2018.02: February Economic Review

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

In February, we look at the global and UK economy, along with a focus on investment markets.

Economic Growth

Changes to GDP (Gross Domestic Product) is the main indicator of economic growth.

In the UK, GDP is estimated to have increased by 1.8% between 2016 and 2017, slightly below the 1.9% growth seen between 2015 and 2016.

In Quarter 4 (October to December) 2017, UK GDP was estimated to have increased by 0.5, compared with 0.4% in Quarter 3 (July to Sept) 2017.

Gross Domestic Product: Chained volume measures: Seasonally adjusted £m
Gross Domestic Product: Chained volume measures: Seasonally adjusted £m

Unemployment in the UK continues to fall and Estimates from the Labour Force Survey show that, between June to August 2017 and September to November 2017, the number of people in work increased. The number of unemployed people was little changed, and the number of people aged from 16 to 64 not working and not seeking or available to work (economically inactive) decreased.

Source: Office of National Statistics

According to the World Bank Group’s January Global Economic Prospects (GEP) report, it points out that for the first time since the global financial crisis, all major regions of the world are experiencing an uptick in economic growth, which is good news.

On the other hand, the report observes that growth in investment and in total factor productivity (TFP) has been declining over the past five years and would grow at a slower pace in the future. Thus, the current demand-led recovery is likely to run up against supply constraints.

It will be up to the policy makers around the world to invest and increase productivity. Risks to the outlook remain tilted to the downside. An abrupt tightening of global financing conditions could derail the expansion. Escalating trade restrictions and rising geopolitical tensions could dampen confidence and activity. On the other hand, stronger-than-anticipated growth could also materialise in several large economies, further extending the global upturn.

Interest Rates

The UK Central Bank has kept rates on hold at 0.50%, since November 2017 with an expectation that rates will increase in the near term. The next meeting for the Bank of England is due 22nd March and for now the rate is at 0.50%

In the US of course, rates have already began to rise. The last increase being 0.25% to 1.50% from 1.25% on 13/12/2017.

In other developed markets Europe remains at 0% since the last reduction in October 2016 and in Asia, Japan remains at -0.10% since February 2016.


Inflation measures the increasing price of goods and services used on a daily basis.

The new measure ‘Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.7% in December 2017, down from 2.8% in November 2017. Following a steady increase from late 2015, since April 2017 the CPIH rate has levelled off, ranging between 2.6% and 2.8%. The downward effect came mainly from air fares, along with a fall in the prices of a range of recreational goods, particularly games and toys. The downward contributions are partially offset by an increase in tobacco prices, reflecting duty increases that came into effect following the Autumn Budget, along with an increase in petrol and diesel prices.

The Consumer Prices Index (CPI) 12-month rate was 3.0% in December 2017, down from 3.1% in November 2017.


Below we provide a table of the major sectors that we allocate to when constructing our client portfolios. The data has been sorted over 1 month in order of best to worst returns. We have shown returns on an annualised basis for 1 year and above.

Sector 1m 1yr Ann. 3yr Ann. 5yr
UT Global Emerging Markets TR in GB 2.43 22.35 13.20 7.88
UT European Smaller Companies TR in GB 1.92 25.70 20.62 16.59
UT Europe Excluding UK TR in GB 1.68 18.40 13.26 11.91
UT Asia Pacific Excluding Japan TR in GB 1.09 20.22 13.70 10.58
UT Targeted Absolute Return TR in GB 0.53 3.34 1.89 2.73
UT UK Smaller Companies TR in GB 0.52 24.27 16.16 14.98
UT Sterling High Yield TR in GB 0.43 6.06 5.13 4.74
UT North America TR in GB 0.27 9.91 14.67 16.33
UT Japan TR in GB 0.25 15.53 17.23 15.14
UT Sterling Corporate Bond TR in GB -0.46 5.45 3.16 4.82
UT UK All Companies TR in GB -0.73 12.34 8.20 9.21
UT Property TR in GB -0.84 4.98 4.34 5.80
UT Global Bonds TR in GB -1.08 1.28 3.45 2.42
UT UK Gilts TR in GB -1.78 2.44 1.91 4.22
UT North American Smaller Companies TR in GB -1.79 5.88 14.12 15.54
UT UK Index Linked Gilts TR in GB -2.10 0.67 5.70 6.85

Source: FE Analytics to month end January 2018

UT = Unit Trust, TR = Total Return and in GB = Currency Sterling


During January, gains were seen in most Equity Sectors with Emerging Markets building on its strong performance in 2017, Bonds posted losses across asset classes whilst UK Equities (excl. Smaller Cos) and US Smaller Cos, were the only Equity sectors to achieve a loss during the month.

The month of February has begun with increased volatility in global markets as a correction, appears to have begun with concerns over the tightening of monetary policy, thus reducing and withdrawing quantative easing. This, it is felt will lead to a fall in bond prices and result in increased yields from bonds, which in turn reduces the attraction of equities as an asset class.


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26 Apr 2024

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