Overview

The month has been dominated by the unsettling events in  Egypt which have concerned investors across the globe. Markets have reacted negatively to the events, with the consolidated fear that the unrest will have repercussions for the wider Middle East region. With the constant stream of economic indicators and data sources posting conflicting messages, it’s clear that we remain locked in a period of economic  uncertainty.

UK

The FTSE 100 closed in January at 5,862 from a starting point of 5,899. The big news that came out in January was that the UK’s economy contracted by 0.5% over the last quarter of 2010, news that surprised the majority of analysts. The figures released by The Office for National Statistics (ONS) reflect the feeling that there is no easy road out of recession.

Some good news in the UK is that the manufacturing sector expanded in January at its fastest pace since 1992, according to a survey by the Chartered Institute of Purchasing and Supply (CIPS). This news will provide cheer for some put remains tainted by the increases in food,utilities and fuel prices.

Inflation in the UK remains a concern. The Consumer Prices Index (CPI) rose to 3.7% in December, from 3.3% the previous month. Any rise in inflation puts pressure on the Bank of England to increase interest rates, although currently the Monetary Policy Committee seem reluctant to raise interest rates for fear of slowing the recovery.

Europe

The Eurozone jobless rate remains unchanged at 10% across the region in December according to Eurostat. Germany continues to be the engine for growth in Europe, it currently has the lowest unemployment rate since 1992; an enviable position amongst its peers.

The events in Egypt seem to have taken the focus off fears for the stability of Portugal, Spain and Italy. Sovereign debt remains a big issue and one that won’t go away quickly; we haven’t heard the last of this just yet.

US

The US economy grew over the last quarter of 2010 and by 2.9%* over the whole of 2010, its strongest year of growth since 2005. US markets are showing signs of growth which reflect a more promising economic outlook. So regarding the economic doldrums, could this be a first in, first out scenario for the US? Too early to tell, particularly as the housing market and high unemployment continue to cause concerns.

Global

Asia’s continued growth, and apparent reluctance to be part of the global recession, continues to raise more than few eyebrows. Inflation fears across Asia continue as manufacturing data shows continued growth but with higher input costs. The Chinese Government’s tightening of monetary policy seems to be having little effect on sedating the tiger economy, the beast might just be too big to be tamed that easily.

Asian growth remains a vital part of the global recovery. The rest of the world needs their growth to continue but from recent experience are only too aware of what could happen if it all goes wrong. With the economic pressures increasing across Asia, an economic implosion isn’t an unrealistic outcome.

The common theme of uncertainty continues. 2011 could see political realignment in the Middle East which will fuel economic uncertainty. Can the US sustain its recovery while the UK shows some reasonable signs of improvement. We hope so but there’s still plenty to be convinced about.

*Source: US Commerce Department