Perspective News

Share prices rose in the UK during January as a whole, although investors continued to experience a certain level of volatility. Speculation over the outlook for the eurozone continued to dominate and stocks received a boost from hopes the eurozone might gain control over its sovereign debt crisis. The benchmark FTSE 100 index rose 2% during January. Medium-sized and smaller companies performed more strongly than larger companies, however, with the FTSE 250 index rising 6.6% while the FTSE SmallCap index was up by 6.3%.

According to data from Ernst & Young, the number of UK companies that issued profits warnings rose by more than 70% during the fourth quarter of 2011. UK companies issued 88 profits warnings during the period, compared with 51 during the third quarter – the highest quarterly increase since 2001. Retailing, support services and software & computer services companies issued the most warnings. Ernst & Young believes this rising trend of profits warnings might extend into 2012, and commented: “Many businesses are still expanding profitably, but others – the zombie companies – remain moribund by debt or defunct business models.”

Chancellor of the Exchequer George Osborne unveiled details of the Financial Services Bill during the month. The proposed legislation, which aims to reform regulation of the financial sector, increasing accountability and clarifying responsibilities, will abolish the Financial Services Authority and create three new regulatory bodies – the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority.

Tesco announced disappointing sales over the Christmas trading period and warned it expects full-year profits to be at the lower end of consensus estimates. Meanwhile, high-street retailer Next reported robust sales performance that was boosted by a strong showing from its online business. In comparison, its high-street business reported a drop in sales and, looking ahead, the company highlighted a “difficult consumer environment”.

Retail sales volumes rose at an annualised rate of 2.6% during December although, as the British Chambers of Commerce (BCC) pointed out, this was partly attributable to extensive discounting by retailers. The BCC warned sustainable economic growth will have to rely on more than consumer spending and urged Bank of England policymakers to extend quantitative easing measures. For its part, the British Retail Consortium observed that “sales were made at the expense of margins” and pointed to the “flurry” of retail company failures during the first few weeks of 2012.

The contents of this article should not be construed as advice and do not necessarily reflect our views. Independent Financial Advice should always be attained in order to assess your own individual circumstances.