Oil
Economic growth in the UK and USA
Recession in Europe
Interest rates
Exchange rates
Balance of trade
Profit warnings
Inflation
Consumer spending
New cars
Housing market
Unemployment
Pensions
North-south divide
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Stock market Having reached a two-week low of 4,070.4 on 6 August, eight days later the FTSE 100 index closed at 4,237.8, its highest level for nearly a year, as confidence in the prospects for recovery increased. However, despite encouraging economic data from the US, the index slipped back and ended the month at 4,161.1. Oil Restoring output in Iraq is still being hampered by sabotage and looting, and Iraqi officials and oil market analysts believe that a dramatic improvement in security is needed if the US target of two-thirds of pre-war capacity by the end of the year is to be achieved. US government figures showing a steep decline in gasoline stocks prompted a ¢32 rise in the price of Brent crude to $29.50 on 28 August, following the previous day’s ¢57 slide as traders took profits. Prices fell for nine consecutive days earlier in the month, with Brent crude losing 7% of its value from a five-month high of $30.59 to reach $28.47 on 19 August. Economic growth in the UK and USA The latest Bank of England economic growth forecast predicted a year-on-year increase in GDP of 2.9% in the first quarter of 2004, slowing to 2.4% by the end of the year. The Chancellor’s budget plans assumed an average rate of growth of 3-3.5% in 2004. Figures from the US Treasury indicated growth of 2.4% in the second quarter of 2003, a marked and unexpected improvement on the 1.4% increase recorded in each of the previous two quarters. There are hopes that this signals a definite upturn in performance. Unemployment in the United States was down slightly from 6.4% in June to 6.2% in July. Recession in Europe Government figures showed that the French economy contracted by 0.3% in the three months to the end of June, the biggest quarterly fall since 1995. Germany and Italy are already officially in recession, having posted falls in GDP in successive quarters this year, and with plans to bring forward tax cuts by a year Germany is in danger of running a budget deficit next year in excess of 3% of GDP and thereby again breaching the EU’s Stability and Growth Pact. Interest rates Interest rates in the UK, United States and the eurozone remained unchanged in August at 3.5%, 1% and 2.5% respectively. Exchange rates Expectations that economic growth in the United States would exceed that in Europe saw both sterling and the euro slide to four-month lows against the dollar on 26 August, slipping to $1.5616 and $1.0855 respectively, while the euro also posted a five-month low of ¥126.8 as the market responded to signs of economic recovery in Japan. Balance of trade Exports of manufactured goods to the eurozone rose in June for the first time since February, up 0.5% by value on the previous month as the euro’s strengthening against sterling ended a run which had seen the value of exports to Europe decline by 9.5% since the beginning of the year. However, sales to the rest of the world were down 13.1%, and although imports fell slightly the trade gap widened from £4.1 billion to £4.5 billion. Profit warnings Accountants KPMG reported that the number of Scottish companies issuing profit warnings was down from 136 in the first three months to 112 in the second quarter, and below 120 for the first time in more than 12 months. Although pressures were seen to be easing in the retail, electronics and financial sectors, however, manufacturing showed a 50% quarter-on-quarter increase in profit warnings. Inflation According to the Office for National Statistics, the RPIX index of core inflation, which measures consumer prices excluding housing costs, rose to an annual rate of 2.9% in July from 2.8% the previous month. Predictions had been for a fall to 2.7%. Analysts cited the unusually hot weather as a factor, with retailers delaying their summer clothing sales. Consumer spending The British Bankers’ Association reported a £709 million increase in consumer credit in July, compared with £826 million in June. However, according to the Council of Mortgage Lenders gross mortgage advances showed a 12% month-on-month rise and an18% increase on July 2002, while lending by members of the Building Societies Association was up 30%. Overall, the numbers represent an extra £8.1 million in mortgage lending for the month, with a further £1.7 billion of consumer credit giving additional debt of £9.8 million in July, only just short of June’s record £10 billion increase. New cars New car registrations in Scotland for July were up 1.56% on the same month last year, compared with a 0.58% increase for the UK as a whole. A decrease had been expected, following the large rise in June. Housing market A report from the Royal Institution of Chartered Surveyors suggested that the chances of a house price crash were receding, as the property market in London and the south-east of England stabilized after several months of falling prices. Unemployment The Office for National Statistics reported that the number of benefits claimants in Scotland fell by 800 in July, following three months of rising unemployment. The total for the UK as a whole was down by 3,000, as the number of people in employment rose to a new record high. Latest estimates put the proportion of the Scottish workforce who are unemployed at around 5.5% compared with the UK average of about 5%. The current vogue adopted by BT and Aviva among others of transferring call-centre business to lower-cost bases overseas, particularly India, is causing concern for the future of Scotland’s 93,000 call-centre workers. Pensions Research by the investment bank Warburg indicates that Britain’s pension fund shortfall has fallen from £63 billion to £53 billion as a consequence of the 29% recovery in stock market values since March. However, the FTSE 100 index would have to be around the 6,000 level for the gap to be closed in the near future. The Association of British Insurers reports that only 1.5 million stakeholder pensions have been since their launch in 2001, and 82% of company stakeholder pension schemes have no members. Only 13% of eligible employees participate in company schemes where the employer makes no contributions, compared with 57% where the employer does contribute. North-south divide Figures from the Office for National Statistics show that the wealth gap between Scotland and London increased by 11% during the first three years of the Scottish Parliament, from gross value added per head of population of £5,300 in 1999 to £5,900 in 2001. Nevertheless, Scotland still has the fourth best GVA per capita among the 13 regions and countries in the UK. |