Pound goes into 2014 at highest level for nearly three years as investors bet on recovery strengthening

  • 2013 was the best year for the London stock market since 2009
  • Pension pots and investments boosted for millions of workers and savers
  • Sterling is now at its highest level against the dollar since April 2011
  • Analysts say we have experienced stronger than expected growth
  • But many believe the surge in the pound suggests rate hike is coming

By Hugo Duncan

|


The pound hit its highest level for nearly three years yesterday, and shares ended 2013 on the front foot in a vote of confidence for the British economy.

The FTSE 100 index of blue-chip companies rose 17.82 points to 6749.09, taking total gains for the year to £200billion – an increase of around 14 per cent.

The pound also performed well, going up around half a per cent to $1.6565 and €1.2022.

Boost: The pound goes into 2014 at its highest level in almost three years

Boost: The pound goes into 2014 at its highest level in almost three years

Rollercoaster: The Footsie edged up another 18 points from 6,731 today to end the year at 6,749.

Rollercoaster: The Footsie edged up another 18 points from 6,731 today to end the year at 6,749.

Sterling is now at its highest level against the dollar since April 2011 having clocked up a second year of gains – although this could make Britain's exports less competitive.

Last year also saw the best London stock market results since 2009, boosting the value of pension pots and investments for millions of workers and savers.

 

The stock market and the pound benefited from stronger than expected growth throughout 2013, as the economy finally emerged from the doldrums.

 

The UK economy looks set to have grown by around 1.5 per cent in 2013 and could grow by as much as 3 per cent in 2014, according to analysts. That would be the best performance since 2007 when output rose by 3.4 per cent before crashing in the recession of 2008 and 2009.

It would also put Britain among the best-performing developed economies in the world, well ahead of European rivals Germany and France.

The brighter outlook – and the sharp fall in unemployment to 7.4 per cent, its lowest level since early 2009 – has fuelled speculation that an interest rate rise is on the way.

The Bank of England has pledged not to raise rates from the current all-time low of 0.5 per cent until unemployment falls to 7 per cent or lower. Governor Mark Carney has insisted that 7 per cent is a 'threshold' and not a 'trigger' for an automatic rate hike in a bid to dampen expectations.

But the surge in the pound – which benefits from higher interest rates – suggests many in the financial markets believe a rate hike is coming.

Soaring: The FTSE 250 is up by almost a third this year.

Soaring: The FTSE 250 is up by almost a third this year.

Sterling has jumped from below $1.49 in July when Mr Carney succeeded Lord King as Governor – a rise of more than 10 per cent.

Howard Archer, an economist at IHS Global Insight, said: 'After some extended gloom, 2013 was a year of mainly positive surprises for the UK economy.'

Mr Archer believes unemployment will hit 7 per cent during the second quarter of 2014 and could be down to 6.7 per cent by the end of the year. But he played down the prospects of a rate hike this year.

He said: 'Expectations are mounting that the Bank could start to raise interest rates in 2014. However, the Bank will want to give the economy as much chance as possible to establish broad-based growth and is more likely to hold off from raising interest rates until the first half of 2015.'

DEBENHAMS PROFIT TO FALL AFTER POOR CHRISTMAS

Debenhams issued a profit warning yesterday following a nightmare Christmas which forced it to launch early sales and deep discounts.

Britain's second-biggest department store said profits are expected to be down by 26 per cent in the first half of its financial year to around £85million.

The chain is slashing prices by 70 per cent in its January sale in a desperate attempt to shift leftover Christmas stock.

The news saw the retailer's share price fall more than 10 per cent in early trading yesterday, wiping £140million off its stock market value.

City analysts believe sales in many leading chains were below expectations over the crucial festive trading period.

As a result, shares in the likes of Marks & Spencer, Next, Primark, Tesco, Sainsbury's and Morrisons have all been marked down in recent days. Debenhams' bosses described festive trading as 'extremely difficult' and competitive, with a large number of early sales.

'We did not experience the anticipated final surge in sales in the last week of the period and as a result we expect the need for additional markdown to clear stock in January and February,' they said.

The five-year cost of living squeeze, bad weather and a shift to internet shopping have combined to pile pressure on retailers who rely on their bricks and mortar outlets. Major chains were forced to bring forward sales and bargain promotions ahead of Christmas during what one industry insider described as 'a bit of a bloodbath'.

The gloomy trading update comes just days after reports that Debenhams was under pressure to axe its finance chief, Simon Herrick, amid shareholder concern over his performance.

The comments below have not been moderated.

The £ goes into 2014 stronger and the people go into 2014 poorer, there's a message in that if personal bias will let you read it.

0
0
Click to rate

The Stock Exchange is a rigged casino. Anyone judging a 'recovery' on this needs their head examining.

0
1
Click to rate

Too late for me. My Oz visa is about to expire and I couldn't migrate as the pound has nosedived so badly. Am now not able to get a new one so I'm stuck here. Another Briton's dream dashed. Im so angry

0
2
Click to rate

The pound is still rubbish and you know it. in 2008 we had $1.95 to the £1. now $1.60 if you are lucky. All are major goods are priced in $ so inflation has hit us in the pockets. teh evil Treasury love to ruin the £ as they try ti inflate he debt away that Cameron is still racking up at dangerous levels. The interest rates are far too low for the inflation we are suffering but the BOE want to fuel a housing boom to get the Tories re-elected. Probably will not work as UKIP will split their vote and let Labour in.

1
2
Click to rate

hard to believe anything that sounds like propaganda from a conservative owned newspaper.

8
10
Click to rate

since the tories with libdim help stole the Goverment the Pound against the Euro went from 1.195 in june 2010 to 1.205 a rise of .001 what a big achievement in 3.5 years All this is TORY lies and propaganda put out by the Nazty party propaganda paper the Mial On Line

11
11
Click to rate

As soon as it hits over $2 AUD I'm leaving this country. The UK is self destructing!

8
28
Click to rate

Perilously high exchange rate!

15
12
Click to rate

Great news for immigrants too... unfortunately!

8
21
Click to rate

Maths isn't your strongest asset then! LOL

4
8
Click to rate

We MUST keep going. Economic recovery takes time. It is ESSENTIAL that the Brits do NOT let Miliband and Balls ruin all that has been achieved.

15
42
Click to rate

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.

By posting your comment you agree to our house rules.

Who is this week's top commenter? Find out now