Bad year for UK companies

Paresh Davdra is the Dealing Director of RationalFX, Currency Specialists. Wednesday 07th January 2015 04:46 EST

During the 12 months to mid-December this year, 87 profit warnings were issued by FTSE 350 companies – 12 more than were issued in 2013. The last time this number was exceeded was in 2008, when 90 warnings were issued. In terms of the number of companies issuing warnings, this amounted to approximately one in five – a higher proportion than in any year since 2008.

Of all the major companies that have issued warnings this year, Tesco has suffered the most. In December, it issued its fourth warning in six months as its business continued to be affected by trading inaccuracies. But for the majority of companies issuing warnings, the cause was poor performance in the energy and mining.

The Bank of England’s financial policy committee said that it’s worried that the fall in crude prices could fuel geopolitical risks. They also point out it could also drive the Eurozone closer to deflation. This is relevant in many economies in Eurozone where core inflation is already weak. Low headline readings would further depress expectations of future inflation. This, in turn, could result in slower rates of growth of nominal incomes, increasing the burden of existing debts.

Household spending drove Britain's economic recovery once again in the third quarter despite a slight fall in disposable incomes and weaker business investment growth than previously reported, official data showed.

GDP grew by 0.7 percent in the July-September period from the second quarter, in line with a previous estimate and slowing only a bit from a revised 0.8 percent between April and June. Household spending rose 0.9 percent from the April-June period, and was the main driver of growth.

Consumer confidence in the Eurozone came in slightly better than expected, although still in negative territory. According to an initial estimate from the European Commission, consumer confidence in the Eurozone rose to -10.9 from a revised -11.5 in November. Analysts had been expecting a figure of -11.

The dollar matched a two-year high versus the euro amid speculation the Federal Reserve will increase interest rates as early as April while other major central banks maintain monetary stimulus.

During Fridays trading gauge of the U.S. currency was about 0.2 percent from the highest level in more than five years before reports on Tuesday that analysts said will show America’s economic growth quickened and orders for durable goods rose for the month of December.

The US housing market recovery is starting to look a little rocky. After two consecutive months of increases, sales of existing homes fell to a six month low in November. The National Association of Realtors said they dropped 6.1% to an annual rate of 4.93m units. The forecast was a figure of 5.2m. October’s sales rise was revised slightly down from 5.26m units to 5.25m.

Orders for U.S. durable goods unexpectedly declined in November as corporate investment stagnated and demand weakened for military equipment. Bookings for goods meant to last at least three years decreased 0.7 percent, the third decline in four months, a Commerce Department report showed in Washington.

Business demand for computers, metals and electrical equipment declined or was little changed last month as the global economy cools. Orders for motor vehicles increased, underscoring a pick-up in household spending that helped spur the economy in the third quarter.

The U.S. economy was boosted in the third quarter as consumer and business spending fuelled the biggest expansion in more than a decade. Gross domestic product grew at a 5 percent annual rate from July through September, the biggest advance since the third quarter of 2003 and up from a previously estimated 3.9 percent, revised figures showed on Thursday. The median forecast of economists surveyed projected a 4.3 percent increase in GDP.

Consumer spending is poised to grow in 2015 as stronger employment and lower gasoline prices boost household buying power, one reason why the Federal Reserve will probably raise interest rates next year.

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