UK Equity Growth - November Update

The UK equity market ended October in negative territory after a relatively healthy start. The end of the month saw UK share prices experience their worst week since the stockmarket rally began during March.

Amid escalating fears that share-price gains might have outstripped realistic expectations for corporate earnings growth.Nevertheless, investors took heart from some strong corporate profits announcements from individual companies. British Sky Broadcastin announced an increase in first-quarter earnings driven by growth in new subscribers and rising demand for high-definition programmes while Halfords, Britain's leading retailer of car parts and bicycles, announced it was "confident" first-half profits would increase following a sharp rise in demand for bicycles and camping equipment. However, the company remains cautious about prospects for the second half, fearing the effects of a higher VAT rate, a stronger US dollar and rising commodity prices.

Meanwhile hospitality company Whitbread announced higher-than-expected first-half profits that were boosted by sales growth in its Costa Coffee outlets. On the other hand, Royal Dutch Shell reported a 62% drop in third-quarter profit as the recession generated a decline in demand for fuel.

UK inflation rose by 1.1% year on year during September and consumer prices registered their slowest growth in five years as the recession continued to put pressure on prices. During the month, the Confederation of British Industry's (CBI's) Distributive Trades Survey reported UK retail sales growth had reached its highest level in almost two years. Overall, British high-street retailers expect stronger sales growth during November.


The CBI also reported encouraging evidence of improving sales in sectors connected with the housing market. However, retailer Tesco announced its slowest growth in first-half earnings for 11 years during October, as acquisition costs put a brake on profits. Elsewhere in the food-retailing sector, Sainsbury reported a slowdown in sales and warned that grocery prices could start to fall, hampering sales momentum. According to figures from research group Taylor Nelson Sofres, Tesco controls almost 31% of UK grocery sales, while Sainsbury enjoys market share of almost 16%.

According to a survey conducted by the CBI and Pricewaterhouse Coopers, a sense of optimism among British financial companies has appeared for the first time since the start of the credit crisis. Nevertheless, many companies within the sector remain concerned about a lack of demand, worries about rising bad loans and the potentially negative effects of new regulation within the financial services industry