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Weekly Bulletin: A cocktail of UK-centric news holds the headlines

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Investment Team

5 min read

UK economic growth data is improving, with some caveats, though sterling fell amid yet another Brexit-related scandal. The latest export data implied that China’s economy – seen as a blueprint for post-pandemic recovery – is picking up.

Key takeaways

Growth in the UK economy has continued to recover from its lowest point in the spring. Since then, monthly increases in economic activity have been relatively strong, although the pace of the recovery appears to be slowing. The economy remains 11% below pre-pandemic levels, and this weaker progress is likely to be a continuing trend in the months ahead.

  • Meanwhile, rising coronavirus cases in the UK has caused considerable alarm. The average rate of confirmed new cases is now four times higher than in mid-July, though it is important to remember that mass testing is a very recent development, and that the peak of the virus in the UK was previously underreported. Nevertheless, the scientific community remains decidedly sceptical about the oft-quoted ‘normal by Christmas’ message from Prime Minister Johnson. Indeed, the government has tightened restrictions on gatherings once more in response to the rising rate of infection. Concurrently, medical progress towards treatments and vaccines continues, although with many road bumps along the way.

  • Sterling continued to weaken versus international peers over the course of the week, no doubt pushed lower by the government’s apparent disregard for international law (in a ‘limited and specific way’) with its Internal Market Bill. The bill could override sections of the Brexit Withdrawal Agreement, and the news of its drafting led swiftly to a standoff between the Scottish and UK governments. Over the weekend, backbenchers in the Conservative Party looked ready to break ranks and rebel.

  • In China, the latest economic data pointed to good news for exports, which have recovered well from their February lows. As the earliest country affected by COVID-19, China’s path to recovery is often viewed as a blueprint for others. Given the point of origin for the virus, there is some irony to be found in the news that exports of healthcare equipment (PPE) and electronics (satiating locked-down consumers and demand for home office equipment) are fuelling this recovery. At the same time, consumers in China are yet to return to their former strength, as highlighted by still relatively anaemic import figures.

Weekly market moves

  • Global stock markets ended the week on a positive note, with European and UK stock markets doing especially well. Larger UK companies were boosted by weakness in sterling, resulting in the FTSE 100 perking up.

  • The oil price dropped due to Saudi Aramco’s decision to cut prices for Asian and US customers. Prices have now fallen just below the $40 per barrel threshold, where they had stayed for some time.

  • Technology stocks continued to give back some of their outperformance in an otherwise extremely strong year.

What to look out for this week

  • Japan’s new prime minister will be ratified on Wednesday. As one of outgoing leader Shinzo Abe’s cabinet ministers for eight years, Yoshihide Suga is expected to represent continuity. A snap election could soon be held to capitalise on his popularity.

  • Central banks in the UK, US and a number of emerging market economies are due to announce their latest policy updates this week.

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Investment Team

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