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The pound rallies in January

January 2018

Although the FTSE 100 Index reached a new all-time high during January, UK equity indices generally ended the month in negative territory, weighed down by a rally in the value of sterling. The pound rose above US$1.40 in January, reaching its highest level against the US dollar since the UK voted to leave the EU in June 2016. In turn, sterling’s rally undermined sentiment towards UK companies that generate a sizeable proportion of their profits overseas. 

  • Outsourcing company Carillion collapsed
  • The UK economy grew by 1.8% during 2017
  • The retail sector remained under pressure

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Although the FTSE 100 Index reached a new all-time high during January, UK equity indices generally ended the month in negative territory, weighed down by a rally in the value of sterling. The pound rose above US$1.40 in January, reaching its highest level against the US dollar since the UK voted to leave the EU in June 2016. In turn, sterling’s rally undermined sentiment towards UK companies that generate a sizeable proportion of their profits overseas. The FTSE 100 Index fell by 2% over January as a whole, while the FTSE 250 Index dropped by 2.3%. 

“Carillion’s predicament led investors to turn their attention to other outsourcing companies”


Outsourcing company Carillion collapsed during January after failing to procure further funding. Carillion’s share price plummeted by over 90% in 2017 and the company subsequently went into liquidation with a substantial pension deficit. In an article written for The Guardian newspaper, Prime Minister Theresa May pledged to ensure that the Government will protect employees’ pensions from “executives who try to line their own pockets”. 

Carillion’s predicament led investors to turn their attention to other outsourcing companies and, as January drew to a close, outsourcing company and FTSE 250 Index constituent Capita issued a profit warning alongside restructuring plans, triggering a dive of over 40% in the company’s share price. Elsewhere, the share price of construction and support services firm Interserve dropped sharply; in response, Interserve issued a relatively upbeat trading statement for its 2018 earnings, having previously issued profit warnings in September and October last year.

The UK economy expanded by 1.8% in 2017, having grown by 1.9% in 2016. Looking ahead, the International Monetary Fund (IMF) expects the economy to grow by 1.5% in 2018 and 2019. The IMF believes that Brexit remains a key stumbling-block to the UK’s prospects, and warned that an increase in trade barriers could dampen global investment and reduce efficiency.

Retail sales registered a monthly drop of 1.5% in December. The fall was partly attributed to high levels of spending on “Black Friday” deals in November. High-street retailer Next reported stronger-than-expected sales over the key Christmas trading period and upgraded its earnings forecast, but warned that many of the headwinds it experienced last year – including slower spending on clothes and generally lacklustre consumer demand – would carry on into 2018. M&S  reported disappointing Christmas sales, while supermarket retailer Tesco revealed record revenues in the run-up to Christmas.


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