News Archive

Grinding it out

The first estimates of second quarter UK GDP suggest that the economy virtually ground to a halt over the last three months, registering just 0.2% growth. With no weather to blame this time round, the finger was instead pointed at the extra bank holiday and, more justifiably, the fallout from events in Japan. Whatever the true figure is subsequently revised to, the medium term picture remains clear – an environment of low growth and volatile inflation. The huge debt burden weighing down on the UK economy mean this is likely to be the case for years to come. With the already overstretched consumer seeing their monthly pay packet go less and less far and government spending cuts having barely begun, it is too much to ask that business investment and exports pick up the slack.

This seems to be the view shared by the majority of the Bank of England’s Monetary Policy Committee (MPC), who recently conceded that there was ‘’ a reduced likelihood that a tightening in policy would be warranted in the near term’’. In reality we expect policy makers to continue to tolerate above target inflation and sit on their hands for the foreseeable future. Interest rates will stay on hold until at least this time next year, perhaps much longer. Further to this, additional stimulus in the form of further quantitative easing is now a realistic possibility. So what implications does this have on markets?

Long gone are the times when a UK GDP figure would have a material impact on equity markets. Over 70% of revenues for companies listed on the FTSE 100 come from outside the UK and further to this ability to increase efficiency or cut costs at a company level is equally as important as the underlying growth in the economy. There are plenty of parts of the world that are growing right now and companies that service such areas have never had it so good.