% by the end of 2004. US interest rates were held steady amid signs that the economy is getting on a firmer footing after months of wobbling. The Federal Reserve last cut rates in June, from 1.25% to 1%. Exchange rates The end of the month saw the US dollar fall to an intra-day three-year low of ¥110.12, before the Japanese Ministry of Finance intervened by selling yen for dollars in order to weaken its own currency. Sterling gained more than 8¢ against the dollar during September, reaching $1.6694 amid expectations that the Bank of England would raise interest rates sooner than the Federal Reserve or the ECB, but fell against the euro to €1.4241 (an indirect rate of 70.22p), largely on the back of the dollar’s decline. Inflation The headline rate, including mortgage interest repayments, fell from 3.1% in July to 2.9% in August, according to the Office for National Statistics. The underlying rate, excluding mortgage interest repayments, was unchanged from July at 2.9%, making the tenth consecutive month in which it has been above the Bank of England’s government-set 2.5% target. According to the Office for National Statistics, rising petrol and clothing prices were offset by falling foreign holiday costs. Consumer spending The latest figures from the Office for National Statistics show that the heatwave contributed to an unexpected rise in retail sales in August of 0.2% for the month, making 3.8% year-on-year, with seaside and holiday-related trade such as food and drink offsetting a drop in clothing and mail-order sales. Consumer credit Mortgage lending reached a record £11.5 billion in August, up £500 million on July, according to the Council of Mortgage Lenders. Two-thirds of all new mortgages were fixed-rate. Accountants Ernst & Young’s quarterly retail financial services review claims that although the value of borrowing has reached record levels, the number of people holding those debts has fallen slightly, from 50% of respondents to 49%, reflecting the reduction in first-time house buyers. Most of the additional debt was accumulated by over-55s remortgaging their homes. Housing market Figures from the National Association of Estate Agents show that the number of first-time buyers fell to a record low during August, accounting for just 13% of sales compared with 17% in July. House price inflation continued to fall in August, with prices just 6.9% higher than the same month in 2002 compared with annual house price growth of 18% in January. The Nationwide Building Society reported that house price growth is slowing across the UK, from 25.8% in the first quarter to 17.1% in the third quarter. Edinburgh and Glasgow showed third quarter growth of 20% and 18% respectively, and overall the Nationwide expects the rate for the year in Scotland to be unchanged from 2002 at 16%. Over the last twelve years, property prices in Edinburgh and Glasgow have risen by 149% and 112% respectively. New cars New car registrations in Scotland for August totalled 6,965, up 9.3% year-on-year, according to figures from the Scottish Motor Trade Association, a healthy increase in what is traditionally a low-volume month before the release of the new number plates. For the UK as a whole the total was up 2.4% to 89,338. Manufacturing The Office for National Statistics figures for July show that manufacturing output was up by 0.5% on the previous month, its best performance since November 2002 although still 0.3% down on July 2002. This second successive monthly rise was considerably stronger than economists had expected, suggesting that a long-awaited recovery might finally be gathering pace in the manufacturing sector, which accounts for one-fifth of the economy. However, Scottish manufacturing performed worse than any other UK region in the three months to the end of August, according to data from the Engineering Employers Federation. After a 2% rise in the previous quarter, new orders were down 9% in Scotland compared with a 3% increase for the UK as a whole, the first overall rise since the September 11 terrorist attacks in 2001. Scotland’s poor performance was blamed on its significant dependence on the electronics sector, where exports have fallen by more than 50% in the last two years. Unemployment The number of people unemployed and claiming benefits fell to a 28-year low in August, down 6,900 to 930,800 for the UK as a whole and down 1,000 to 98,600 in Scotland according to figures from the Office for National Statistics and the Scottish Office. The Government’s preferred measure for unemployment, which counts the number of people out of work over the last three months, shows a fall of 1,000 to 1,493,000 which gives an unemployment rate of 5.1% of the workforce. A report compiled by recruitment agency Manpower indicates a slowdown in employment uptake in Scotland. The rate of uptake is expected to slow from 21% in the third quarter to just 4% in the final quarter of 2003, compared with a UK average down from 13% to 12%. Red tape 97% of the UK’s 3.7 million ‘small and medium enterprises’ believe that the burden of red tape is unchanged or has increased since Gordon Brown’s pledge to reduce it in this year’s budget. The survey, by Bank of Scotland Business Banking, reported that only 1% believed it to have lessened, and while 1% expect the situation to improve two-thirds believe it has worsened. Consultancy cutback A survey in Accountancy magazine reports a 27% fall in non-audit fees earned by the Big Four accountancy firms, from £636 million last year to £467.2 million this year, highlighting the concern of companies over conflicts of interest since the Enron scandal. A lull in merger and acquisition activity contributed to a 16% fall in fees earned from FTSE 100 clients, but statutory audit fees were up 17% from £212 million to £246.8 million. |