From Morningstar:

The UK’s equity market is struggling in light of recent inflationary pressures and fears of a looming recession. Only three Morningstar UK equity categories saw positive returns, barely scraping over zero. Small to medium-sized businesses have fared even worse, with the Morningstar UK Small Cap category reporting a loss of -0.77% and the Morningstar Mid Cap category losing 1.81%.

Richard Carter, head of fixed interest research at Quilter Cheviot, warns that British businesses are facing sustained market volatility due to inflationary pressures and geopolitical events, including US-UK led strikes on Houthi rebels in the Red Sea. The UK’s latest GDP figures indicate the country is on the brink of a technical recession amid a weakening labor market.

In addition to domestic concerns, UK equities will be impacted by the Chinese economy’s struggles, as it has failed to maintain its position as a global driver of growth. Chinese economy expanded by 5.2% in Q4 2023, below market expectations, and led to the FTSE 100 dropping by 1.3% in the period, resulting in a 4% loss since late December 2023. On a positive note, IMI, a Birmingham-based engineering company, saw its share price rise by 3.87% after benefitting from a positive broker note.

Russ Mould, investment director at AJ Bell, predicts possible delays to interest rate cuts that will hit housebuilders, mortgage lenders, and tech-related names the hardest, including Ocado. Ocado saw its share price tumble by 6.31% to 578.20p as it was the FTSE company most impacted by the inflation data on Wednesday, despite an increase in sales over the festive period.

In summary, the UK’s equity market is under pressure due to inflationary concerns, fears of a potential recession, and geopolitical events that are impacting investor confidence. Domestic and global economic factors are contributing to sustained market volatility, with small to medium-sized businesses faring the worst and industry sectors across the board feeling the effects of economic uncertainty.



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