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.
The UK economy continues to recover, official data confirmed today, but the rebound in activity in August was below forecasts and leaves the UK still significantly behind its pre-pandemic level.
Monthly gross domestic product (GDP) data for August from the Office for National Statistics showed growth of 2.1%, which in normal times would signal a strongly growing economy but right now represents a slowing of the recovery and may be a sign that the growth lost since Covid-19 struck will not be recovered for some time to come.
The growth we did see can be attributed in great part to a resurgence in the ‘accommodation and food services’ sector where activity grew by 71.4% following the successful ‘Eat out to help out’ scheme. The scheme offered diners up to £10 off the price of a meal out and ushered many patrons back to bars and restaurants for the first time since lockdown was imposed in March. Of the 2.1% overall GDP growth, 1.25 percentage points came from food services.
It leaves UK GDP 9.2% below where it was in February - the kind of gap that will take a long time to close if growth is slowing, as it appears to be. After the dramatic shock to the economy in March, leading to a 19.5% drop in GDP in April, the economy has been fighting back with 9.1% growth in June and 6.3% growth in July. The August figure of 2.1% now means the hoped-for V-shaped recovery seems unlikely to be completed, particularly as further local lockdowns have been imposed since August and rates of infection of the virus are currently going in the wrong direction.
But enough of the bad news. Despite the disappointing growth figures, UK stock markets seemed at ease this morning. The FTSE 100 added around 0.6% in early trading, bringing the index back above the 6,000 mark where it has hovered for much of the year since March. Even the FTSE Small Cap Index, which is made up of more domestic-facing small companies that might suffer more if growth in the UK slows, made gains. It rose 0.35% this morning.
That suggests that investors have priced in much of the bad news for the economy and are willing to hold their nerve for now. There will undoubtedly be tests to come as the autumn turns into winter and news on Covid gets yet more difficult, but there’s also a chance that news on fewer fatalities, therapeutics and even a vaccine could surprise to the upside as well.
As always, it is a good time to remember some basic investing principles to prepare for the months ahead: staying invested reduces the risk that you’ll time any large move out of markets badly; being properly diversified across regions and assets means losses in one part of your portfolio have a chance of being made up elsewhere; contributing regularly takes the psychological stress out of investing and means that, if markets do fall, you’ll at least be taking advantage of lower prices when you buy.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. 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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