Brexit and Trump have dominated headlines this week. From the Supreme Court ruling that parliament had to vote on Article 50, to Trump announcing that he will build a wall along the Mexican border, it feels like the news stories continue to grow in magnitude. When the headlines create such debate it’s easy to overlook the very real impact these issues can have on our everyday finances.
UK GDP beats expectations
Whilst the headlines grow and grow, so does the UK economy. Fourth quarter GDP grew by 0.6% which was above expectations. But there is a question of how long this will last. As we know from ‘Project Fear’ many economists expected a ‘Leave’ vote to damage the UK economy, it has been said that these assumptions were based on Article 50 being triggered straight away. So with Article 50 possibly on the horizon, are we growing to fall from a greater height?
This growth is interesting, agriculture, construction and services all grew in the fourth quarter of 2016. Only production remained stagnant, although one of its components, manufacturing, performed well. Coupled with this UK employment figures are strong, and public sector employment as a percentage of overall employment has shrunk. What this indicates is that we see true growth, rather than growth artificially stimulated by government spending.
Inflation set to rise further?
As the UK economy grows so do inflation expectations. A measure of long term inflation expectations, the 5 year 5 year forward, has now risen to 3.7% (compared to 2.5% last June). This serves to reduce the value of our hard-earned cash which isn’t great news for either spenders or savers. It will be interesting to see how, or if, the Bank of England reacts. Will they look to make changes to monetary policy, or even increase interest rates?
This week’s figures enable the UK to enter Article 50 negotiations from a position of confidence. If nothing else this will give comfort to the Euro-sceptics that fought so hard for Brexit, only time will tell if this confidence is misplaced or not.
The best thing investors can do in the current environment is to continue to save regularly and ensure that they do their best to protect the real value of your savings. That means finding a way to save that gives you the best chance of beating inflation.