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 grew 2.3% over April, its fastest rise since July 2020. The month’s growth more than offset the 1.5% contraction seen over the first quarter of this year.
It’s hoped that, as lockdowns ease and greater numbers are vaccinated against the virus, April should prove the moment we ditched the pandemic contractions for good and cemented a post-pandemic recovery.
There’s still some way to go of course. The UK economy is now 27.6% larger than it was in April 2020, but that tells you more about the severity of last year’s falls than the extent of recent growth. It’s still 3.7% smaller than in February 2020, before the pandemic struck.
But what’s particularly encouraging about April’s growth is that it sketches out what a bounce back, fuelled by re-openings of retail and hospitality, could look like. A 3.4% rise in service sector output drove growth over the month.
Some services saw spectacular growth, rocketed by April’s reopening of customer facing businesses. With self-contained accommodation (such as campsites and holiday lets) back in business, accommodation services grew a remarkable 68.6%, while food and beverage services were driven up 39% by the reintroduction of outdoor seating.
This is all delivering on the Bank of England’s chief economist Andy Haldane’s predictions that the UK economy would rebound like a “coiled spring” ready to release large amounts of “pent-up financial demand”. Evidence so far suggests that the huge levels of savings UK households have accrued since the start of the pandemic - thought to be around £140 billion - are going straight back into the economy.
Further encouragement comes from the fact that April’s data should mark only the start of a much deeper rebound to come. Last month, the Bank of England upgraded its growth forecast to 7.25% for 2021, following rapid progress with the COVID vaccines. A 9.2% rise in retail sales already is highly encouraging, given it wasn’t until 12 April that non-essential retail was opened. Indoor hospitality didn’t reopen until May - again, a positive base in April spells good news ahead for pubs and restaurants.
Of course, now’s not the time to get carried away. We’ve been here before, after all. Growth picked up considerably over the summer months of last year, peaking with a 6.6% rise in July, as sunshine and falling infection rates inspired hopes that the UK had passed the worst of its pandemic plight.
This time we’re aided immeasurably by vaccines, but concerns linger on. A new delta variant of the virus is by far the most prevalent in the UK now. It’s likely the Prime Minister will delay 21 June’s proposed ending of lockdown restrictions as a result. Still, it’s hoped the delays should only last a few weeks until more people had been fully vaccinated, with only a slight impact on businesses.
Moreover, Brexit is still proving difficult. Complications arising from the pandemic and customs controls appear to have calmed, signified by a 2.6% month-on-month increase in trade to the EU, but that’s still well below 2019’s 9.0% average, and 5.7% down on December. Imports, meanwhile, look particularly depressed, down 19.1% on December. Imports from non-EU countries by contrast are up over the same period.
Still, the overall message here is a positive one. The nature of the rebound is broadly in line with city expectations and paints a positive picture of growth ahead. For investors who have turned to their home market as a means to play a cyclical stock market recovery, the signs so far are very encouraging. Value-driven service sectors, which form around 80% of the UK’s overall GDP, look to be first in line to benefit from consumers’ pent-up demand.
Our Select 50 choice of favourite investments features several funds focussed on the UK. Two, Fidelity UK Select and Fidelity Special Situations, are included in Fidelity investment director Tom Stevenson’s fund picks for 2021. You can find out more about those funds here
Another option is the Threadneedle UK Mid 250 fund. As the name suggests, this fund focusses on UK mid-sized companies, which are more domestic focussed than the UK’s largest companies and often have more room to grow, but are typically more established and less volatile than the smallest stocks. Look out for an interview with the fund’s manager, James Thorne, soon on the Markets & Insights hub page.
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 or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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 a Fidelity adviser or an authorised financial adviser of your choice.
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