Investment Clock insights

Economic times

Ian Kernohan

10 May 2015

Having suggested last month that the main PMI surveys pointed to somewhat stronger GDP growth in Q1, the preliminary estimate of UK GDP suggested that the growth rate actually halved, from 0.6% to 0.3% in the previous quarter. I always treat early estimates of GDP with caution; with very little hard data available to the Office of National Statistics (ONS), these figures can often be revised quite substantially, sometimes years after the period in question. I would expect this number to be marked up over time.

There is however some evidence in the main business surveys that political uncertainty has impacted the economy in the weeks leading up to the General Election. Many households and firms will be postponing decisions until the fog clears. If the political horse trading lasts only a few weeks, then there will be limited damage to economic confidence. However, the prospect of a follow-up election later in the year will only add to the uncertainty and could put downward pressure on GDP forecasts for 2015.

Given the scale of the budget deficit, a further fiscal squeeze is likely over the next few years, although I would not expect this to be as severe as the current coalition plans suggest, even if a Conservative led government is returned to office. Those plans were partly an attempt to reassure markets that deficit reduction would continue, however they were more about trying to make the Labour party look profligate. Low government borrowing costs and the flexibility provided by an independent monetary policy should allow a less draconian fiscal stance.

The value of your investment and the income from it is not guaranteed and can fall as well as rise. This article is for professional customers only. The views expressed are the author’s own and do not constitute investment advice.