This is the last issue of Investment and Business News this year. And we thought we would end the year with a look back at how things changed in 2007 with the economy.
In January, it was all very different. The UK was moving forward in a low gear, and was projected to grow at around 2.1 percent. Interest rate watchers were talking about the inevitability of rates falling from the then level of 4.5 percent, and many feared a slowing China would lead to an end to the years of rapid global economic growth.
In the third issue of the year, talk was that the Eurozone was set to outperform the UK, while the highly respected ITEM Club, from Ernst and Young, predicted an inflation rate of around 2 percent in 2006, and UK growth of 2.3 percent.
By March there was talk that inflation was edging up- but only by a tad. Bank Of England Monetary Policy member, Kate Barker, said: “The most likely outcome is for a slightly slower pace of UK growth in 2006 than the MPC’s February central projection. This all adds up to a finely-balanced judgment for interest rates.’
Then in April, as spring arrived, we wrote “ Many have been predicting a fall in the UK rate of interest at some point this year, although with every month, the predictions for this fall seem to go back a month”.
They proved prophetic words, for just a few weeks later, from his elevated position, the hawk looked down upon the poor unsuspecting doves, and prepared to swoop, ruffling a lot more than just feathers. The Bank of England governor, Mervyn King, said there was a 50-50 chance inflation would hit 3 percent this year, and said: “We are ready to take whatever action” is necessary to fight inflation.
From that point onwards it seemed to change. Inflation crept upwards, hitting 2.7 percent in November, the highest level ever recorded for the CPI index, while the Retail Price Index soared to 3.9 percent. Given that unions often base their wage demands on RPI data, and January is the month when many of the deals are agreed- many fear the recent rise in the RPI index, passing an eight year high, could spell something of a spiral in the months ahead.
As for the rate of interest, the doves were left clambering for shelter in their cote, as, instead of falling as most expected in January, it rose, not once, but twice, finishing the year at 5 percent. Many believe the New Year will see another rise, and perhaps a further hike will follow beyond that too.
But, good news#33; It wasn’t only inflation and growth that scored higher than expected. In fact, despite the predictions seen earlier in the year, the UK was enjoying a 2.7 percent growth rate by November, and rather than seeing our cousins across the channel leave us behind, as many expected, the UK pipped the Eurozone, which grew by 2.6 percent.
As for the US, it saw annualised growth drop o 2.2 percent in the third quarter.
So what about 2007? The crystal balls says – well you will have to wait until the New Year, when we will read the tea leaves and exercise all our powers of prescience to make our prediction.
Our first issue of 2007 will be winging its way to you on January 2. Then we will take another look back at 2006, recalling the winners and losers of the year; tell you what the experts are predicting for the markets; and look back at what was a surprising year for house prices.
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