Our Opinion: 2019
The UK economy is having a run of success.. despite the political mess.
Britain’s politics are a mess. As a consequence, its citizens have never, perhaps, been more engaged. The London paper, City AM recently said that this is a healthy development, describing it as “British parliamentary democracy in all its messy, technical, infuriating glory. It’s boisterous and complicated and unpredictable – but it’s working”.
But even if you do accept that our political system could do with a workout, the headlines of “humiliation”, “shambles”, “crisis,” do little to inspire confidence in the United Kingdom.
And if you look at the financial markets, Britain’s is under-performing. Sterling has edged higher, as tends to happen when the prospect of leaving the EU grows less likely, but it’s still at levels we hadn’t seen since the mid-1980s, prior to the 2016 vote to leave.
As for stock-markets, as the Financial Times pointed out earlier this week, shares in the FTSE Local UK index (which looks at companies which generate at least 70% of their revenue in the UK) have done far worse than the globally exposed ones in the FTSE 100, which, itself, has been lagging behind global markets.
And according to the most recent Bank of America Merrill Lynch survey, global fund managers are still using Brexit as a good excuse to avoid the market altogether.
Given all this, you might assume that Britain was in economic meltdown. In fact, it’s closer to the truth to say that Britain’s economy is enjoying something of a run of success.
We recently learned that employment is at its highest level since records began in 1971. Unemployment is below 4% for the first time since 1975. Inflation is on track to achieve the Bank of England’s target level – regardless of which measure you use. Partly as a result, wages are finally rising at a decent rate in real terms (after inflation). Meanwhile, house-price growth has stalled, which might sound bad, until you remember that much of our current political turmoil is down to the fact that so many people British feel “locked out” of the property market.
It’s an important reminder that while politics, the economy and financial markets are intertwined, they often don’t reflect each other in the way you might assume. It’s also a valuable reminder that sometimes the best opportunities arise when investors forget that fact.
Starcapial recently completed a study on stock-market valuations in global markets. It shows the UK edging into bargain territory – ranking 12th-cheapest out of 40 markets, and not much more expensive than either Portugal or Hungary. At these prices, the UK provides attractive potential for a strong recovery, however the politics may look.
1st April 2019
