1997: The year the markets cheered a Labour victory

This year was a roller-coaster for investors, businesses and their leaders. The stock market surged to a new high and then fell back as the Asian crisis started to bite. A spate of takeovers and demergers saw some of the UK's best known corporate names disappear while some of the leading personalities in the City bowed out of the limelight. Chris Godsmark, Nigel Cope, John Willcock and Andrew Yates review an eventful year.

JANUARY:

The new year got off to a flying start as pounds 1m-a-year "superwoman" Nicola Horlick was publicly despatched from her job as head of Deutsche Morgan Grenfell's pounds 18bn pensions fund business. She flew to Frankfurt to remonstrate unsuccessfully with the Bank's German owners with a press pack in tow.

British Airways' attempts to forge an alliance with American Airlines were grounded, as the European Commission and US rivals piled on the pressure.

For thousands of building society investors, 1998 promised to be a year of windfall payouts. Halifax revealed it would give 8 million members 200 free shares when it floated on the stock market in June.

Pearson named Marjorie Scardino as new chief executive of the media empire and Financial Times publisher - the first woman appointed to the helm of a FTSE 100 company. On 2 January, the FTSE 100 index opened at 4079.9, an 11.6 per cent rise from the previous year, while the pound was worth 2.63 German marks.

FEBRUARY:

Ms Scardino's honeymoon ended abruptly as Pearson broke the news of "accounting errors" at its US Penguin Books business, costing it pounds 100m. The irregularities were found to be the work of just one employee.

Shares soared in a stock market tiddler, Lanica Trust, as rumours circulated that its leading light, a 31-year-old entrepreneur called Andrew Regan, was planning an audacious bid for the Co-Op. Yorkshire Electricity became the last regional power company to be bought in the wave of US acquisitions. The buyers, AEP of Ohio and PS Colorado, paid pounds 1.5bn. February also saw a landmark demerger, as British Gas split itself into two companies.

The disagreement over interest rate policy intensified between Eddie George, Governor of the Bank of England and the Chancellor, Kenneth Clarke. With one eye on the election Mr Clarke blocked a rate rise, though the pound continued to soar.

MARCH:

NatWest's investment banking business was plunged into crisis as the bank revealed a pounds 77m "hole" on interest rate options contracts. Senior managers came under attack, which Martin Owen, chief executive of NatWest Markets, tried to deflect by forgoing pounds 200,000 of his pounds 500,000 bonus.

Liam Strong's hold on power weakened at Sears, the struggling Selfridges and shoe shop group. Negotiations to sell the Freemans catalogue business to N Brown of Manchester collapsed, forcing Sears to restart talks with Littlewoods.

As share prices continued their prolonged bull-run, a salutary warning came from Warren Buffett, the US investment guru. He joined Alan Greenspan, governor of the Federal Reserve, with a warning that shares were overvalued. The markets took months to respond.

APRIL

The month was dominated by the year's biggest City story - Andrew Regan's pounds 1.2bn break-up plans for the Co-op. It burst into action as the Co-op suspended and later sacked two senior executives for supplying confidential information to Regan. Allan Green, the Co-op's retail chief, was photographed handing over documents to Regan in a Beaconsfield hotel car park.

As Regan's was poised to mount his bid he was stopped in his tracks by a High Court order banning him from using any of the confidential documents. The affair ended in a blizzard of legal action. Hambros, the investment bank backing Regan, was forced into a humiliating apology.

Elsewhere, Sears announced a break-up as Liam Strong quit as chief executive. Overseas, the entire board of Nomura, the Japanese securities house, resigned over a racketeering scandal.

MAY

Shares soared on Labour's election victory and Gordon Brown, the new Chancellor of the Exchequer, moved fast. He granted independence to the Bank of England on the Monday after the election victory. Base rates were increased to 6.25 per cent at the same time. Just weeks later he announced radical plans to fold existing City regulators into a new "super-regulator".

Inflation fears loomed as the Halifax windfall drew near, unemployment fell to a seven-year low and London house prices passed their 1989 peak. Guinness and GrandMet announced plans to merge to create the world's largest spirits company.

JUNE

The Halifax flotation netted members shares worth an average of pounds 1,400 as the building society-turned-bank made its stock market debut. But the joy was short-lived as the newly formed Monetary Policy Committee (MPC) raised base rates another 0.25 per cent to 6.5 per cent. It was the first time since 1945 that rates have been changed without government interference.

Lord MacLaurin bowed out as chairman of Tesco after 38 years with the company. Other departures - some planned, some not - included Martin Owen, who was ousted as chief executive of NatWest Markets, casting doubts on the investment bank's future.Bill Cockburn quit as chief executive of WH Smith after just 18 months in the job.

Energy Group, owner Eastern Electricity, was snapped up by PacifiCorp of the US for pounds 3.7bn. The Government blocked the Bass/Carlsberg-Tetley takeover and shares soared in Hong Kong as the curtain came down on British rule.

