This morning’s news that the UK GDP figure for August was below expectations, has added further concerns to an already nervous market. It’s also given investment managers and advisers even more to think about amidst all the turbulence.
So what has been the reaction to today’s GDP numbers from investment and wealth experts? Are they more concerned about recession as a result? And what might all this mean for investors?
Below we’ve shared a few of the views that have been shared with IFA Magazine this morning, showing there is clearly concern in the market:
George Lagarias, Chief Economist at Mazars says: “The global economic slowdown can’t leave an open economy like the UK unscathed. We believe that we are at the beginning of the recession cycle, not the end. Economic activity may well remain lacklustre well into the next year and could be further exacerbated if the Bank of England hikes rates too aggressively to defend the Pound.
“UK GDP for August contracted at a faster pace than expected, mostly due to a significant slowdown in industrial production. Manufacturing weakness has persisted, despite the weaker Pound, as global demand is waning.”
Marcus Brookes, chief investment officer at Quilter Investors commented on today’s data as follows:
Considering the daily headlines centred on Britain’s finances it comes as no surprise that after a surprise bounce back in growth in the UK in July we’re faced with a disappointing set of results in August which show that GDP is estimated to have fallen by 0.3%. This might be even lower when we get to September’s results that will include an unexpected Bank Holiday and 10 days of national mourning.
While this figure is not what the country wants to see, it won’t make much of a difference to the path we are already on. The Bank of England (BoE) will continue to increase its base rate at it battles to tame runaway inflation. The BoE continues to face the incredibly difficult task of guiding the country through this uncertain period where it finds itself in a rock and a hard place by raising rates to meet inflation but embarking on a gilt buying operation to help steady the markets following the turmoil precipitated by the mini budget.
Whether the Conservatives stance against the so called “anti-growth coalition” actually ends up producing growth is yet to be seen. What is likely though is that due to a combination of rising mortgage bills, higher energy bills and ever-increasing inflation the next few months are likely to prove difficult for everyone including government, businesses and households.
For investors, however, a lot of this angst is already priced in by the markets, albeit with some additional volatility. The biggest risk, therefore, is that investors flee from the market at just the wrong time and miss out on the opportunities that volatile times bring. Looking for quality businesses is going to be increasingly important as these might be the ones that can ride out this short to medium term volatility and profit from any eventual market rebound.
James Lynch, Fixed Income investment manager at Aegon Asset Management comments:
“August GDP numbers out today, which were slightly weaker than expected at -0.3% mom (month on month) contraction, and now -0.3% for last 3 months.
“Manufacturing looking particularly grim, the July number was revised down to -1.1% and August was -1.6% mom. Given the bank holiday in September, this is most likely to be another negative month. A contraction in GDP for Q3 now looks quite certain. This comes off the back of strong employment numbers yesterday with another drop in the unemployment rate to 3.5% and wages increasing to 6% (average weekly earnings). However, it is not a stretch to say we are near full employment and with input costs increasing along with the rise in wages, it’s a struggle to see where the catalyst is for a turn around to this slump in activity.”
Commenting that the latest UK GDP data is unlikely to dissuade the BoE from raising rates, Rupert Thompson, Investment Strategist at Kingswood, said: “The latest UK GDP numbers were disappointing. Activity unexpectedly shrank 0.3% in August, as a result of weakness in the manufacturing and energy sectors, and the gain in July was revised lower to 0.1%. Even so, this decline looks very unlikely to dissuade the Bank of England from raising rates by an outsized 0.75%, or possibly even a full 1%, at its next meeting on 3 November.”
Samuel Fuller, Director of Financial Markets Online, believes that today’s GDP data puts recession “firmly on the cards” as he comments:
“This is a big miss against expectations, with the economy falling harder than forecast. It means a third quarter contraction is all but guaranteed given the impact the Queen’s funeral will have had in September.
“This puts a recession for the second half of the year firmly on the cards, coming in at the front end of Andrew Bailey’s expectations.
“Recessions are often accompanied by rising unemployment, which isn’t something we’ve seen so far. Unemployment is still at multi-decade lows but what is already present is a significant rise in government borrowing. This surprise change in direction at the mini-Budget means Bailey doesn’t know whether he’s coming or going at the moment.
“The outlook is changing on a daily basis, investors don’t know which way to look and key objectives for the Bank, like the reversal of quantitative easing, are being kicked to the side to make way for sudden changes in government policy. Markets don’t like fluid uncertainty like this, it’s doing nothing to inspire confidence and the pound will inevitably continue to feel the pressure. Gone are the days of forward guidance, markets don’t know what will happen tomorrow let alone in six months’ time.
“One concern is that manufacturing, though not as important to the UK economy as it once was, has dragged GDP down even with the helping hand of a weak pound. This is not a good sign. Recent revisions to the data meant the UK can’t have entered recession in the second quarter but that now looks like a stay of execution. Businesses have been told to expect one and the conventional bedfellows of a contraction, namely rising unemployment and slowing retail sales, could start to emerge as the end of the year approaches.”
Douglas Grant, Group CEO at Manx Financial Group PLC, said: “Today’s UK GDP data indicates a contraction in August after a year of sluggish growth, providing a stormy and turbulent environment for SMEs. On top of unprecedented market volatility seen in the past few weeks, the disappointing GDP figure will compound the worst effects of rising inflation and the energy crisis. We believe that demand for liquidity support in the UK is going to soar to levels seen at the onset of Covid lockdowns as firms desperately seek vital capital.
“While the Government’s recent emergency intervention on energy costs for SMEs provided some relief, we believe that much more needs to be done. Our research recently revealed that 22% of UK SMEs that needed external finance and/or capital over the last couple of years, were unable to access it. Indeed, more than a quarter have had to stop or pause an area of their business because of a lack of finance. SMEs continue to struggle with accessing finance and that worryingly, this lack of availability is costing them and the UK economy in terms of growth at a time when it is needed the most. The amount of growth that is being sacrificed is significant and will require new solutions which are designed to address this funding gap.
“For some time, we have been calling for a sector focused permanent government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs. As the government looks for other ways to power the economy’s resurgence, the importance of a permanent scheme should not be understated, it could act as the fundamental difference between make or break for many companies, and in turn, our economy. We very much hope this is something that becomes a reality.”