There is no doubt that the UK was expecting a slowdown in the latter half of this year and since the...
There is no doubt that the UK was expecting a slowdown in the latter half of this year and since the terrorist attacks in the US the downturn has steepened, but recovery is only expected to be delayed by two quarters.
Interest rates have been cut by the UK government and the combination of worldwide rate cuts and the US announcements of tax breaks and infrastructure spending is expected to help global economies stabilise.
Calvin Vaudin, investment manager of pan-European equities at Ashburton Investment Managers, is predicting that because the UK has fallen into a recession it could increase the speed of the bounce-back.
He says: 'The good thing about being pushed into a recession is that the recovery could be V-shaped. There is a 70-80% chance this will happen and the recovery will only be delayed by two quarters. It is possible that with the cut in interest rates and boost in liquidity, we could see the start of equities recovering in the first quarter next year.
Bob Morris, senior UK fund manager at HSBC Asset Management, agrees but believes it will be difficult to generalise across industries.
He says: 'The UK economy is robust. Consumer spending is holding steady while the low interest rate environment is buoying the housing market.'
Andrew Smith, chief economist at KPMG, says there are mixed reports about how consumers have reacted to the US attacks. He says a recent MORI poll showed economic optimism was lower than in the 1992 recession; but a similar survey, sponsored by the European Commission, reports the consumer confidence index only dropped to -3% post 11 September, compared to -1% at the start of September and 0% in August.
At Singer and Friedlander, Tim Howe, deputy chairman of the investment management holdings group, is not so sure if consumer spending or the housing market will hold steady. But he says GDP as a whole will be positive and he doesn't think the UK is going into recession.
According to Morris, corporate investment will take longer to recover as corporations go through cost cutting exercises such as reducing staff numbers.
The Consensus Forecast, which published revised GDP forecasts on 25 September, predicts a 1.5% year-on-year GDP growth in Q4. Although the investment companies remain upbeat about the future of the UK economy, one proviso is to see how the war develops.
Vaudin says: 'If bin Laden begins to get other countries involved in terrorism then we'll have another sharp fall in the economy followed by an L-shaped recovery. But as nobody knows what is going to happen next, it is this uncertainty that makes a volatile market.'
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