Britain's FTSE index of leading shares will claw back more losses next year from the financial crisis as the economy makes a stuttering recovery and firms return to profit, a Reuters poll showed on Wednesday.
The quarterly poll of around 20 strategists, taken over the past week, gave median forecasts for the FTSE 100 to be at 5,800 by the end of 2010, up some 10 percent from its close on Tuesday. But the range was wide, from 3,300 to 6,640.
The index of firms from banks to miners to telecommunications businesses is seen at 5,650 by the end of June, up from the 5,250 predicted in a September poll but a far cry from the seven-year high of over 6,750 seen in July 2007.
The FTSE sank 31 percent last year as major economies plunged into recession but has recouped some of those losses by climbing almost 20 percent so far this year.
"Equity markets stopped the slide in the second quarter 2009. Aggressive policy action from government, combined with improving macro data and valuation support fuelled the rally," said Citi analysts.
The index hit a six-year low of around 3,460 in March but has since rebounded over 50 percent from there as earnings have surprised to the upside and the economy crawls out of recession, but some economists fear that might taper off.
"The recovery is going to run out of steam. We are going to experience policy tightening, the UK will have to deal with an election and the possibility of a hung parliament and the country's credit rating will once again be on the agenda," said Jeremy Batstone-Carr at Charles Stanley.
ECONOMIC RECOVERY
Data released last month showed the British economy shrank by 0.3 percent in the third quarter, the sixth quarterly contraction in a row and confounding expectations for growth, but economists say the UK will emerge from its longest downturn on record in the current quarter.
"Economic recovery will come through, interest rates will stay relatively low and we feel that bond yields will remain well behaved so the general environment for equities will be supportive," said Robert Parkes at HSBC.
The Bank of England has slashed interest rates to near zero and undertaken an unprecedented 200 billion pounds ($325.4 billion) quantitative easing programme to boost the money supply.
UK banking shares suffered a staggering 80 percent slump between the start of 2008 and March this year but have staged a minor recovery since then, more than doubling from the March low.
Britain's top two banks, HSBC and Barclays which both avoided taking taxpayer rescue funds, signalled last month that bad debts may be past their peak and HSBC reported profits significantly above the year before.
British housebuilders have also suffered amid a housing slump, with shares in firms such as Taylor Wimpey, Persimmon and Bellway crashing down.
But an upturn for them may also be on the horizon, as a Reuters poll of analysts says a bottom for UK house prices — the bedrock of consumer wealth — has likely been reached although they will only creep higher next year.
