Market Summary Q2 2010

UK Market Summary & Outlook

There has been a trickle of good news from the UK economy over the last quarter. GDP growth hit 1.1% from April to June, which was significantly ahead of analysts’ expectations of a 0.6% rise and the fastest quarterly expansion since 2006. This represented a promising pick-up from the first three months of the year when the economy expanded just 0.3%. The construction sector showed particular strength.

In contrast to the US, unemployment figures were also better than expected – raising hopes that the private sector may yet be able to take some of the slack from public sector job cuts. UK manufacturing output showed the strongest growth in 15 years.

The news was not all one way, however. Public sector borrowing came in higher than expected. Equally, at the start of the month, the International Monetary Fund dropped its growth forecast for the UK citing the austerity measures in the Emergency Budget.

Nevertheless, markets were happy enough with the economic news and more than happy with many of the corporate results during the month. The insurers, notably Aviva and Prudential, posted results ahead of expectations and many of the banks returned to profit.

The biggest problems now facing the UK are external. The weakness in the US is a potential headache as its economic data continues to disappoint. Economic growth fell short of expectation; housing statistics and jobless figures also weakened. As a reflection of this, sterling hit a six-month high against the dollar towards the end of the month. There also remain continued worries about the strength of Asian growth. However, the Eurozone keeps defying expectations and may yet offset the weakness in the US.