United Kingdom

January 2012

UK equities finish in positive territory – but it was far from plain sailing.
The ECB’s decision to offer unlimited loans buoys global markets.
Third-quarter UK GDP unexpectedly revised upwards.

The FTSE 100 index ended a tumultuous year on a high note, returning 1.2% in local-currency terms. This figure masks just how volatile the month was, though, with an initial sell-off more than offset by a strong rally as the festive period approached.

Sentiment was initially dented by the usual culprits – the eurozone sovereign-debt crisis and weaker economic data. Leaders of the European Union’s 27 member countries met on 9 December to hammer out a deal to save the single currency. In the event, however, the agreement amounted to little more than promises of future fiscal discipline and heftier punishments for miscreants – hardly the “bazooka” for which markets had been hoping. The summit will probably be best remembered for Prime Minister David Cameron’s decision to exercise the UK’s veto, thereby leaving him the lone voice of dissent. While Mr Cameron sought concessions to protect the City, Nicolas Sarkozy, the French president, dismissed his demands as “a protocol to exonerate the UK from financial-services legislation”.

As the month progressed, risk appetite returned to the market. Morale was lifted after the European Central Bank provided €489 billion in three-year loans to more than 500 banks. Elsewhere, the Office for National Statistics revised up its estimate of third-quarter GDP growth – it now believes the UK economy grew by 0.6% between July and September. Positive data from the US also lifted sentiment. At the sector level, it was the more defensive areas of the market (including tobacco and pharmaceutical stocks) that caught the eye, while miners once again lagged.

The information contained in this document has been derived from sources which we consider to be reasonable and appropriate. It may also include our views and expectations, which cannot be taken as fact. Investment markets can change rapidly and the views expressed should not be taken as statements of fact, nor relied upon when making investment decisions.

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