LONDON (ShareCast) - UK markets closed significantly higher on Wednesday, up 45 points equal to 11.41bn pounds, with the index closing at its highest level since May 22nd 2008.

The gains were led by banking stocks after UBS hiked its targets for the Lloyds, Barclays and RBS, saying 'the UK is over its experiment of combining fiscal and monetary austerity'.

The broker revised its price target on Lloyds to 60p from 50p, for Barclays to 315p from 255p and RBS to 410p.

This came in anticipation of an expected improvement in mortgage lending and a reduced need to raise capital after the Basel committee on banking supervision last Sunday eased financial institutions’ liquidity requirements.

The result, which has ‘read-across’ to other countries is that “Britain’s experiment of combining fiscal and monetary austerity may be over and the incoming Bank of England governor’s openness to monetary policy innovation may not even need to be tested if,” as UBS expects, banks return to lending.

On a more realistic note – sombre even - plenty of long-term policy challenges remain.

UK shop prices steady, food inflation still an issue

Shop price inflation remained unchanged at a 1.5% year-on-year pace in December, according to the latest data released today by the British Retail Consortium (BRC).

More specifically, food inflation fell to 4.1% in December from 4.6% in November. Non-food prices were broadly flat in December after falling 0.3% in November.

Meanwhile, the Recruitment and Employment Confederation's (REC) seasonally adjusted index of permanent staff placements fell to 53.2 in December from 56.0 in November. That was the highest since April 2011. Readings above 50 indicate growth compared to a month earlier.

UK trade gap narrowed in November

The UK's trade deficit closed in November as exports caught up slightly with imports, according to the Office for National Statistics.

The deficit on goods and services totalled £3.5bn in November, compared with £3.7bn in October. There was a deficit of £9.2bn on goods, partly offset by an estimated surplus of £5.7bn on services.

Income disparity 'biggest risk to global security'

The biggest single threat to global security in the next ten years is severe income disparity, according to the World Economic Forum’s annual Global Risks Report.

The survey of more than 1,000 experts from industry, government, academia and civil society, also found the risk that would cause the most damage - were it to happen - is major systemic financial failure.

Two risks appeared in the top five risk categories in terms of impact and likelihood – chronic fiscal imbalances and water supply crisis.

Sainsbury fails to meet lowered expectations

Sainsbury may have enjoyed a record-breaking Christmas and increased its market share, but investors did not share the firm's celebratory mood. The company's shares were down as investors latched onto news that like-for-like sales growth of 0.9% in the third quarter had dropped markedly from the 1.9% rise in the previous three months. The firm also warned its festive bonanza would probably not last into the new year.

“We suspect Sainsbury will struggle to outperform in 2013 as Tesco continues its fight back and there is some margin vulnerability as momentum slows,” Seymour Pierce analysts said in reaction.

Aerospace components engineer Meggitt announced on Wednesday that its Chief Executive, Terry Twigger, has said he intends to retire from the role and the board is set to replace him with Stephen Young, who has been Finance Director of Meggitt since 2004. This morning Bank of America raised its target price on the stock from 430p to 470p and upgraded it from neutral to buy, prompting a strong rise in the share price.

Mining company Xstrata climbed after the Bank of America Merrill Lynch anticipated the merged Glencore-Xstrata would produce net earnings of more than $7bn per year by 2014, buoyed by coal and copper.

Aviva was lower over last night announcing that it had disposed of its remaining 19.4% stake in Delta Lloyd at a discount of 1.6% to the insurance group's closing price. The company is planning to reduce its underperforming businesses by a quarter.

Severn Trent dropped after Nomura cut its target price on the stock from 1,645p to 1,550p, and retained its neutral rating.

House builder Galliford Try announced that it remains on track to meet its full year expectations and that half year profit is ahead of its targets.

Designer brand Ted Baker announced a solid rise in sales over the festive period as Chairman Robert Breare confirmed he will step down after more than 11 years in the role. David Bernstein, currently Senior Independent Non-Executive Director, will succeed Breare with immediate effect.

Greggs sees its full year results broadly in line, although ‘tough’ trading conditions have continued into 2013.

Yesterday evening, after the close, Shire’s (another one of yesterday's big gainers) Chief Executive Officer stated that he is increasingly confident of reaching double digit full year earnings growth and on meeting current consensus earnings expectations for 2013.

African Barrick Gold (ABG) was recovering after yesterday dropping on the news that Canadian miner Barrick Gold abandoned plans to sell its majority stake in ABG to a Chinese buyer. Today's gains came despite Deutsche Bank reducing its target price from 520p to 490p and Nomura cutting its target price from 525p to 435p and downgrading the stock from buy to neutral.

Meanwhile, restaurant and pub operator Restaurant Group fell after it cautioned that trading conditions in 2012 are likely to persist in 2013.

UBM was also lower after Goldman Sachs cut the stock to buy from conviction buy, and reduced its target price from 975p to 910p.

Morgan Stanley downgrades BSkyB

Lastly, analysts at Bank of America have raised their view on shares of GKN and Meggitt to buy.

Morgan Stanley downgraded British Sky Broadcasting to equalweight from overweight.

FTSE 100 - Risers
Lloyds Banking Group (LLOY) 53.37p +4.94%
Royal Bank of Scotland Group (RBS) 349.90p +3.83%
Meggitt (MGGT) 425.00p +3.79%
Wood Group (John) (WG.) 774.00p +3.27%
Standard Chartered (STAN) 1,657.50p +3.17%
Evraz (EVR) 279.70p +2.87%
Barclays (BARC) 294.75p +2.63%
Kazakhmys (KAZ) 825.50p +2.36%
Shire Plc (SHP) 2,008.00p +2.29%
ARM Holdings (ARM) 827.00p +2.29%

FTSE 100 - Fallers
Sainsbury (J) (SBRY) 329.20p -2.89%
Aviva (AV.) 373.70p -2.15%
British Sky Broadcasting Group (BSY) 778.00p -1.83%
British Land Co (BLND) 568.50p -1.47%
Weir Group (WEIR) 1,912.00p -1.29%
Severn Trent (SVT) 1,578.00p -1.13%
Reed Elsevier (REL) 640.50p -1.08%
Polymetal International (POLY) 1,135.00p -1.05%
Whitbread (WTB) 2,442.00p -0.81%
Unilever (ULVR) 2,393.00p -0.75%

FTSE 250 - Risers
Centamin (DI) (CEY) 49.98p +13.13%
African Barrick Gold (ABG) 380.00p +7.92%
Travis Perkins (TPK) 1,167.00p +4.38%
RPS Group (RPS) 228.50p +4.34%
Cable & Wireless Communications (CWC) 37.78p +3.65%
Kenmare Resources (KMR) 34.00p +3.63%
KCOM Group (KCOM) 75.00p +3.45%
Savills (SVS) 480.00p +3.23%
Ophir Energy (OPHR) 551.50p +3.18%
Balfour Beatty (BBY) 290.00p +3.02%

FTSE 250 - Fallers
Restaurant Group (RTN) 364.00p -4.76%
FirstGroup (FGP) 197.90p -3.46%
JD Sports Fashion (JD.) 675.00p -2.17%
Enterprise Inns (ETI) 100.90p -2.13%
BBA Aviation (BBA) 225.50p -1.96%
UBM (UBM) 720.50p -1.71%
Stagecoach Group (SGC) 304.40p -1.65%
St. Modwen Properties (SMP) 237.20p -1.62%
Debenhams (DEB) 106.40p -1.57%
Spectris (SXS) 2,015.00p -1.52%

NR

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