A ‘No Deal’ Brexit, a snap general election – political uncertainty is everywhere. Coupled with weak economic data, there is a danger that the UK will slip into recession sooner rather than later.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply (CIPS), fears economic turmoil ahead: “With a dampened mood across the sector, if a general election is also thrown into the pot of political turmoil in the coming months, then the service sector runs an even greater risk of following the manufacturing and construction sectors into cutbacks, cost-cutting and reduced workforces.”
Data firm Markit’s composite PMI, which tracks the private sector, said activity shrank in June for the first time since 2016. The service sector stagnated, while manufacturing and construction both shrank sharply.
Brexit and global trade concerns is the likely explanation for poor manufacturing data, in regards to construction contraction, this might be simply due to a lack of confidence hurting investment.
“Recent data also raise the possibility that the negative spill-overs to the UK from a weaker world economy are increasing and the drag from Brexit uncertainties on underlying growth here could be intensifying. The latest surveys point to no growth in UK output.”
The outgoing Bank of England, Mark Carney famed for his “Project Fear” stance, is fuelling the fire of a stalled UK economy, he said recently: “Growth in the second quarter will be considerably weaker, in part due to the absence of that stock building effect and Brexit-related, temporary shutdowns by several major car manufacturers.”
“Recent data also raise the possibility that the negative spill-overs to the UK from a weaker world economy are increasing and the drag from Brexit uncertainties on underlying growth here could be intensifying. The latest surveys point to no growth in UK output.
“Looking across the first half of the year, in my view, underlying growth in the UK is currently running below its potential, and is heavily reliant on the resilience of household spending,” says Andrew Wishart, UK economist at Capital Economics.
What should IFAs be telling their clients?
Perhaps, firstly “not to panic”.
In a recent article written by chartered financial planner (CFP) Martin Bamford in Money Marketing, Bamford says sound financial planning is key: “Apply some of the fundamentals [of sound financial planning], including diversification, holding healthy cash reserves, and modelling catastrophe scenarios.”
Kay Ingram, director of public policy, at national IFA firm LEBC wrote in her blog in February (before the first Brexit deadline) that investors need to protect themselves from political uncertainty: “Investors should … take a longer-term view and unless funds are needed for immediate spending, staying invested is likely to be the better long-term strategy. To some extent, stock markets are already priced for disruption and slower growth, so keeping calm and continuing to invest, is likely to be beneficial over the long term.
“Investing little and often through regular saving, rather than investing lump sums can help smooth short-term market volatility. Yet those who have not yet used their tax-free ISA savings allowance need to do so before the end of the tax year or lose the opportunity to tax shelter savings. Some ISA providers will phase in the investment, so investors can pay in up to £20,000 before 5 April, but have it invested in shares over a longer time frame. This could avoid sharp losses if no deal is achieved but could miss out on any rise should a smooth exit be the outcome.”
Is the UK on the brink of recession?
— Adviser-Points-of-View (@adviser_pov) August 29, 2019