Monthly Investment Update: 1st August 2012

As at 31st July 2012, the FTSE 100 index of leading UK company shares closed at 5,635.28, up 1.16% during July on positive news from the eurozone. The index is now trading higher than its opening level of 5,572.30 at the start of the year.

Some confidence has returned to markets after comments from Mario Draghi, president of the European Central Bank. He said the ECB will do “whatever it takes” to save the euro, adding “Believe me, it will be enough”.

Despite this vote of confidence, no lasting solution to the eurozone sovereign debt crisis has yet been found.

The UK economy has experienced a sharper than expected slowdown, with the latest figures from the Office for National Statistics showing a contraction of 0.7% in the second quarter.

This followed a 0.3% contraction in the first quarter and means that negative GDP is now very likely for 2012 as a whole.

Output in the construction sector fell by 5.2% in the second quarter as a result of government spending cuts on social housing and infrastructure projects. The additional Bank Holiday and bad weather earlier in the summer may also have contributed to these poor GDP figures.

Price inflation has continued to fall, with the Consumer Prices Index (CPI) measure of price inflation falling from 2.8% to 2.4% for the year to June 2012, a bigger than expected slowdown in the pace of inflation.

There was also a fall in the Retail Prices Index (RPI), from 3.1% to 2.8%. Inflation is slowing as a result of lower food, fuel and clothing prices.

CPI remains above the government target of 2% although as been steadily falling since reaching its record high of 5.8% in September 2011.

Interest rates remain at the historic low of 0.5%, following the latest Monetary Policy Committee meeting in July. There have been indications that the Bank would consider lowering interest rates further should their Funding for Lending scheme fail to achieve the desired results.

One leading fixed interest fund manager has warned savers and investors they should prepare for a period of sub-zero interest rates.

House prices have fallen for the fourth time in five months, according to the latest figures from Nationwide. The average price of a home fell by 0.7% in July, resulting in prices now at 2.6% lower than they were a year ago.

The average price of a home now stands at £164,389.

In early trade on 1st August 2012, £1 could buy $1.56780 or €1.27270, with Pound Sterling falling slightly against the Dollar and rising against the Euro during July.

Gold was priced at $1,622.00/ounce at close of trade on 31st July 2012, with Silver valued at $28.20/ounce. The value of both Gold and Silver rose slightly during July.

The latest assessment from Standard & Poor’s suggests that the UK will keep its coveted AAA credit rating, with the outlook for the UK described as ‘stable’.

S&P complimented the strength of Sterling and the monetary flexibility in the UK, with an expectation that the British economy will pick up in the second half of the year.

The yield on a 10-year UK Government Bond (Gilt) remains very low at 1.43%, as investors continue to seek a safe-haven and further QE pushes yields lower.

Photo credit: Flickr/soumit