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The UK market in June

Concerns over rising inflation and interest rates continued to weigh on UK equities in the first half of June, but the latter half of the month saw a recovery as US interest rates appeared to near their peak and talk of takeovers increased.

As such the FTSE All-Share gained 1.7 per cent, the FTSE 100 rose 1.9 per cent and the FTSE 250 inched up 1.3 per cent. Only the FTSE SmallCap suffered, falling 0.9 per cent.

The industrial metals and industrial transportation sectors [Report] performed well in the FTSE All-Share, propped up by steel giant Corus – which was also the best-performing company in the FTSE 100 index. The Anglo-Dutch steelmaker was buoyed by takeover talk, having been linked to Russian counterparts Evraz and Severstal.

Again, takeover bids and speculation drove up the industrial transportation sector – BAA, the world's largest airport operator, was acquired by Grupo Ferrovial SA for £10.1 billion and AB Ports was subjected to a bidding war. Ports have become increasingly attractive takeover targets in recent times, with their stable income streams and property assets particularly appealing given the growth in world trade.

The FTSE 100 was boosted by the pharmaceuticals sector, with AstraZeneca the second-best performing company in the index. Food and drug retailers Boots and AllianceUnichem were also spurred by continued positive sentiment following their merger.

The mining sector was also prominent in June, with Lonmin and Vedanta Resources becoming new members of the FTSE 100, while Kazakhstan-based copper miner Kazakhmys [Report] performed strongly – all benefiting from rising commodity prices and comments by both the Bank of England and US Federal Reserve that suggested interest rates were close to peaking.

With the introduction of Lonmin and Vedanta Resources on the FTSE 100, in addition to energy company DRAX, Ladbrokes, Cable & Wireless and Daily Mail & General Trust were relegated to the FTSE 250 – which welcomed newcomers Debenhams and defence company Qinetiq. In addition, semi-conductor manufacturer Wolfson Microelectronics, beverages company Britvic and payment collection company Paypoint were promoted from the FTSE SmallCap index to the FTSE 250. This led to the addition of software company iSoft Group, JP Morgan Overseas Investment Trust, telecoms equipment maker Telent, drug and cosmetic ingredients manufacturer Yule Catto & Co, and magazine publisher Euromoney Institutional Investors to the FTSE SmallCap.

The prospect of future merger and acquisition activity is likely to drive the market forward, although volatility is expected in the short-term [Report].

Meanwhile, government bonds [Report] were subdued towards the end of the month by a wave of positive economic data. Eurozone and US economic data was upbeat, while a report showed that UK manufacturing grew at its fastest rate in two years in June. The rise in manufacturing prompted an upward revision of UK economic growth from 0.6 per cent to 0.7 per cent in the first quarter. However, gilts rose slightly towards the end of the month, once again as the probability of further interest rates narrowed – partly due to predictions from property analysts that house price rises were likely to cool off over the coming months.

But ultimately the outlook for equity and bonds depends on interest rate growth. "Rates are rising and that's going to be a difficult time for equity markets,' said Lucy MacDonald, a London-based fund manager. "People need to see the peak in the current cycle before markets can settle down," she told Bloomberg.