JULY

The month kicked off with Gordon Brown's first Budget. The centrepiece was the pounds 5bn welfare to work programme, funded by the windfall tax on privatised utilities. But the abolition of tax credits on dividends was a blow to pension funds and left millions facing higher pension contributions.

Woolwich became the latest building society to turn into a bank, bringing an average windfall of almost pounds 2,200 for 2.5 million members. But Nationwide successfully repelled calls from Michael Harden, a freelance butler, to demutualise. Interest rates edged up again to 6.75 per cent.

On the corporate front, Burton, the menswear group, announced plans to demerge Debenhams. Bernard Arnault launched another raid on GrandMet's shares in his bid to block the pounds 23bn merger with Guinness.

The first signs of the growing economic crisis in the Far East emerged as Thailand was forced to turn to the International Monetary Fund for an financial rescue package.

AUGUST

Margaret Beckett, President of the Board of Trade, highlighted the Government's tough new competition policy, by referring Pacificorp's pounds 3.7bn bid for Energy Group to the MMC.

Sam Chisholm, the chief executive of BSkyB, bowed out on a low note as the shares fell on disappointing results. Troubled times too for Ann Iverson, Laura Ashley's embattled chief executive, who announced the closure of two factories and predicted a pounds 4.5m loss for the half year.

BT renegotiated the terms of its merger MCI, cutting the value of its original offer by pounds 3.5bn in the wake of the US phone group's profits warning.

The FTSE 100 index broke through the 5,000 barrier for the first time but August ended with the stock markets tumbling around the world as the growing economic crisis in Asia raised the spectre of a crash. The MPC decided to raise interest rates another quarter point to 7 per cent.

SEPTEMBER

Richard Clothier, chief executive of Dalgety, the Winalot and Felix pet food business, left his job, paying the price for the group's dismal performance.

The IMF's annual economic forecast said the world economy was in its best shape for a decade and praised Britain.

Coopers & Lybrand and Price Waterhouse agreed to merge to create a global accountancy business with annual revenues of pounds 8bn. The consolidation on Wall Street also continued with Salomons agreeing to a $9bn merger with Travelers Group, owner of Smith Barney.

OCTOBER

Martin Taylor decided investment banking was too risky for Barclays, and put BZW up for sale. BZW's chief executive, Bill Harrison, resigned and the rumour mill on Barclays bidding for NatWest started up in earnest. Pressure also grew on NatWest's chairman, Lord Alexander, to follow suit and ditch NatWest Markets.

BT still appeared to be on track with its bid for American telecoms giant MCI. The drive for cross-border mergers, driven by the advent of European monetary union (EMU), gathered pace. BAT announced its intention to split off its financial services side and merge it with Zurich Insurance, in a deal worth pounds 22bn.

The tenth anniversary of the Great Crash of 19 October 1987 came and went without a murmur on the markets. But the Asian currency crisis, which started with the devaluation of the Thai currency, gathered pace. In Hong Kong, the Hang Seng index fell 18 per cent in a week and then recovered, spurring talk of a "white knuckle ride", and Gordon Brown watched share prices dive as he switched on the Stock Exchange's new order-driven dealing system, Sets.

NOVEMBER

BT's bid for MCI was blown away by WorldCom's knock-out offer. BT sold its stake in MCI for a healthy profit. Interest rates rose to to 7.25 per cent.

Credit Suisse bought BZW's corporate finance and equities businesses at a knock-down price, prompting criticism of Martin Taylor and Bupa launched its hostile bid of pounds 241m for Care First. Mercedes-Benz was forced to withdraw its new "Baby Benz" after the car overturned in a test designed to simulate an elk crossing the road.

Merrill Lynch snapped up Mercury Asset Management for pounds 3bn. Ann Iverson resigned from Laura Ashley after a series of profit warnings.

Gordon Brown's Green Budget provided few thrills. The replacement of PEPs with Individual Savings Accounts (ISA) drew criticism for its ceiling of pounds 50,000.

The financial crisis in Japan deepened with the pounds 14.9bn collapse of Yamaichi Securities. South Korea accepted a $60bn rescue package from the IMF.

DECEMBER

Two of Switzerland's "Big Three" banks, UBS and SBC, agreed to merge, prompting forecasts of a "jobs bloodbath" for their investment banking arms in London. NatWest sold its investment banking side to Deutsche Morgan Grenfell and Bankers Trust. NatWest continued to hold out against a merger with Barclays. Ginger-haired DJ Chris Evans shocked the nation by raising pounds 85m to buy Virgin Radio.

The usual Christmas shopping boom failed to materialise, and retailers started preparing for a sale of pounds 3bn of unsold goods in the new year. The FTSE 100 ended its penultimate full day of trading yesterday at 5,132.3, a 25.8 per cent rise, while the pound looked set to end the year at DM2.97, up 13 per cent.