Whatâs Going On Here?Fresh data out on Friday showed the UK set a dire record last year: the country's economy shrank by the most in over 300 years. What Does This Mean?Economic growth data isnât perfect: itâs a lagging measure, so it arrives too late to make much difference to investorsâ forecasts. But it is useful to lay bare the pandemicâs effects around the world, from the US economyâs 4% shrinkage last year to the eurozoneâs 7% â and now the UKâs 10%. Still, the Bank of Englandâs not wallowing in self-pity: its chief economist reckons the UK could surprise most forecasters and announce annual growth of 10% or more by this time next year (tweet this). Why Should I Care?For markets: Thereâs good news and thereâs bad news.
On the positive side, the UK economy unexpectedly grew by 1% last quarter compared to the one before. That was mostly down to plenty of government spending, as well as the boost the hospitality industry earned from relaxed restrictions around Christmas. But that wasnât enough to rescue the year as a whole, and hopes arenât high for this quarter either: between a still-rampant health crisis, a potential post-Brexit collapse in exports, and new strains on the countryâs financial services sector, most economists think the UK economy will shrink yet again.
Zooming in: Thereâs opportunity in a crisis.
The UK does have a couple of things going for it: the countryâs ahead of the curve in its vaccine rollout, and a big rise in the household savings rate suggests thereâs cash just waiting to be spent. Both factors could set Britain up for a robust recovery, and it could be its beaten-up services sector â which accounts for 80% of the countryâs economy â that stands to benefit the most. That benefit should show up on certain companiesâ bottom lines, and they might see their long-ignored shares suddenly back in fashion. | 