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Investment View: Moving the goalposts

If ever you needed confirmation that the old adage lies, damn lies and statistics still holds true, then last week’s moving of the goalposts by Chancellor Gordon Brown was proof.

In order to avoid breaching the golden rule of balancing borrowing with surpluses, the economic cycle has been lengthened from seven to nine years, taking in the first two years of this Labour administration.

The effect will be to create a more ben-ign situation. But the position at the start of New Labour’s first term was down to the legacy left by previous Chancellor Kenneth Clark. Without the revenue surpluses that were inherited, our prudent, iron Chan-cellor would either have to raise taxes or admit to breaking his self-imposed rule.

The reality is that tax increases could be on the way. We have seen significant sums of money raised for the Exchequer through the abolition of ACT and the increase in NI contributions. Yet the Chancellor has insufficient to fund an ambitious public expenditure programme without raising borrowing. And it looks set to get worse.

Last year’s 3.2 per cent GDP growth stands little chance of being matched in 2005. Pessimists suggest it could halve by the end of the year although the consensus view is a less scary 2 per cent. So, if the outlook is as tricky as the Chancellor’s obfuscation suggests, why is the market so robust? Part of the answer lies in the way in which the nature of the UK’s premier bench- mark changes shape. Indices are essentially dynamic and the rise of individual sectors – or companies for that matter – can exert a considerable infl-uence on performance.

The company that has been moving the market recently is Shell. Last week saw the culmination of the merger with Royal Dutch, bringing the combined value in the UK to a massive 130bn. And, of course, oil shares have been buoyant on the back of rising prices. Indeed, Shell, BP and BG – the old British Gas – now account for over a fifth of the value of the FTSE 100 index. Factor the risk that represents into your investment planning when you next consider buying a tracker stock.

Of course, we have been here before. In the TMT boom of the late 1990s, Vodafone grew in value to become worth more than 13 per cent of the index following its acquisition of Mannesman. Telecomm-unications became a dominant sector then. The fall from grace of these high-flying stocks was very influential in the bear mar-ket featuring more in the headline index than among mid and smaller capitalisa-tion stocks. Telecommunications remains important but not the influence it once was.


Broker refused licence by OFT

A Tamworth mortgage and general insurance broker has been refused a consumer credit licence by the Office of Fair Trading. Tamworth-based Peter Collinson had been struck off the Roll of Solicitors by the Solicitors Disciplinary Tribunal for misappropriation of clients’ funds and other related offences according to the OFT’s adjudicator.

NU and Scottish Widows slash MVRs

With-profits policyholders received a fillip this week with both Norwich Union and Scottish Widows cutting MVRs on its funds. Following a second year of double digit returns from equities, Widows has slashed MVRs across its unitised with-profits pension and assurance policies from 9 per cent to an average of 3 per cent. NU has cut […]

2015: a divergence in economic policy?

As the US continues to confound growth expectations and the eurozone’s ‘will they, won’t they’ saga has finally concluded, what are the implications for global markets? James Dowey, Neptune’s chief economist, puts forward his outlook for 2015 and the key considerations for investors.


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