Category Investments

Last week

25 July 2004 Angelo Coppola

(27.7.04) Despite rallying midweek as it took heart from Fed chairman Alan Greenspan's assertions of a sustainable US economic expansion, the London market hit an eight month low last week amid concerns of a domestic economic slowdown, weaker earnings and

Quentin Smith from OMAM UK reports that the economic growth accelerated in the second quarter as four interest rate rises since November failed to damp consumer spending and manufacturing recovered from a decline, strengthening the case for higher borrowing costs. 

GDP rose 0.9% in the quarter, up from 0.7% in the previous quarter, giving an annual growth rate of 3.7%, the fastest since the third quarter of 2000. 

Annual house price inflation of around 20% has helped sustain consumer spending, while service sector expansion of 0.9% also added to overall growth. 

Industrial production for the quarter also increased 0.9%, after a fall of 0.5% in the first three months of the year.

Mortgage lending accelerated in June at a record pace after slowing in May, according to data from the British Bankers' Association, suggesting that signs of a slump in the housing market may not be sustained. 

Lending rose by a record £6.45bn last month, following an increase of £5.09bn in May, according to the BBA, while the Council of Mortgage Lenders reported gross mortgage lending rising 15% to £27.8bn.

Over the week the All-Share lost 0.5%, with the best performance coming from the FTSE 100, which lost 0.3%, while midcaps and smallcaps lost 1.4% and 1.3% respectively.  

There were few sector gainers over the week, with the best performance coming from the defensive areas of pharmaceuticals and utilities, while technology was the weakest area.

Mortgage bank Northern Rock (+3.5% to 711p) reported a 7.6% rise in first half profit as rising property prices led to an increase in lending, although the overall profitability of its loans decreased. 

The company boosted lending by 16% in the first quarter to increase earnings as higher interest rates make loans less profitable. 

The bank, which lends more than it gathers through customer deposits, is paying more for the money it borrows in the money market after the Bank of England raised its main rate four times since November.

Egg (-0.7% to 150p), the UK's largest internet bank, earned its first profit in more than two years in the second quarter after it cut spending at its unprofitable French unit. 

The company posted net income of £3m in the quarter, compared with a loss of £5.9m a year earlier. 

Egg will spend €170m in the third quarter on closing the unprofitable French unit to enable majority shareholder Prudential to sell its 79% stake in the company it founded in 1998.

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