The case for the UK in 3 arguments. Part 1

Given the fact the UK’s post-Global Financial Crisis recovery has been dogged by referendum’s; Brexit, a global pandemic and war, not to mention 44 days of Truss-mania, it’s unsurprising that average real GDP growth has been slower in this era than has been seen in previous decades.

However, as we stand at the beginning of 2024, our optimism for the UK remains undimmed and can in fact be summarised in 3 arguments.

UK Economy is not an outlier but is performing relatively well.  

For much of 2023 a narrative had developed that the UK was the ‘sick man’ of Europe, with a post-Covid recovery lagging international peers.  Somewhat embarrassingly for declinists, data showing that UK GDP growth had been the worst in the G7 turned out to be incorrect. 

The ONS had a rummage down the back of the sofa and realised that the UK economy was about £50bn larger than it had previously estimated.  Using the revised data, it turns out that the UK’s performance is around the middle of the pack.

Similarly, as inflation rates through much of 2023 remained higher in the UK than the EU there was much theorising about why inflation could be stickier and more stubborn on these isles.  Now, as inflation rates recouple it seems much more likely that any difference between the EU and UK reflects the timing of government intervention in the energy markets and the subsequent impact on other sectors (e.g. food production).

Business investment, which had flatlined in the period after the Brexit vote has begun to show signs of recovery.  Corporate balance sheets are in relatively good health and businesses, with the UK labour market still relatively tight, are taking the opportunity to invest.

While PMI’s can be an imperfect leading indicator, recent readings would suggest that respondents in the UK are more optimistic about their outlook than those in other leading economies.

What is all this telling us?

Throughout 2023, consensus forecasts for UK GDP had to be revised higher and we expect a similar pattern to occur in 2024.  Improving sentiment will benefit a range of sectors, but those viewed as a proxy for the health of the domestic economy (e.g. banks like Lloyds and Natwest Group) we believe should be among the greatest beneficiaries.

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