UK equity market review: Vaccine optimism gains traction

As coronavirus infection rates in the UK continue to subside and the vaccination programme expands, there is “light at the end of the tunnel” according to BoE Governor Andrew Bailey.


  • Business confidence strengthened
  • Retail sales picked up in February
  • Interest in responsible investment funds continued to grow

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As coronavirus infection rates in the UK continue to subside and the vaccination programme expands, there is “light at the end of the tunnel” according to BoE Governor Andrew Bailey. Nevertheless, he believes that Covid-19 has inflicted both a demand and a supply shock to the economy. He stated: “The message is simple … stronger investment and productivity growth will make the Covid recovery easier”. During March, the FTSE 100 Index rose by 3.6%, while the FTSE 250 Index climbed by 2.9%.

“Stronger investment and productivity growth will make the Covid recovery easier”

Business confidence in the UK has risen to its highest level since summer 2018, boosted by the continued rollout of Covid-19 vaccines. According to the Santander Trade Barometer, 65% of companies are optimistic about their prospects for growth over the next three years. 20% of businesses with no exposure to international trade are considering overseas expansion, compared with just 9% a year ago. However, 38% of businesses believe that the new Brexit trade agreement will make trading more time consuming, 35% said that the cost doing business will increase, and 23% believe that higher costs and greater bureaucracy will prevent them from continuing to trade with existing markets.

The Office for National Statistics (ONS) reported that exports from the UK to the EU dropped by 40.7% during January, while imports fell by 28.8%. Elsewhere, the UK and EU reached a post-Brexit agreement over cooperation with regard to financial services during March. The two sides will establish a forum that will facilitate dialogue on financial services issues.

UK retail sales improved during February, according to the British Retail Consortium (BRC) as the UK Government’s publication of its roadmap to reopening the economy triggered a “burst in spending on non-food items” such as school uniforms. Nevertheless, the BRC remained cautious about the months ahead, citing the slow return of demand seen in previous reopenings.

Responsible investment funds continued to grow in popularity amongst UK retail investors during January, according to the Investment Association (IA), which found that an average of almost £1 billion per month – more than 40% of all net sales – had been invested in responsible investment funds during 2020. In January itself, net retail inflows into responsible investment funds reached £1.2 billion, with around 60% invested in equity funds, 20% in bond funds, and 20% in mixed asset funds.


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