During January, UK equities gave up some of their gains from the previous two months with the country in its third lockdown. The FTSE 100 Index of the largest companies produced a negative total return of 0.8%, slightly outperforming the FTSE 250 Index of medium-sized companies which produced a negative total return of 1.2%. The FTSE All Share Index produced a negative total return of 0.8%.

Trading for food retailers is likely to be resilient given they remain open unlike pubs, restaurants and non-essential retailers. Additions were made to City of London’s stakes in Tesco and Wm Morrison. The life insurance sector was a notable underperformer, partly due to Prudential’s announcement of more capital being needed for its US subsidiary, Jackson National. A reduction was made in the City of London’s holding in Prudential but additions were made to Phoenix, the life insurer, and M&G, the financial services company with life insurance interests.

The lockdown is likely to lead to a contraction in UK growth in the first quarter of 2021. The outlook for the rest of the year is more positive with the economy reopening, helped by the roll out of the vaccines. Given the amount of monetary and fiscal stimulus and the high level of personal savings, growth could surprise to the upside in the second half of the year, which would provide a supportive background for company profits and dividends.


Fiscal stimulus: Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.

Monetary stimulus: The policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money.