Prospects for 2018
While UK economic growth picked up a little in the third quarter of 2017 after a sluggish first half to the year, Invesco Perpetuals’ chief economist John Greenwood notes that it remains below its recent trend.
“However, the British economy is likely to draw support over the next 12 months by buoyant elements of consumer and business spending,” says Greenwood. “I expect growth to hold up for two reasons. Firstly, monetary policy has been highly stimulatory, and secondly, the weaker pound has enabled the manufacturing export sector to be much more vigorous than expected.
“The UK labour market also appears to be in good health – the economy continues to generate good job growth, the unemployment rate is very low and the participation rate is at a record high.”
Of course it’s not all good news. In November the Bank of England raised interest rates for the first time in a decade and Greenwood notes that in addition to imported inflation, there is a danger that accelerated monetary policy and credit expansion in the UK could add locally generated inflation to rising important prices.
“I expect growth to settle around 1.5% until the uncertainties of the Brexit negotiations are overcome,” he says.
Turning to politics, Neptune’s Martin says the Tory party faces undoubted challenges over the course of 2018 and as such, he stresses it would be dangerous to assume that domestic politics will be less complicated next year.
“The prospect of a general election in 2018 should not be ruled out and any further improvements in the chances of Jeremy Corbyn as the next Prime Minister would likely cause ructions in domestic stock markets,” says Martin. “Global geopolitics may also become more complex in 2018 as tensions rise in Asia and the Middle East in particular.”
In terms of his funds, Martin says although valuations are low for certain domestic cyclical stocks, he is continuing to avoid the broader sector.
“Instead we are focusing on overseas earners and those domestically-focused companies that are exposed to non-discretionary spending.”
