UK

11/03/2010

Despite news that the UK has emerged from recession, investor caution on the economy continued to drive share price volatility in February. Worries about the sustainability of the recovery, along with concerns about tightening in China and the scale of fiscal deficits in Europe also weighed on sentiment. UK investors are also weighing up the prospect of a hung parliament and the likelihood of a post-election austerity budget given the ‘doomsday’ scenario that bond yields leap in the face of insufficient fiscal tightening. However, enthusiasm for Asia-focused firms and good results from UK banks helped the market to make progress overall. In terms of economic news, GDP growth for the final quarter of 2009 was revised higher to 0.3% quarter-on-quarter from an initial estimate of 0.1%. The main reason for the upward revision was an increase in services output data. However, concerns over the economic recovery remained, with mixed signals from the housing market during February. In addition, consumer spending and employment data were both disappointing. On a positive note, manufacturing and industrial production releases were stronger than expected. The Bank of England left interest rates on hold at 0.5% and decided not to extend quantitative easing as expected.