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Greece Weighs on UK Markets

Despite a wealth of corporate and economic newsflow from elsewhere, developments in the eurozone remained uppermost in the minds of many UK investors over June as Greece failed to honour a €1.5bn (£1.06bn) payment to the International Monetary Fund. Share prices in the UK generally fell during the month, with larger companies performing less well than their medium-sized and smaller counterparts. The FTSE 100 index fell 6.6% over the month, while the FTSE 250 and the FTSE SmallCap indices dropped 3.4% and 2.4% respectively.

Over the first six months of the year in total, the FTSE 100 fell by 0.7%, while the FTSE 250 rose 9% and the FTSE SmallCap climbed 7.1%. Productivity among smaller companies is increasing more rapidly than the wider economy, according to the Federation of Small Businesses, and business confidence among smaller companies has shown a marked improvement over the past three months.

June saw the UK government confirm it had sold half of its remaining 30% stake in Royal Mail, in order to help reduce the UK’s deficit. The government also announced its intention to privatise its remaining stake in Lloyds Banking Group over the course of the next 12 months. Subsequently, in his annual Mansion House speech, chancellor of the Exchequer George Osborne revealed plans to dispose of UK taxpayers’ 80% stake in Royal Bank of Scotland.

For his part, Bank of England governor Mark Carney used his Mansion House speech to press for tougher sentences for bankers who abuse the market, warning: “The age of irresponsibility is over.” Elsewhere in the banking sector, HSBC announced a number of cost-cutting measures, including plans to cut up to 25,000 jobs and shut down its Brazilian and Turkish operations.

UK merger and acquisition activity was busy during June. In particular, betting and gaming company Ladbrokes, a FTSE 250 index constituent, revealed it was in discussions with Gala Coral Group over a potential merger, and Ladbroke’s share price surged on the news. Elsewhere, FTSE Fledgling index constituent and confectionary retailer Thorntons recommended a takeover offer of 145p per share from Italian chocolate manufacturer Ferrero.

The Organisation for Economic Co-operation & Development expects the UK’s economy to continue to grow at “a solid pace” this year and next year, underpinned by domestic demand, but warned that stronger investment will be necessary to stimulate productivity, wage growth and competitiveness.