Economic Review – December 2016

In response to the latest analysis highlighting stronger economic growth and rising employment, the US Federal Reserve decided to hike its interest rates in December by 0.25 percentage points to a range of 0.50% and 0.75% for only the second time in a decade. Here in the UK the Bank of England’s Monetary Policy Committee (MPC) decided to once again hold the UK’s main interest rate at its historically low level of 0.25%.

Figures from the Office for National Statistics (ONS) indicate that UK government borrowing figures fell in November to £12.6 billion, down £0.6 billion from the previous November. The fall in borrowing was less than many economists had predicted, a recent poll predicted a reduction in the monthly borrowing figure to £11.6 billion.

A happy New Year is obviously eagerly anticipated by global equity investors, as several major indices reached record all-time highs in December.
The FTSE100 continued to improve on its post-Brexit-vote boost, reaching several all-time highs in the month and even finished with a festive flourish, to close the year out at 7,142.83, for a daily gain of 22.57 points, a monthly rise of 5.29% and an impressive 14.4% movement over the year – the highest annual rise of any European index. To put this overall recovery in perspective, the index had an intraday low at one point in February, at the height of the New Year sell off, of 5,499.51 – 1,643 points lower.

In a repeat of last month’s encouraging figures from the Purchasing Managers Index, retail sales, as recorded by the Confederation of British Industry’s Distributive Trades Survey, covering the last week of November and the first weeks of December, which included the now obligatory ‘Black Friday’ event on November 25th, showed robust growth in retail sales figures in the UK. Wholesalers reported their strongest growth in sales volume for one and a half years to December.

The August-October unemployment figures, recently released by the ONS, show that the number of people in work was little changed from the previous quarter (May to July 2016). The number of unemployed people decreased and those economically inactive increased.