Investor sentiment looks like it may be improving in the UK as stock prices rose in the month of July.  A small amount of daily volatility still exists with a mixture of domestic and overseas newsflow.  In general investors were able to draw some encouragement from positive UK economic data and improving business confidence.  The British Chambers of Commerce reported that business confidence has improved to above the level experienced during the recession, plus UK exporting has grown at its fastest rate since 1989.

FTSE 100 index increased by 6.5% during July, whilst the FTSE 250 index rose by 7.8% and the FTSE SmallCap index grew by 6.3%.  Whilst it is important not to get too excited, significant external currents  remain, including China’s slowing  economic growth and the continuing problems in the eurozone.

The good news is that Earnest & Young reported profit warnings from UK quoted companies fell during Q2 of 2013 to their lowest level since 2011.  The UK’s reported profit warnings fell to 54 in the second quarter, compared with 72 during the previous quarter.  The highest number of profit warnings was seen in the software & computer services, travel & leisure, electronics & electrical equipment, media and support services sectors.

The construction and retailing sectors showed signs of improvement, although the business landscape remains challenging.  While construction is recovering from being on their knees, retailers continue to feel the pressure of a difficult and competitive environment.

Ernst & Young believes an increasingly benign economic backdrop will ensure containment in  the number of future profit warnings.  Many companies remain confident of achieving their full-year profit targets but Ernst & Young warned managements should continue to make adjustments in order to “make the most of what is still a relatively modest recovery”.

AUGUST 2013

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