UK equities

January 2012 (covering December 2011)

After the extreme volatility of the previous few months, December proved relatively benign, with the FTSE All-Share index up 0.8% over the month. Overall, however, the index delivered negative returns for the year, with the initial optimism of the early part of the year swept away as concerns grew over the impact of the eurozone sovereign debt crises. December’s stock market recovery resulted from the absence of further bad news from Europe.

On the domestic front, news on inflation continued to improve during the month, with the UK government’s targeted rate of UK inflation, the CPI, falling to 4.8% for November and the RPI falling to 5.2%. The decline was partly due to lower food prices – vegetable prices fell by 1% between October and November – and also to slower rises in transport, clothing and furniture costs. The Bank of England continues to expect inflation to fall back sharply in the next six months or so and to continue to fall thereafter to near its 2.0% target by the end of 2012.

Retail sales confirmed that November was a bad month for the high street, with some commentators saying volumes would have been weaker had stores not discounted aggressively. Corporate news from the retail sector typically made grim reading. Lingerie chain, La Senza, failed to last even until Christmas before calling in the administrators. HMV admitted earlier in the month that its future was in the balance and Thorntons saw its shares plunge after it warned that annual profits would miss expectations. Tesco, meanwhile, reported falling sales for the fourth quarter in a row.

Away from retailers, there was some better news. The tobacco sector breathed a sigh of relief on news that the UK is to delay its consultation on the introduction of plain packaging of tobacco products, in addition to Imperial Tobacco winning an appeal against a fine for alleged price fixing. Elsewhere, while AstraZeneca confirmed that two of its major new drugs had failed to hit targets in late stage clinical trials, it also announced two new drug research agreements, the purchase of a generic drugs manufacturer in China and cost cutting measures in the US. The banking sector, however, endured another difficult month as the Chancellor confirmed that high street banking activities are to be separated from investment banking.

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