Norwich Union comments on UK stock market and economy

Article date: 27 June 2006

Gerard Lane, Norwich Union investmentstrategist, said: “Summer is generally a volatile time forequities, and 2006 may be no exception as investors wait to see ifinflation fears are justified or the signs of the US housing marketslowdown spread to other areas of the economy. However, equitiesstill offer better long-term value than other asset classes forinvestors, as dividend yields remain high and are likely to growfaster than inflation.

“The UK stock market has endured a turbulent time over pastweeks. Global growth has been strong over the last few years andthis has triggered a series of interest rate rises around theworld. The markets have faced the prospect of either further rateincreases to combat further inflation pressure, or slower economicgrowth due to policy tightening.

“However, while nothing has fundamentally changedeconomically, the sentiment switch from glass half-full tohalf-empty has seen abrupt reversals in markets. Those assets andstocks (generally commodity or emerging market) that performed wellin the first four months of the year have been most severelypunished in the last six weeks.”

Stewart Robertson, Norwich Union economist, said: “Economicnews in the UK has been encouraging over the last month or so.Consumer spending has revived steadily after last year's lull andexports are booming, according to official data, although VAT fraudis exaggerating the scale of growth. Business investment is nowrecovering gently.

“The house market has strengthened over the last year andhouse price inflation has picked up to around 5% to 8%. It may peakby end-summer at close to double-digit rates and then slowmoderately, but there is very little chance of fallingprices.

“Consumer inflation measures have been boosted by higher oiland energy prices, but remain largely under control. Meanwhile,wage growth has stayed subdued. Although unemployment has driftedhigher, that has primarily been because of the growth of the labourforce: the number of people in work has risen strongly too. Withgrowth reviving and inflation above target, the Bank of England islikely to raise UK interest rates once more, perhaps as early asAugust, but a series of rate hikes is highly unlikely.”


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Notes to editors:

  • Norwich Union is the UK’s largest insurer. It is a leadingprovider of life, pensions and investment products and one ofthe largest financial adviser (FA) providers. FAs provide over70% of the company's long-term savings business in the UK.
  • Norwich Union is the UK’s largest general insurer with amarket share of around 14%, with a focus on insurance forindividuals and small businesses.
  • Norwich Union’s news releases and a selection of imagesare available from Aviva's internet press centre at

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