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As the New Year was celebrated throughout the world with parties and fireworks, London maintained a stiff upper lip. Official celebrations were conspicuously absent, and the governmentís coffers failed to yield the cash for even a single pyrotechnic spark to burst over Londonís centre. Enthusiastic revellers were warned by the police to refrain from visiting their favourite spot, Trafalgar Square, although when midnight came the crowds seemed to have ignored the advice and insisted on performing the usual rituals of jumping into the fountains and climbing onto places where climbing is definitely prohibited. As England and Wales struggled back to work on Tuesday with added excuses for being late of Railtrack not having finished all their repair work and various roads being flooded, Scotland, as normal, enjoyed their second dayís Bank Holiday. Why the rest of the UK apart from Scotland is not allowed this extra day is a matter of debate, but some have no doubt that it is simply the expertise of the Scottish in celebrating that leads to the impossibility of any constructive work being done for at least two days afterwards.
Financial news mid-week was dominated by the surprise cut in interest rates by Americaís Federal Reserve, and the resulting short-lived euphoria in the stockmarkets. The cut of half of one percent, although expected as a possibility for the end of this month, gave a much-needed boost to both the Dow Jones index and the Nasdaq on which the price of technology-related shares had taken a serious hammering before Christmas. Unfortunately most share price rises were short-lived, and although the UK markets followed the US upwards on Thursday. Bad economic news in the US and the realisation, perhaps, that the interest rate cut on its own would not be enough to kick-start the US economy led to a sudden drop in US share prices again on Friday, but the UK markets remained relatively optimistic and the FTSE100 index finished the week 12.5 points up at 6198.1.
Despite the gloom in the US, the UK economy and the financial markets still seem in relatively good shape. The hope that the Bank of Englandís Monetary Policy Committee, the "MPC", will follow the US and cut interest rates here has raised hopes of some. Although a poll of analysts indicated their opinion was that there was at least a 70% chance that rates would stay at 6% for the eleventh month in a row, few of them ruled out the possibility that there would be a cut. The Deputy Governor of the Bank of England, Mervyn King, stressed that it was the nine-member MPC who set rates for Britain and not the US. He also pointed out that there were "upside risks" to the British economy from strong money and credit growth, consumer demand and wages.
There is some evidence that the British economy is also slowing although not comparable with the US-style slowdown. Growth forecast for this year is 2.6% rather than around 3% achieved last year and in line with the level economists consider to be achievable without risking runaway inflation. The sharp drop in oil prices in recent weeks has, in part, led to a reduction of fuel prices although the cynical might suggest that cuts in forecourt petrol and diesel prices in the last two days were a panic reaction by the oil companies to the re-appearance of fuel protesters picketing nine oil depots. Figures for house prices showed a fall of 1.1% in December from Novemberís figures, and the rise for the whole year was just 3.1% making it the slowest year since the drop of 1.4% in 1995. Average earnings for the year rose by 4.2% although unemployment remained low and many economists expressed surprise at this low level, some questioning the accuracy of the figures.
Consumer spending, a barometer of confidence, seems to have remained high. Although figures for December are not yet available the November figures show a solid 4.7% annual rise and the indications are that Christmas spending was also high. Data from the British Retail Consortium, however, showed that prices were generally lower than at any Christmas period in the last four years, indicating that consumers are prepared to part with their money only when they feel they are getting a bargain. Car sales boomed in the last quarter of the year, making it the third highest year on record for new registrations. Tescoís online business reported a quadrupling of December sales, with the weekly turnover now running above five million pounds.
Finally, the first new company floatation for 2001 will be a technology company, showing that all is not dead for this suffering sector. Rugby-based software group Intercede who develop and supply security management products to clients including Abbey National, Lloyds TSB, Barclays, Kingfisher and the NHS will float next week. I wish them luck.
6th January 2001
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