Current Financial Update
Stock market
Growing economic optimism in the United States, which saw the Dow Jones industrial average reached an all-time high, helped to drive the FTSE-100 Index through the 6,200 barrier in the early part of the month. The benchmark index peaked at 6,254.9 on 16 November, closing above the 6,250 mark for the first time since January 2001, but share prices drifted downwards for the next fortnight to end the month at 6,048.8 as companies with a heavy dollar exposure were undermined by the falling currency.
Oil prices
World oil prices slipped to just over $57 a barrel, before rising to a two-and-half-month high of more than $63 by the end of November. Mild weather in the United States and the prospect of an increase in eurozone interest rates contributed to the falls in the first half of the month, but OPEC supply cuts, colder weather and a drop in US fuel stockpiles pushed prices back up.
Exchange rates
The dollar climbed across the board ahead of the US mid-term elections, but uncertainty over the results, followed by weak economic data and China’s announcement that it had a clear plan to diversify its foreign exchange reserves, combined to send the dollar downwards against the world’s major currencies. By the end of November, sterling had reached a two-year high against the dollar, and was within sight of the highest levels since September 1992 – shortly before Britain quit the European Exchange Rate Mechanism.
At the end of the month the dollar was worth less than 51p, and just over 75¢ against the euro – a 20-month low. The pound held steady against the euro, at 67-68¢.
Interest rates
As was widely anticipated, the Bank of England raised its Repo rate from 4.75% to 5%, with analysts suggesting that another increase might follow early in the new year.
The European Central Bank left its Minimum Bid Rate unchanged at 3.25%, following the previous month’s quarter-point increase, but ECB president Jean-Claude Trichet indicated that a further rise could follow in December.
In the United States, the Federal Reserve again left interest rates steady at 5.25%.
Balance of trade
The Office for National Statistics reported that the UK’s deficit on trade in goods and services was £4.1 billion in September, down from the revised figure of £4.5 billion for August (previously published as £4.4 billion).
The deficit on trade in goods improved by £0.3 billion to £6.6 billion despite a £0.2 billion fall in exports, as imports fell by £0.5 billion. The surplus on trade in services rose by £0.2 billion to £2.5 billion.
The deficit with the enlarged EU widened slightly to £2.7 billion from August’s £2.6 billion. There were rises in exports of crude oil and but falls in exports of capital goods and intermediate goods. The deficit with non-EU countries narrowed to £3.9 billion from £4.2 billion in August, as although there was an increase in imports of fuels other than oil this was more than offset by a fall in imports of oil.
Inflation
The Consumer Prices Index measure of inflation was unchanged in October at an annual 2.4%. According to the Office for National Statistics, for the second successive month the largest downward effect on the CPI annual rate came from transport costs, while the largest upward effect came from university tuition fees..
However, inflation as measured by the Retail Prices Index, on which most pay deals are based, rose to 3.7% in October, up from 3.6% in September. Housing costs, excluded from the CPI, had a small upward effect on the RPI, mainly due to mainly due to the depreciation component (the amount needed to maintain the dwelling at constant quality).
House prices
Statistics published by the Department for Communities and Local Government show that UK annual rate of house price inflation rose to 8.0% in September, from 7.4% in the year to August. Prices rose by 0.8% between August and September, compared an increase of just 0.2% over the same period last year. The average house price in September was £198,552 for the UK as a whole and £145,653 in Scotland. The inflation rate in Scotland rose from 12.7% to 12.9%.
Consumer spending
The Office for National Statistics reported that retail sales volumes increased by 0.9% between September and October, following the previous month’s 0.4% decline, and the largest monthly increase since November 2005. The largest increases were for non-specialised stores and non-store retailers, where sales in both sectors increased by 2.5%. Clothing stores’ sales grew 1.9% on the month, the highest since February 2006. The total volume of sales in October was 3.9% higher than in the same month last year
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The volume of retail sales in the three months August to October was 0.6% higher than in the previous three months. This follows 0.7% growth in the three months to September, and compares with an increase of 0.6% at the same time in 2005.
Unemployment
According to the Office for National Statistics, the number of unemployed people increased by 27,000 over the three months to September, and by 263,000 over the year, to reach 1.71 million. This represents an unemployment rate of 5.6%, up 0.1% over the quarter and up 0.8% over the year.
The claimant count was 961,300 in October 2006, up 1,200 on the previous month and up 70,100 on the year.
However, the number of people in employment rose by 56,000 over the quarter and by 263,000 over the year to 28.99 million, just short of the previous month’s record high of 29.01 million.
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The monthly updates have been prepared to provide information for general
guidance only. It is not intended to replace specific professional advice
and we would always recommend that you seek appropriate professional
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