Economic Monthly Review – July 2018

ContractorUK has provided the following brief overview of the economic landscape and a background into the current market. 

GDP boost

The UK economy picked up some momentum during the three months to May as the hot weather and royal wedding sparked a modest rebound from the lacklustre performance recorded in the early part of the year. Last month saw a new monthly reading of gross domestic product (GDP) launched by the Office for National Statistics (ONS). This showed that the UK economy grew by 0.3% in May, compared to 0.2% in April and zero growth in March, while the average growth rate across the three months to the end of May was 0.2%.

Inflation remains at 15-month low

The rate of inflation in the UK remained unchanged in June, confounding a majority of economists who had predicted that a build-up in price pressures was set to push the figure higher. ONS data showed that the Consumer Prices Index 12-month rate – which compares prices in the current month with the same period a year earlier – held steady at 2.4% in June 2018. This was the third month in a row that this measure of inflation had remained at this level, which is the lowest rate of inflation since March 2017.

FTSE is on the up

The FTSE100 ended July on an upbeat note, rising by 1.46% over the month. This surge was fuelled in part by gains during afternoon trade that followed a report that the US and China may restart discussions aimed at resolving trade conflicts. Mining stocks on the FTSE100 leapt as China is a major buyer of industrial and precious metals, including copper. The basic materials and health care sectors led advancers, while the telecommunications and technology groups led decliners. The blue-chip gauge closed up 0.6% on the day at 7,748.76. The FTSE250 closed up 46.9 points at 20,877.87 a gain of 0.23% for the month. The junior AIM also ended the month up 10.39 points or 0.96% at 1,092.84.

Labour market remains strong

The latest official employment statistics show that the UK labour market remains in a robust state, with the proportion of people in work rising to yet another record high. Data from the Labour Force Survey showed that the number of people in work rose by 137,000 during the three months to May 2018. As a result, the overall employment rate (the proportion of 16–64 year olds in work) rose to 75.7%, the highest figure since comparable records began in 1971.

The data also showed that the number of people unemployed stood at 1.41 million in the three months to May, 12,000 fewer than in the previous three-month period. This left the unemployment rate at 4.2%, down from 4.5% a year earlier and the joint lowest level since 1975.

Gloomy for public finances

The UK government’s independent budget watchdog has painted a relatively bleak picture of the state of the country’s public finances over the longer term. Updated projections of government finances over the next 50 years were recently published by the Office for Budget Responsibility (OBR) in its latest Fiscal Sustainability Report. And the forecasts suggest that public finances are set to come under significant pressure over the long term. The worsening situation is largely due to two factors: the Prime Minister’s currently ‘unfunded’ £20 billion NHS spending pledge announced in June and the impact of a population that is ageing faster than previous projections had implied.

Editor’s Note: This economic overview has been sourced from Contractor Wealth – providers of Pensions, Savings and Investments.