The FTSE will keep drifting

Britain's leading index has spent three years in a range between 5,000 and 6,000. This pattern looks likely to continue over the next year or so. The outlook for the UK economy is "pretty grim", says Mark Atherton in The Times, with a "triple-dip" recession looking possible and the housing and retail markets sluggish.

The global economy Britain's biggest firms get around 60% of their earnings from overseas is also "stuck in the twilight zone" between sustainable recovery and renewed recession, as Morgan Stanley puts it: most major regions have suffered downward revisions in growth forecasts of late.

All this adds up to an uninspiring outlook for earnings. Company profitability is already under pressure, says Jeremy Batstone-Carr of Charles Stanley. More firms missed profit forecasts than met them in the third quarter.

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On the plus side, the Bank of England may well resort to more money printing, which would bolster stocks as it encourages investors to chase risky assets. More importantly, yields still look appealing.

The FTSE 100 is yielding almost 4%, far more than government bonds and with much greater scope for capital appreciation; stocks also offer some protection from inflation.

Valuations are reasonable, with the cyclically adjusted price-earnings ratio at 13, a level implying solid long-term returns. All this suggests some downside protection. The FTSE is not as cheap as its continental counterparts, but still offers opportunities for income-seeking, long-term investors.