In this Quarter, we look at the Global and UK economy, along with a focus on investment markets.

UK

GDP

UK gross domestic product (GDP) was estimated to have increased by 0.1% in Quarter 1 (Jan to Mar) 2018 compared with growth of 0.4% in Quarter 4 (Oct to Dec) 2017. . GDP was 1.2% higher in Quarter 1 2018 compared with the same quarter a year ago. This is the 21st consecutive quarter of growth since Quarter 1 (Jan to Mar) 2013.

Interest Rates

Interest Rates remained at 0.50%, despite some members of the committee keen to push ahead with 0.25% increase. It would appear that the lower than expected GDP estimate for Q1, has influenced the Bank of England to hold rates.

Inflation

The Consumer Prices Index including owner-occupiers’ housing costs (CPIH) 12-month inflation rate was 2.2% in April 2018, down from 2.3% in March 2018. The rate has fallen back from a recent high of 2.8% during autumn 2017 resulting in the April 2018 figure being the lowest observed since January 2017.

House Price Index

Average house prices in the UK have increased by 4.2% in the year to March 2018 (unchanged from the year to February 2018). The annual growth rate has slowed since mid-2016 but has remained broadly under 5% during 2017 and into 2018. In the longer term, decisions to buy houses and prices may change as households reassess the economic and their financial situations post-EU referendum.

Source: ONS

Global

The U.S. economy is experiencing one of the longest expansions on record, but the scars left by the Great Recession, as well as challenges posed by globalization and automation shocks, remain visible across the country, according to a new report from the OECD.

“The  U.S. economic recovery and expansion has been remarkable and appears set to continue for the coming two years,” said OECD Secretary-General Angel Gurría, launching the Survey in Washington, D.C., alongside Kevin Hassett, Chairman of the Council of Economic Advisers. “But there are also some serious risks on the horizon, including trade policy, that could threaten much-needed growth, both here in the U.S. and in many other OECD countries. Further policy reforms are needed to sustain the expansion and ensure that all Americans benefit from stronger and more sustainable growth.”

According to the International Energy Agency, Thomson Reuters and OECD calculations Oil Prices have risen significantly over the past year due to the increase in demand verses supply.

According to the latest OECD report, global growth is set to remain close to 4% in the next two years.

The expansion is set to persist over the next two years, with global GDP projected to rise by close to 4% in 2018 and 2019. Growth in the OECD area is set to remain around 2½ per cent per annum, helped by fiscal easing in many economies, and will strengthen to close to 5% elsewhere. Although job growth is likely to ease in advanced economies, the OECD-wide unemployment rate is projected to fall to its lowest level since 1980, with labour shortages intensifying in some countries. Wage and price inflation are accordingly projected to rise, but only moderately, given the apparent muted impact of resource pressures on inflation in recent years and the scope left in  some economies to strengthen labour force participation and hours worked.

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 Ann. 10yr
UT North American Smaller Companies TR in GB 8.58 16.66 15.46 14.50 13.35
UT North America TR in GB 5.49 10.75 14.28 14.19 11.78
UT UK All Companies TR in GB 2.81 6.68 6.66 8.20 7.00
UT UK Smaller Companies TR in GB 2.60 12.74 13.30 14.07 11.28
UT Asia Pacific Excluding Japan TR in GB 2.59 11.08 12.12 9.87 8.76
UT UK Index Linked Gilts TR in GB 2.44 -1.79 6.74 6.68 7.39
UT European Smaller Companies TR in GB 2.20 8.26 15.88 14.96 10.64
UT UK Gilts TR in GB 1.74 0.01 4.29 4.46 5.82
UT Japan TR in GB 1.74 12.49 13.14 12.09 8.09
UT Property TR in GB 1.00 4.86 4.85 5.94 2.24
UT Global Bonds TR in GB 0.27 -0.64 4.23 2.16 4.71
UT Europe Excluding UK TR in GB 0.26 2.30 9.66 9.96 6.47
UT Sterling Corporate Bond TR in GB 0.04 -0.13 3.63 3.96 5.34
UT Targeted Absolute Return TR in GB -0.45 0.48 1.10 2.02 2.67
UT Global Emerging Markets TR in GB -0.53 7.36 10.79 6.77 5.11
UT Sterling High Yield TR in GB -0.80 1.39 3.68 3.89 5.79

Source: FE Analytics to month end May 2018

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

Summary

Almost every Equity sector continued to build on April’s strong performance by posting further positive results. In particular, returns from the US sectors were high. Conversely, the few sectors with negative returns were Absolute Return, Global Emerging Markets and Sterling High Yield Bonds.

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