Bulletin

Fortunes diverge for UK and its stocks

While the UK economy appears to be picking up, the FTSE 100 is the worst-performing major market index in Europe. It has fallen 3% while the main Italian stock exchange has seen a small gain, despite the country' economy set to contract for the third year in a row. And investors see few reasons for optimism, given that the FTSE 100 is full of oil producers, miners and other stocks suffering from the fall in commodity prices. Moreover, the Bank of England is expected to raise interest rates while a general election is due in May. This comes despite the fact that the UK economy is expected to grow faster than any Eurozone economy with the exception of the Irish, according to the most recent forecast from the European Commission. Energy companies have been among the most notable fallers on the FTSE 100 but there have also been pockets of weakness in areas that might normally be expected to benefit from an economic recovery, such as food retailers. However, Tesco, Sainsbury's and Morrisons have all fallen by 30% or more. Investors think the Bank of England will be one of the first major central banks to raise rates and this is then expected to lead to a rise in the value of sterling. This would provide further bad news for exporters and multinationals on the FTSE 100.

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