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UK economy: how are we doing?

Daniel Lane

Daniel Lane - Fidelity Personal Investing

Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

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UK economic growth ground to a halt at the end of last year, according to the Office for National Statistics (ONS). The country’s manufacturing sector saw a third successive quarter of negative figures, along with a slowing service sector during December’s election.

Rob Kent-Smith, head of GDP at the ONS, said: "There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry."

Output in the manufacturing sector fell by 1.1% after some car factories downed tools in November in fear of a no-deal Brexit.

But, despite the flat reading, all is not lost. In fact, there could be a promising start to 2020 as we edge away from a year of uncertainty.

After contracting in November, the ONS says the economy grew by 0.3% in December, as the election and further clarification on Brexit took some of the unknowns off the table.

And, as Jonathan Wright wrote last week, more recent surveys suggest the economy is continuing to click back into gear this year.

Three IHS Markit/Cips Purchasing Managers Index (PMI) surveys out last week suggest some optimism is in the air.

The PMI surveys are published monthly and scrutinised by business decision makers, market analysts and investors as they provide a real-time indication of the state of an industry sector often before comparable, official statistics are published.

Manufacturing, construction and services PMIs showed a marked improvement on the previous survey - UK Plc will be hoping the confidence continues through any eventual knock-on effects of the coronavirus.

This could all mean that we look back on the start of 2020 as a turning point in the UK’s fortunes. Businesses muddling through with little in the way of certainty since the EU referendum now look to be in higher spirits. In particular the services PMI, which includes banking, insurance, restaurants and hotels (or around 80% of the UK economy) came in at 53.9 in January - its highest level in 16 months and up from 50 in December.

Values kept low, or just overlooked, by investors shying away from too many unknowns in the UK over the last few years, could start to become attractive as greater business and political stability unfolds.

The Select 50 has a few funds focused on taking part in the turnaround of lowly-valued firms, whose shares offer potential for returns upon the market realising their value. Alex Wright’s Fidelity Special Situations Fund is one example, looking to capitalise on companies going through periods of management transition but with hope ahead, or simply those companies unloved and undervalued by the broader market.

Jupiter UK Special Situations is a new addition to the list. Managed by Ben Whitmore, the investment process is focused on identifying lowly valued companies with resilient balance sheets. However, Ben will not simply buy into the cheapest names that pop-up on his screens. Instead, he seeks to diversify his stocks by keeping sector concentration low.

The Lazard UK Omega Fund might be less contrarian than the other two but still holds a large cap value-tilt to the selection process for the portfolio. I caught up with manager Alan Custis recently to talk about the fund and how he is positioned for 2020.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy funds. Equally, if a fund you own is not on the Select 50, we're not recommending you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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