What are we to make of the UK economy at present?

If 2020 has taught us anything, it is that investors and traders should not wholly rely on forecasts and projections when planning for the future. There are simply no certainties, no matter how assured one might feel about a particular event. Tracking the impact COVID-19 is having on global economies and financial markets demonstrates this point well. Sudden troughs, followed by sharp rises, with some sectors experiencing prolonged periods of stagnation as a consequence of state-backed lockdowns. Simply put, 2020 has been a volatile and uncertain year

An economy in recovery

Here in the UK, we find ourselves at another critical crossroads. The country is once again in lockdown, but the measures in place are by no means as strict as those witnessed during the first lockdown in spring. At the same time, the government is betting big; Prime Minister Boris Johnson and his cabinet are hoping the economy will be able to push through this second lockdown without losing the momentum that was recovered in the summer period.

The Bank of England has adopted a similar approach. With interest rates currently at a historic low of 0.10%, it is expected that negative interest rates could very much be on the horizon. Some are anticipating that this could occur as early as Q1 2021. Naturally, the Bank of England is hesitant about moving into negative territory. Should the decision be made, it will be the first-time negative interest rates have been announced by the Bank.

In this event, cash stored in a traditional savings accounts will take a hit. Banks are likely to slash their existing rates further, and this will affect variable savings accounts, such as easy access savings accounts. In short, this means cash savings are actually positioned to lose value in the long-term as they generate virtually no returns. Theoretically, banks could even charge customers for holding their cash, but I doubt this is a likely scenario. 

The decision will no doubt take into account the UK’s latest growth figures. On November 12^th, it was revealed that UK GDP grew by 15.3% in Q3 2020, effectively bouncing back from the economic stagnation of the previous quarter. This news has been warmly received, though it is no cause for celebration once we delve into the finer details. Certain sectors of the economy are still suffering significant setbacks, and with the UK in the midst of the second lockdown, it is anticipated that GDP growth will drop in the ensuring quarter. There is also the question of how the government will cover the costs of the various support packages and financial reliefs that have been announced to support businesses and consumers affected by the pandemic. A significant overhaul of existing taxes could be on the cards in the next budget.

There’s two sides to every story

As someone who works closely with investors and traders to provide them with useful insight and advice, I always emphasize the importance of not letting negative news or events distort from the positive trends also on display. Recent news of a vaccine has instigated a global stock rally, the effects of which were also experienced by the FTSE 100.

On Wednesday 11 November, the FTSE 100 closed at 6,382 points. This is a five-month high and caps off a positive period of investment activity that was first kicked-off following the US presidential election. This brings me back to the original point at the beginning of this article. There are simply too many unknowns to effectively plan for the future. For investors and traders, the key challenge is to ensure they are keeping a keen eye on global events and the impact they are having on the performance of different assets, markets and economies.

Only by closely observing breaking political and economic events will they be in a position to effectively manage their finance and wealth portfolios. With this in mind, those with UK-based assets will do well to observe the latest news concerning Brexit negotiations, not to mention the performance of the FTSE in reaction to both the US presidential election and announcements concerning COVID-19.

One thing is for certain – we are in for another eventful few weeks as 2020 eventually comes to a close.