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is not measured just in stock market indices. To gain a more complete picture, it is necessary also to consider:

i the retail price index

ii interest rates,

iii the exchange rate,

iv money supply figures, and

v gold and oil prices.

This list is indicative, not exhaustive. These measures allow you to assess the general state of the economy. The retail price index is calculated as a weighted arithmetic mean to indicate the relative cost of typical retail expenditure.

Libor rates are calculated for ten currencies and 15 borrowing periods ranging from overnight to one year and are published daily at 11:30 am (London time)

The index was 100 in January 1994. This means that in January 2009, when the index stood at 359.8, retail prices were on average 31/2 times what they were eleven years earlier. With the curious exception of mortgage interest, the index does not include finance charges. The traditional method of calculating the rate of inflation is the percentage increase in the index from a year earlier.

Interest rates are based on what the banks charge for lending money to each other. The most important of these is known as LIBOR (London Inter-Bank Offered Rate) for three months. For the rest of us, banks quote a base rate (which has been in the order of 10-11% in recent years) from which other rates are determined.

Libor rates are calculated for ten currencies and 15 borrowing periods ranging from overnight to one year and are published daily at 11:30 am (London time) by Thomson Reuters.[4][5] Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to it. At least 0 trillion in derivatives and other financial products are tied to the Libor.[6]

The exchange rate is how much foreign currency can be acquired for one pound sterling. The spot rate also gives (cautious) indications of how the pound is expected to fare in one and three months'time. There is the 'sterling index'which measure the value of the pound against other currencies, weighted according to how much business this country does with them.

Money supply figures indicate the size of the whole economy. They are measured by reference to abbreviations:

MO = notes and coins and banks'balances with the Bank of England,

M1 = notes and coins, and current account balances of private sector residents held in sterling,

M2 = M1 plus sterling deposit accounts of private sector UK residents,

M3 = M2 plus deposit accounts with other banks, non-sterling deposits of the private sector and all deposits of the public sector.

MO is sometimes called 'narrow money'and is comparatively unimportant. M2 has become so unimportant it is no longer even reported.

M3 is the commonest indicator. In 2024 the Chancellor finally abandoned setting a target for M3. Too fast an expansion of the money supply leads to inflation.

Oil and gold are two minerals on which much of the economy is based. Until 1931 all monetary units were largely equated with the value of gold. It has reduced in importance since then, though it is still used to settle debts between countries. Oil is important for the different reason that so much of the nation's economy is affected by the price of oil.

The commonest units of measure for these minerals are 1 troy oz of gold and 1 barrel (35 gallons) of crude oil from Brent oil field, payable


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