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United Kingdom

December 2008

  • Equities finish lower but end the month strongly.
  • The chancellor announces a significant increase in government borrowing.
  • Sterling falls to a six-year low against the dollar.

UK investors remained in a fragile mood during November, with the FTSE All-Share index finishing the period 1.7% lower despite another frenzied end-of-month rally. As markets around the world responded favourably to both the US government’s bail-out of Citigroup and the announcement of additional measures to help US households and small businesses, the All-Share climbed a record 12.9% during the final week. Winners over the month, though few, were headed by the telecoms sector, with BT and Vodafone both announcing significant cost-cutting initiatives. Despite continued falls in the oil price, the oil & gas sector also finished ahead. In contrast, mining stocks struggled through another difficult month on concerns over the global economic outlook. Rio Tinto fell particularly sharply after BHP Billiton abandoned its pursuit of the company.

The chancellor of the exchequer’s keenly awaited pre-budget report indicated significant help for the economy over the next 13 months, including a reduction in VAT from 17.5% to 15%. Government borrowing, though, is set to rise dramatically, justified by a need “to provide support for the economy, households and businesses.” Earlier in the month, the Bank of England shocked financial markets by lowering the base rate by one-and-a-half percentage points to 3%, the lowest level since 1955. It also delivered a glum outlook for the economy, which helped to send sterling to a six-year low against the dollar. Housing and labour markets showed further signs of weakening, while inflation recorded a sharp fall, underlining why the government’s priorities have shifted from inflation to fighting recession within a matter of months.

In the high street, October retail sales were above expectations but with both MFI and Woolworths falling into administration, the mood wasn’t terribly upbeat. Elsewhere, investors showed little interest in Royal Bank of Scotland’s capital-raising efforts and it was left to the government to step in and claim a 58% stake.

 

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Scottish Widows Investment Partnership Limited (SWIP) is registered in England and Wales, Company No. 794936. Registered Office is at 10 Fleet Place, London EC4M 7RH. Tel: 0131 655 8500.
SWIP is authorised and regulated by the Financial Services Authority and is entered on their register under number 193707 (www.fsa.gov.uk).