UK equities struggle in January

After returning more than 22% during 2009, the FTSE 100 index dropped by more than 4% during January as UK share prices, in common with other major equity markets, declined amid concerns over China’s measures to rein in economic growth.

Further worries about the strength of the global economic recovery and fears over Greece’s ability to cope with its budget deficit.

The price of crude oil dropped towards the end of the month amid increasing levels of investor uncertainty. Nevertheless, BP expects the world’s appetite for energy to grow by approximately 40% over the next 20 years, fuelled by demand from developing nations, particularly China. BP ousted Royal Dutch Shell during January from its position as Europe’s biggest oil company by market value through a combination of cost-cutting and output growth.

Luxury retailer Burberry reported better-than-expected sales growth for the third quarter, and the company expects full-year earnings to be “towards the top end” of analysts’ expectations. Pharmaceutical giant AstraZeneca announced disappointing fourth-quarter earnings and the company intends to buy back up to $1bn (£639m) of shares during 2010. UK confectioner Cadbury finally agreed to an improved takeover offer from US food manufacturer Kraft Foods. Meanwhile, the UK banking sector received a knock during the month following a warning from Standard & Poor’s Ratings Services that it does not view the UK as “among the most stable and low-risk banking systems globally”.

The UK economy finally emerged during the fourth quarter of 2009 from its longest recession on record, registering modest growth of 0.1% from the third quarter. However, this expansion was lower than expected and its fragility could provide a headache for the Bank of England’s Monetary Policy Committee and the government. Britain was the last of the G7 nations to come out of recession and the bank’s Governor Mervyn King has warned the UK will have to cope with “a long period of healing. The UK economy contracted by 4.8% during 2009 and expanded by only 0.5% during 2008.

The International Monetary Fund increased its forecast for economic expansion in the UK during 2010 and 2011, predicting growth of 1.3% and 2.7% respectively. In comparison, the organisation expects the US economy to grow by 2.7% in 2010 and 2.4% in 2011, and the eurozone economy to expand by 1% during 2010 and 1.5% during 2011. Overall, it increased its forecast for global growth to 3.9% during 2010

UK equities struggle in January