Scott cautious as markets wobble, challenging time ahead for consumers

Leading fund manager Ted Scott, manager of the F&C UK Growth & Income Fund, has been enjoying a stellar start to the year. However, when it comes to the outlook for equity markets he is warning that investors could face tougher times ahead.

“There are signs that the UK equity market is wobbling. Yesterday the FTSE 100 dipped by 2 per cent and the trend in takeover speculation, which has been the major driver for equity markets over the past 6-9 months, has seemed more subdued in recent weeks,” observed Scott.

“At the same time, inflation remains quite high, bond yields have risen sharply and interest rates are expected to rise at least once if not twice by the end of the year. In my view the Bank of England missed an opportunity to slay inflation by not being more aggressive with its last ratchet upwards. With many 2-year mortgage deals expiring this year, consumers will be faced with re-mortgaging at a much higher rate than perhaps they expected two years ago, at the same time the price of basic consumer goods is rising in line with inflation,” he added.

“What is clear is that the going is certainly going to get tougher for consumers, with a knock-on effect on company profits. The effects have already been evidenced by the UK retail sector, with several companies issuing disappointing trading statements. Clothes retailer Next and Carpet Right have both announced poor sales and shares in JJB Sports took a tumble yesterday, dropping 11.3%,” he concluded. In keeping with his more cautious outlook for the UK economy, Scott has added to his defensive holdings in oil companies BP and Shell and telecommunications giants Vodaphone and British Telecoms within the F&C UK Growth & Income Fund.