12
ECONOMIC SUMMARY
A brave new world beckons…
but only after the big clear-up
By ElIssa BayEr,
dIrECTor oF prIvaTE
ClIEnTs, CharlEs
sTanlEy
It is difficult to believe
that in the space of a
few months financial markets
could alter so dramatically.
The pace of change
means thinking time is
very low on the agenda
and the speed of reactions
very high.
The past few weeks
have been difficult for
investment advisers and
investors, with the financial
picture changing dramatically.
Having been in the
City since 1972, the events
of 1973 to 1974 to me
were life-changing, with
other falls in the market
not quite as serious.
But the constant media
attention today has meant
that almost no member
of the public has been
able to get away from this
crisis and almost everyone
realises that, in some
way, it does affect their
life, even if they say they
have little or no money
and nothing to their knowledge
invested in the world
stock market.
The real danger is the
fear that investors have
experienced in having cash
on deposit. Over the years,
clients have been told
that having money locked
away in a bank or building
society is not the best
use of their funds if they
want long-term growth or
a better rate of interest.
But at no time was
Although almost
everyone is being
affected by the
turmoil in the financial
markets, there may
be a silver lining on
the horizon
counterpoint
there any doubt that their
money was anything less
than 100% safe with one
of the high street banks or
building societies.
Having clients call up
to discuss moving money
out of every leading bank
in the country has been
a very salutary lesson and
it has been difficult to say
that they ought not to make
this move.
This catalogue of woes
is far from over, although
it is a positive that the
central banks and governments
have acted together,
a partnership that hopefully
might last.
Less volatility over the
coming months will be an
advantage for us all, but
we are going to have to
deal with all the problems
left behind.
I think a new investment
scenario will open
up which offers interesting
possibilities, but before this
happens quite a lot needs
to be achieved first.
PORTFOLIO ADVISER [www.portfolio-adviser.com] DEcEmbER 2008
United Kingdom
n The Bank of England announced a surprise 1.5% cut
in interest rates, taking base rates to 3%, their lowest
since 1955. The Chancellor put mortgage lenders
under pressure to pass on the cut to borrowers.
n Unemployment grew to 5.8% in Q3 (to 1.8 million)
compared with 5.4% in Q2. The Confederation of British
Industry (CBI) warned it could peak close to 2.9 million
by 2010. It also warned that the UK economy will shrink
by 0.7% next year.
n For the first time in 16 years the economy contracted in
the third quarter – by 0.5% – following a flat Q2.
United States
n Following a 1.3% fall in September, retail sales
dipped by 2.8% in October, their biggest monthly
decline since 1992.
n Unemployment rose to 6.5% from 6.1% in october, the
highest since 1994 and with 240,000 jobs lost. The
number of jobs cut in september was revised upwards
to 284,000, more than double august’s revised figure.
n The economy shrunk by 0.3% during Q3. The national
association for Business Economists predicts this rate
of fall will increase to 2.6% in Q4. It also forecasts a
1.3% fall in Q1 next year, with growth for the year of
0.7% compared with 0.2% for 2008.
Japan
n The economy is in recession for the first time since
2001 after shrinking by 0.4% (annualised) in
Q3 2008. The world’s second largest economy shrunk
by 3.7% (annualised) in the .
n The Bank of Japan reduced interest rates for the first
time in seven years, to 0.3%.
n Exports, particularly to the Us and Europe, have been hit
hard by the global slowdown, with the yen gaining more
than 9% since the end of september.
n orders for new machinery fell by more than 10% in
Q3 compared with Q2, matching the record drop ten
years earlier.
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