UK Equities turn south

The FTSE 100 index fell by 2.2 % during April as investor sentiment was negatively affected by the imminent election amid widespread fears of a hung parliament.

These concerns were exacerbated by the news that ratings agency Standard & Poor’s had downgraded the credit ratings of Greece, Spain and Portugal, as investors became increasingly worried a hung parliament could hamper the UK’s chances of adequately addressing its budget deficit.

The oil sector moved back into the spotlight during the month following a report from the Automobile Association that the cost of petrol in the UK had reached a record high. Petrol prices have been driven, so to speak, upwards by rising oil prices, and this has been exacerbated by sterling’s weakness, and a rise in fuel duty.

Looking ahead, the International Monetary Fund expects oil prices to average $80 (£53.40) per barrel in 2010 and $83 per barrel in 2011. Later in the month, shares in BP fell amid fears a massive oil spill in the Gulf of Mexico could cost the company dearly. Elsewhere, the mining sector was hit by concerns that Australia might decide to introduce a tax on mining profits.

The eruption of the Eyjafjallajokull volcano in Iceland proved disruptive for travellers and costly for UK businesses. Airport operator BAA, which is owned by Spanish transport firm Ferrioval, said the disruption would cost the company between £5m and £6m per day.

For its part, British Airways said the effects of the eruption would cost the company between £15m and £20m per day. Meanwhile, tour operator TUI Travel, which owns Thomson and First Choice, estimated the disruption would cost the company between £5m and £6m per day.

According to the CBI Distributive Trades survey, retail sales have continued to pick up. Sales growth among food and footwear retailers has been strong; however, growth at clothing and furniture retailers has been slower. Trading at hardware and home-improvement retailers steadied after falling for the previous three months. M&S reported stronger-than-expected sales growth during its first quarter that were boosted by improving sales of clothing and food in its UK stores.

After proving more popular than bonds for the past six months, equities fell out of favour during March, according to the Investment Management Association. The UK All Companies sector was the least popular fund grouping during the month, experiencing net retail outflows of £689m.

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