According to the Bank of England and many other commentators, the UK is about to enjoy its fastest rate of economic growth for over 70 years! Not since 1951 and the end of devastating conflict has growth like it been seen! The Bank of England has published it expects growth in GDP of 7.25% in 2021 which when compared to an average year of perhaps 1.18% between 2008 and 2019 is phenomenal. Other potential good news is that the Bank of England expects unemployment will now peak at around 5.5% this year, a big cut from its earlier forecasts of 7.75%.
In the past few weeks, we have experienced continued volatile markets as they have reacted to the potential for higher inflation in the US and whilst this will remain a concern (see our other blog on this matter), British stocks in particular have surged on the update hitting a post-pandemic high.
Does this mean you should pile in then? the fact is UK stocks are probably amongst the cheapest in the developed world when you “crunch the statistics” and the UK seems to be emerging from the Corona-virus crisis faster and more successfully than other developed economies, coupled with the fact the dreaded Brexit is behind us, this may well translate into some very good news (economically anyway). But, there is always an alternative view.
So, why not get carried away? The Corona-virus caused major shocks around the world and you can assume that strong growth would always follow a UK slump of 9.9% in 2020 (the biggest decline in 312 years! We are also not “yet out of the woods” and with the Indian Variant for example, any recovery could prove short lived. Continued headwinds are almost certain!
So, what is our opinion?
It is true the UK has been an underperformer in recent years and there is a lot of good news now feeding through. If you look at our UK focused funds they have already “over-performed” recently. The advice comes back to the old adage of “spreading your eggs” and diversification. Unless you are particularly sophisticated investor and prepared to accept increased risks, we would always advocate a globally diversified portfolio to our clients.
Of the portfolios we currently recommend, you would be very hard pushed to have more than 50% exposure to the UK. Share exposure is then further diluted when you consider underlying exposure to UK Government borrowings also (ie: Gilts).
As always, we will continue to alter and change our clients investments according to market conditions and if you wish to understand and discuss any financial matter further – don’t hesitate to contact your local experts to build your very own Financial Fortress!