Economic reasons to be cheerful, but some tough times still ahead

The latest official figures offer some reasons to be cheerful about the state of recovery in the UK economy.

During the third quarter of this year, the UK’s economy grew by a record 15.5%, according to the Office for National Statistics (ONS).

This record growth between July and September followed six months of economic decline, prompted by the Covid-19 pandemic and associated lockdown measures.

The economic growth in the third quarter was broad-based, with strong performance across the services, manufacturing and construction sectors. This positive growth came when lockdown measures were eased, and consumers were encouraged to ‘Eat Out to Help Out’.

Despite such strong growth in the third quarter, it wasn’t quite enough to reverse the economic reverse caused by the pandemic-driven recession. As a result, the UK’s economy remains 8.2% smaller than it was before the pandemic struck in March.

There’s also a reasonable prospect of the economy shrinking further in the final quarter of this year, with lockdown measures once again in place in across the country.

Looking at September as a single month, the UK economy grew by 1.1%, its fifth consecutive month of GDP growth, but slower than growth experienced in previous months.

Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: “While all main sectors of the economy continued to recover, the rate of growth slowed again, with the economy still remaining well below its pre-pandemic peak.

“The return of children to school boosted activity in the education sector. Housebuilding also continued to recover, while business strengthened for lawyers and accountants after a poor August.”

Additionally, recently published unemployment figures show the level of unemployment rising to 4.8% in the three months to September, up from 4.5% in the previous quarter.

Commenting the UK GDP announcement, Melanie Baker, senior economist at Royal London Asset Management, said: “The UK economy bounced back strongly in Q3, while remaining one of the worst hit by the COVID-19 crisis. Although vaccine developments have brought hope of a return to some semblance of ‘normal life’ next year, there is quite a long way to go before the economy gets back to where it was pre crisis.”


For investors though, how has this year panned out and what does the future hold? In terms of how markets have responded globally, the answer is, perhaps surprisingly, pretty well. This is more than partly down to the unprecedented fiscal and monetary stimulus from governments around the world and the prospects for a vaccine, which are sounding better by the day.

Added to that, cheap money in the form of low interest rates remains, consumers across the globe have been more resilient than many economists feared and most companies have done better than many analysts expected.

Markets that have performed well include the Nasdaq and the Chinese equity market, which are up 30% and 20% respectively.

Many Nasdaq companies have been major beneficiaries of the various forms of lockdown. These include Amazon, Netflix and Google as well as the global biotechnology stocks. These companies have seen profits growth despite or perhaps because of, these challenging times.

It is worth pointing out, however, that their success is just a continuation of trends that were already taking place and building momentum.

This speeding up of existing trends is also apparent at the other end of the performance table.

Here, sectors such as banks and retail have been heavily hit by the coronavirus pandemic for obvious reasons. For example, banks are incurring bad debts as the global economy slows, whilst traditional retail has suffered as consumers have not been allowed to shop.

Once again, however, the downward trends in these sectors have existed for years.

So, the lessons for investors are clear. Keep calm, take a long-term view, stay diversified and watch the trends for the new normal as we look to come out of this annus horribilis.

And of course, talk to your financial adviser!

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