UK Overview September

October 2010 (covering the month of September 2010)

UK stocks were strong in September with the FTSE 100 and FTSE All-Share indices regaining positive territory for the year. The month’s strength was based around a general increase in global risk aversion and largely solid corporate newsflow, albeit that economic data domestically remained unconvincing.

Economic data released during the month added further evidence to the difficult outlook ahead. Service sector activity, a significant driver of growth, dropped to 51.3 in August, from 53.1 in July, according to the CIPS/Markit survey. The housing market experienced further signs of a downturn, as data from Nationwide, Rightmove and the Royal Institute of Chartered Surveyors showed prices falling due to an increase in supply at a time when demand is challenged by mortgage availability and concerns about the outlook for employment. This was reinforced by data showing that while the availability of mortgage credit had actually increased slightly over the last three months, the number of mortgage approvals for new house purchases fell to its lowest level for six months, based on data from the Bank of England. Retail sales data was mixed, with the ONS reporting a fall in sales during August, while the CBI’s September survey suggested that high street sales are expanding strongly.

Results from retailers, including DSG international and Debenhams, were positive, but both warned of uncertainty ahead for the UK consumer. DSG reported an increase in sales, boosted by the World Cup and iPad sales, while Debenhams forecast full-year pre-tax profits of £150m. Banking stocks were in the news as both Barclays and HSBC announced board changes. Bob Diamond, formerly head of the investment banking arm Barclays Capital, was appointed as the bank’s new chief executive. HSBC’s changes saw chairman Steven Green confirmed as the government’s new trade minister, to be replaced by the group’s chief financial officer Douglas Flint. Chief executive Michael Geoghegan was also replaced by a former investment banker, with Stuart Gulliver taking over as CEO. Lloyds Banking Group also revealed that chief executive Eric Daniels will leave over the next 12 months. WM Morrison issued first half results that were ahead of forecasts and Imperial Tobacco’s trading update was well received by the market. Merger and acquisition news also supported stocks during the month as BAE Systems announced plans to sell parts of its North American business, with proceeds expected to be in the region of $2bn. KNOC’s drawn-out bid for Dana Petroleum appeared to be heading towards a conclusion as the group gained control of more than 64% of the group’s stock.