We recently prepared a short table of the main FTSE P/E ratio indices for two years from the end of 2011 up to 31 December 2013. The increases in the Industrial Sector ratios are quite phenomenal, ranging from increases of just over 20% to 40% over the last year and from 38% to 90% over the last two years. These include, General Industrial, Industrial Engineering, Industrial Support Services, Consumer Goods and Technology – IT Company St. Louis. There could be further growth in the ratios 2014, as the world economy gradually climbs out of 5 years of recession.
Whilst the improved P/E ratios reflect increased UK commercial earnings, it also has a lot to do with perceived future confidence in the UK and world economies, particularly the US which is the main driver. There will be short term blips in 2014 as the US economy stutters from time to time. US car sales have slipped back a little and construction has yet to accelerate into life there. No doubt the current weather extremes will affect North American output in the short term and maybe there will be problems again with agreeing the budget spending plus the Chinese economy appears to have slowed a little, but in the long term, the markets should continue to improve throughout the coming year. The UK economy appears to be on a recovery course so this will be reflected in confidence in the market place. The general consensus of agreement in the UK is that the bank base rate will remain at 0.5% throughout 2014, so market rates of interest will remain low.
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