Gerard Lane, Norwich Union investment strategist, said: “Summer is generally a volatile time for equities, and 2006 may be no exception as investors wait to see if inflation fears are justified or the signs of the US housing market slowdown spread to other areas of the economy. However, equities still offer better long-term value than other asset classes for investors, as dividend yields remain high and are likely to grow faster than inflation."
Gerard Lane, Norwich Union investment strategist, said: “Summer is generally a volatile time for equities, and 2006 may be no exception as investors wait to see if inflation fears are justified or the signs of the US housing market slowdown spread to other areas of the economy. However, equities still offer better long-term value than other asset classes for investors, as dividend yields remain high and are likely to grow faster than inflation.
“The UK stock market has endured a turbulent time over past weeks. Global growth has been strong over the last few years and this has triggered a series of interest rate rises around the world. The markets have faced the prospect of either further rate increases to combat further inflation pressure, or slower economic growth due to policy tightening.
“However, while nothing has fundamentally changed economically, the sentiment switch from glass half-full to half-empty has seen abrupt reversals in markets. Those assets and stocks (generally commodity or emerging market) that performed well in the first four months of the year have been most severely punished in the last six weeks.”
Stewart Robertson, Norwich Union economist, said: “Economic news in the UK has been encouraging over the last month or so. Consumer spending has revived steadily after last year's lull and exports are booming, according to official data, although VAT fraud is exaggerating the scale of growth. Business investment is now recovering gently.
“The house market has strengthened over the last year and house price inflation has picked up to around 5% to 8%. It may peak by end-summer at close to double-digit rates and then slow moderately, but there is very little chance of falling prices.
“Consumer inflation measures have been boosted by higher oil and energy prices, but remain largely under control. Meanwhile, wage growth has stayed subdued. Although unemployment has drifted higher, that has primarily been because of the growth of the labour force: the number of people in work has risen strongly too. With growth reviving and inflation above target, the Bank of England is likely to raise UK interest rates once more, perhaps as early as August, 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 leading provider of life, pensions and investment products and one of the largest financial adviser (FA) providers. FAs provide over 70% of the company's long-term savings business in the UK.
- Norwich Union is the UK’s largest general insurer with a market share of around 14%, with a focus on insurance for individuals and small businesses.
- Norwich Union’s news releases and a selection of images are available from Aviva's internet press centre at www.aviva.com/media