Economic trends indicators showed that employment in financial services totaled 353,000 at the end of 2007, up 11,000 from 2006. IFSL estimates that there may be a loss of 10,000 financial jobs in 2008. The UK financial services trade surplus increased 29 per cent in 2007 to a record £33.2 billion. Financial services increased their share of UK GDP to 10.1 in 2007 from 9.4 per cent in the previous year.
London was the leading location for number of IPOs in 2007 with an 18 per cent global share. Trading in the UK and foreign listed companies on the LSE increased 13 per cent in 2007 to £7,704 billion. The London Stock Exchange had a leading 46 per cent share of foreign equity trading in 2007. The UK’s one-quarter share of net issues in the international bond market in 2007 was up from 15 per cent in 2006.
Daily foreign exchange trading in London increased from $753 billion in April 2004 to $1,472 billion in October 2007. London accounted for 34 per cent of global foreign exchange trading in April 2007.
The UK accounted for 35 per cent of European securitisation issues. Strong issuance in the first half meant that global issuance in 2007 was down only eight per cent to $3.8 trillion, but is expected to fall by a quarter in 2008.
The UK was the source of a quarter of European investment banking revenue in 2007. It had the leading share of international bank lending (21 per cent) and international bank borrowing (23 per cent) in September 2007. UK banking sector assets increased 11 per cent in 2007 to £6,964 billion.
Meanwhile, the current economic climate in the UK is increasingly being compared to the inflationary years of the 1970s and early 1980s. But a quick look at what actually happened back then suggests that the UK economy is now markedly different and that the latest inflation trends are actually rather favourable.
According to a study carried out by the Capital Economics Limited, a London based research firm, in 1974/75 and 1979/80 the oil price rose in excess of 200 per cent over a period of just under two years. And on both occasions, headline inflation rose very sharply, from single digits to over 20 per cent.
Back then the bulk of the rises in inflation were driven by sharp increases in core inflation. In other words, the large rises in energy and food prices were eclipsed by rapid rises in the prices of other products.
Of the 17 percentage point (ppt) rise in headline inflation – from 10 in October 1973 to 27 per cent in August 1975 – 10 ppts were due to the rise in core inflation and seven ppts due to higher energy, food, drink and tobacco prices. This trend was repeated after the 1979/80 oil price shock.
By contrast, core CPI inflation has recently been remarkably well behaved. While headline CPI inflation has risen from 2.4 11 months ago to 3.3 per cent now, core CPI inflation has fallen from two to 1.5 per cent. Core inflation has therefore kept headline CPI inflation lower than otherwise.
This could be because it takes some time for rises in energy and food prices to feed through into rises in the prices of other products. But the key point is that in the 1970s, core inflation started to rise at the same time as headline inflation. Indeed, 11 months after headline inflation started to rise in the mid-1970s, core inflation had risen from 9.2 to 15.8 per cent. And in the late 1970s, it had jumped from 9.5 to 16.6 per cent. It is very striking, then, that this time, 11 months after headline CPI inflation started to rise, core CPI inflation has not risen at all.
The private sector is keeping wages on a tight leash. In fact there is a tendency in the corporate sector here to send home big buck earners to balance budgets. The fact that wages growth has not yet responded to the rises in inflation seen over the last year or so is said to be encouraging given that in the 1970s wages growth began to pick up just a few months after inflation started to rise.
After the first oil price shock in the mid-1970s, it was only five months after inflation started to raise that wages growth began to pick up. And after the second oil price shock in 1978, the lag was even shorter at just three months.
On both occasions wages growth didn’t really start to take off until a little bit later. In both the mid-1970s and late 1970s, it was not until nine months after inflation started to raise that wages growth rose above the levels seen before the oil price shocks.
A year after inflation started to rise in the mid-1970s, wages growth had risen from 15 to 23 per cent. And in the late 1970s, it had risen from 14.5 to 16.6 per cent. Within two years, wages growth had accelerated to its respective peaks of 32.5 and 22.6 per cent.
So far, wages growth has been remarkably subdued this time round. It has been seven months since CPI inflation started to rise from 1.7 to its current rate of 3.3 per cent yet wages growth has increased only modestly, from 3.5 in May of last year to 3.8 per cent in April. And perhaps more encouraging is that in the 29 months since RPI inflation – to which more pay deals are linked – has risen from 2.2 to 4.3 per cent, wages growth peaked at just 4.5 per cent over a year ago and has fallen back since.
The balance of evidence therefore suggested that things are different now than they were in the 1970s. And in order to reduce its dependency by at least seven per cent on oil Britain, meanwhile, plans to fit one in four British homes with solar heating equipment and erect 3,500 wind turbines across Britain within the next 12 years.
According to a recently announced but long-awaited renewable energy strategy the UK proposes to persuade people to improve the energy efficiency of their homes when they renovate them; effect a 30-fold increase in offshore wind power generation;· arrange new loans, grants and incentives for businesses and households;· plant trees and other crops on an area the size of Essex to produce biomass energy and ; persuade people to replace inefficient appliances such as oil-fired boilers.
Seen as the most ambitious change in the energy policy in 50 years its aim is to generate 30-35 per cent electricity in the UK from renewable sources.