Investment Managers React To GDP Rebound In UK

Amanda Cheesley Deputy Editor 14 March 2023

Investment Managers React To GDP Rebound In UK

After gross domestic product was up 0.3 per cent in January, investment managers discuss what this means for the economy, ahead of the Spring Budget.

Latest GDP figures from the Office for National Statistics show that the UK economy grew by 0.3 per cent in January, after a 0.5 per cent fall in December, due largely to the services sector.

However, it was not all good news as both the construction sector and the wider industrial production sectors contracted by more than expected. Uncertainty over investment projects, delays and falling residential house prices were all cited as reasons for the 1.7 per cent fall in construction activity.

Ahead of Wednesday’s Spring Budget, here are some reactions from investment managers on what the rebound means for the economy, interest rates, and the likelihood of a recession.

Although the 0.3 per cent rebound in GDP growth was better than expected, the UK economy still faces a number of challenges, Azad Zangana, senior European economist and strategist at Schroders, a global investment manager, said.

The headwinds facing the construction sector are only likely to intensify as house prices fall further in response to rising interest rates. Although the growth figures are better than expected, they only partially offset the fall in activity recorded in December. Moreover, much of the rebound can be explained by the reversal of on-off effects. The underlying challenges that the economy faces, such as high inflation, rising interest rates, and rising tax burden, all remain.

Inflation is forecast to fall back in the coming months, helping to ease pressure, but it will take time for the economy to adjust to higher price levels. Moreover, although we do not expect the Bank of England to raise interest rates any further, there is a delayed impact from rising rates. By the end of this year, many more households will have come off their fixed rate mortgage deals and will face a sizeable shock when they try to re-finance.

Wealth Club
Jonathan Moyes, head of investment research, Wealth Club said: “It may take a great deal more expectation beating data to shift the bleak expectations for the UK economy. However, a quiet, more optimistic, consensus does appear to be forming. The economic outlook is much improved, energy prices are falling sharply, China is reopening, and interest rate expectations have eased significantly. 

All eyes will now turn to Jeremy Hunt and the Spring Budget next week. With a chorus of voices calling for some relief from the highest tax burden in living memory, will the Treasury spend this unexpected growth windfall?”

Saxo UK
William Marsters, senior sales trader at Saxo UK, said: “Again, the UK manages to reduce the risk of recession as the country prints a stronger-than-expected MoM GDP figure for January. With a recession almost a done deal a few months back, the economy has fought back strongly with the likes of the services sector performing well in recent weeks.

“Despite the good news for now, a recession remains very much on the horizon as the UK enters a period of contraction. A number of companies such as Sky, Taylor Wimpey and Ford have already announced job cuts in recent weeks, which could be a telling sign for what’s to come. Interest rates are also expected to be hiked again by the Bank of England later this month, with which a significant rise could tip the scales. The government has a number of economic challenges to face, many of which will hopefully be addressed in Wednesday’s Spring Budget with high inflation, energy bills and interest rates heavily impacting households and businesses up and down the country. This, coupled with the risk of recession in the coming months, will have thousands hoping that Chancellor Jeremy Hunt can lay out a path to financial stability for the long term.”

BRI Wealth Management
Tom Hopkins, portfolio manager at BRI Wealth Management, said: “UK GDP came in +0.3 per cent month on month, beating consensus expectations of +0.1 per cent. Today’s figure shows a rebound in the UK economy from the -0.5 per cent slump we saw in December. These monthly figures can be difficult to read owing to some sensitivity to distortions over the last six months, for example the Queen's Funeral and the Football World Cup which partially affected consumer services.

“The underlying trend in the economy appears to be one of gradual contraction, thanks in part to an ongoing downtrend in retail spending. We’re expecting a technical recession in the UK in the first half of this year, albeit one that’s not as bad as first feared. The fall in wholesale gas prices should help consumer bills fall by the summer limiting further damage on consumer spending. It’s clear that consumers are still out spending, high streets are still busy, and restaurants are full.  However, we would caution on how long these last, household incomes continue to be squeezed and as interest rate rises filter down to the real economy, we suspect a slowdown will continue.”  

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