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

UK Economic Growth

Changes to GDP (Gross Domestic Product) is the main indicator of economic growth. In Quarter 4 (October to December) 2017, UK GDP was confirmed to have increased by 0.4, which was slightly lower than estimated and compared with 0.4% in Quarter 3 (July to Sept) 2017.

As for Inflation, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.5% in February 2018, down from 2.7% in January 2018. The largest downward contributions to the change in the rate came from transport and food prices, which rose by less than a year ago. The Consumer Prices Index (CPI) 12-month rate was 2.7% in February 2018, down from 3.0% in January 2018.

Estimates from the Labour Force Survey show that, between August to October 2017 and November 2017 to January 2018, the number of people in work and the number of unemployed people both increased, but the number of people aged from 16 to 64 not working decreased.  There were 32.25 million people in work, 168,000 more than for August to October 2017 and 402,000 more than for a year earlier. The employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.3%, higher than for a year earlier (74.6%) and the joint highest since comparable records began in 1971.

Latest estimates show that average weekly earnings for employees in Great Britain in nominal terms (not adjusted for price inflation) increased by 2.6% excluding bonuses, and by 2.8% including bonuses, compared with a year earlier. Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) fell by 0.2% excluding bonuses, but were unchanged including bonuses, compared with a year earlier.

Source: Office of National Statistics

Globally, the theme that all major regions of the world are experiencing an uptick in economic growth for the first time since the financial crisis continues. According to OECD’s latest interim outlook, it expects the expansion to continue and strengthen due to trade and private investment bouncing back. It believes, that the recent fiscal stimulus in the US and Germany will boost further short-term growth, whilst Inflation is set to rise slowly. However, Interest rate nominalisation may   create tensions, with high debt and asset prices being most vulnerable. We are also seeing tensions developing in trade, with a trade war between the US and China being played out. If this continues will most likely be damaging for growth and jobs.

Therefore, It is a question of balance and the OECD believes that the pace of structural reform is slow. Fiscal policy should be supportive but not lead to over stimulate demand and changes in the tax and spending mix would boost long-term growth.

Markets

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 UK Gilts TR in GB 2.06 0.36 2.99 3.55
 UT UK Index Linked Gilts TR in GB 1.91 -0.52 5.63 5.76
 UT Property TR in GB 0.63 2.34 3.39 5.58
 UT Sterling Corporate Bond TR in GB 0.26 1.57 2.85 3.89
 UT Global Bonds TR in GB -0.26 -0.83 3.00 1.68
 UT Sterling High Yield TR in GB -0.57 3.39 3.88 4.09
 UT Targeted Absolute Return TR in GB -0.72 0.98 0.86 2.16
 UT UK Smaller Companies TR in GB -1.49 14.60 13.53 13.14
 UT UK All Companies TR in GB -2.21 2.62 5.65 7.29
 UT North American Smaller Companies TR in GB -2.61 -0.07 9.51 11.82
 UT European Smaller Companies TR in GB -3.29 12.10 15.22 14.40
 UT Europe Excluding UK TR in GB -3.36 5.39 8.57 9.96
 UT Asia Pacific Excluding Japan TR in GB -3.63 6.52 9.96 8.22
 UT Japan TR in GB -3.82 8.61 12.00 11.55
 UT Global Emerging Markets TR in GB -4.15 8.50 10.28 5.74
 UT North America TR in GB -5.63 -0.88 9.78 12.70

Source: FE Analytics to month end March 2018

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

Summary

Following the market highs seen in January, Equity markets experienced losses during February and March. Conversely, Most Bond sectors posted gains.

Overall, the corrections seen during the first quarter have dampened the annual growth across most Equity sectors, with the exception of Japan, Emerging Markets, Asia and stand out performance in the UK and European Smaller Cos sectors.

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