Sluggish UK GDP growth sparks fund manager debate

UK_shoppersThe UK’s GDP figures – released last week and showing weakness in the economy  – prompted asset managers to reflect on the post-EU referendum environment.

GDP growth at 1.5% was at its weakest level since the first quarter 2013.

Michael Stanes, investment director at Heartwood Investment Management, said the firm continued to have a “cautious approach” to UK assets, being short duration in UK gilts, underweight UK property, underweight UK equity and diversifying currency exposure outside of the UK.

“While Brexit has added to the uncertainty, high levels of consumer debt, an unstable political backdrop – even pre-Brexit referendum – and substantial twin deficits as a result of the unbalanced economy have been reason enough for this long-held view,” he said.

However, Ian Kernohan, economist at Royal London Asset Management, dwealt on the fact that there had been growth in business invesment since 2016, despite the Brexit vote, and that the estimate for growth in business investment for the second quarter of 2017 had been revised upwards, to 0.5%. This suggested no major impact from the Brexit vote, he said.  

Meanwhile, Russell Investments downgraded the outlook for equity valuations.

In a commentary last week focused on the interest rate outflook, amid increasing signals of a rate rise in November, the firm said that a rate rise would be a mistake against the backdrop of weak underlying growth.

In its ‘Q4 2017 Global Market Outlook’, Russell Investments maintains a cautious tone on UK assets with concerns around consumer spending and housing, and downgraded the outlook for UK equity valuations to neutral.

Wouter Sturkenboom, Europe, Middle East and Africa senior investment strategist at Russell Investments, said:  “Unless the data weakens over the next two months a rate hike in November is now likely. We think this is a mistake and with time the underlying growth slowdown and lower inflation will turn this into a ‘one and done’ rate hike.”

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