UK equity markets got off to a flying start at the beginning of the year. Having avoided a triple-dip recession, the country is finally showing signs of recovery. Both the FTSE 100 and All-Share indices have reached levels not seen since the dotcom boom almost 13 years ago when the top 100 UK companies saw an all-time peak of 6,930. At a close of 6,875, the FTSE 100 reached a 52-week high on 22 May this year.
However, despite this growth, the UK is still lagging behind other global markets, particularly the US and Germany, which have both seen record levels in the S&P 500 and Dax indices.
The UK has a very global market. In fact, 70 per cent of the earnings from FTSE 100 firms come from abroad. This has left some analysts sceptical about the positive run, particularly if some global central banks stop their quantitative easing (QE) programmes. The US has been rumoured to be tapering its QE, with analysts predicting it could happen sooner rather than later, possibly even starting this summer.
Furthermore, consumer price index (CPI) inflation saw a smaller than expected increase during April. Data from the Office for National Statistics (ONS) show CPI inflation rose by 2.4 per cent during the month, down from 2.8 per cent in March.
In his final inflation report before Mark Carney replaces him, Bank of England governor Sir Mervyn King said its projections are for growth to be a “little stronger” and that inflation is a little weaker than three months ago. “That’s the first time I’ve been able to say that since before the financial crisis,” he added. The Bank’s target remains at 2 per cent.
While the UK’s inflation fell for the first time in seven months, Azad Zangana, Schroders’ European economist, warned it should be temporary. “The fall in March’s annual inflation rate will come as a relief to households, who on average are only seeing 0.4 per cent increases in pay compared to a year ago. Looking ahead, next month’s inflation release will also include further falls in energy prices. These are unlikely to continue, however, which is likely to push inflation higher again in following months.”
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