Investment market update: May 2021

June 03, 2021

As countries around the world began to tentatively reopen businesses and lift Covid-19 restrictions, there are strong signs of growth and recovery. However, this has been tempered with concerns around inflation and long-term growth prospects.

UK

In May, the Bank of England Governor Andrew Bailey increased the UK’s growth forecast to 7.25% for this year. While good news, he still noted that it means the UK has lost two years of output growth due to the pandemic. The Bank of England has also lowered its unemployment forecast. Thanks to the furlough scheme, it now expects unemployment to peak at below 5.5% in the third quarter of this year. This compares to its earlier forecast of 7.75%.

Economic thinktank NIESR has also increased GDP expectations, but warned of the long-term impact of Covid-19 on the economy. According to the organisation, the combined effects of Covid-19 and Brexit mean the UK will lose £700 billion in output over the next five years. Despite positive signs, it predicts GDP will be almost 4% lower in 2025 than it would have been without the pandemic.

The latest data suggests sectors across the UK are beginning to recover:

  • Markit’s PMI (Purchasing Manager’s Index) for manufacturing data increased to 60.9 in April, up from 58.9 in March. Any reading over 50 indicates growth and the latest figures show activity is accelerating. It’s the highest reading since 1994, but the rise is partly due to longer delivery times as factories struggle to get hold of raw materials and parts.
  • Within the construction sector, output reached a six-and-a-half-year peak, leading to the biggest boost in job creation since 2015.
  • The service sector also saw its growth reach its fastest pace since 2013, with a PMI reading of 51 in April.

As retail reopened in April following months of closures, retail sales jumped by 9.2%, according to the Office for National Statistics (ONS). Retail sales were higher than pre-Covid levels, delivering a much-needed boost to the sector.

Another sector reopening and expecting a boost is hospitality. However, hotel technology provider Avvio has warned that last-minute cancellations could affect hotels and place further pressure on businesses. The firm said holidaymakers are hoarding bookings to ensure they can have a break, even if travel abroad is restricted again. Cancellation rates are running at about 4%, far below the usual 30%.

The property market continued to receive a boost from the Stamp Duty holiday. Data from the Bank of England shows mortgage lending has reached a record high. Net mortgage borrowing was £11.8 billion in March, the strongest reading since the series began in 1993.

ONS figures suggest UK-EU trade is beginning to recover. But the statistics office also cautioned that the Brexit transition period has caused higher levels of volatility than usual in the last two years. In March, exports and imports with the EU (excluding precious metals) increased by £1 billion (8.6%) and £800 million (4.5%), respectively. However, figures also show the UK’s total trade with the EU has fallen below trade with the rest of the world. Between January and March 2021, total trade in goods with the UK fell by 23% when compared to the same period in 2018. Over the same period, trade with non-EU countries declined by just 0.8%.

Europe

Last month, the eurozone entered a technical recession. However, growth forecasts suggest economies are recovering as lockdown restrictions ease. Eurozone companies grew at their fastest pace since last July and this could help to pull the bloc into growth territory.

The EU Commission has also raised growth forecasts following the ongoing progress of the vaccination programme across the continent. The EU is now expected to grow 4.2% this year and 4.4% next year.

One of the challenges now facing many businesses is issues within supply chains after some sectors were forced to close for months. The German DAX Stock Index has recently highlighted this. The index was affected by chipmaker Infineon saying that ongoing shortages and other supply chain problems were hitting car production.

US

There have also been positive signs in the US. Companies across the country created 742,000 new jobs in April. While slightly less than forecast, it’s still an indication that businesses are confident and investing. On top of this, the US service sector PMI surged from 60.4 to 64.7. The latest reading is the highest since the survey began in 2009.

American company Pfizer, which co-developed a Covid-19 vaccine with Germany’s BioNTech, has raised its sales forecast following successful vaccine programmes around the world. The company now expects vaccine sales of $26 billion in 2021. That’s a sharp increase from its previous forecast of $15 billion.

Despite figures pointing towards stability and growth, US consumer confidence has fallen. According to the University of Michigan’s Index of Consumer Sentiment, confidence fell from 88.3 in April to 82.8 in May. The fall has been linked to expectations that long-term inflation will reach 3.1%, well above the Federal Reserve’s target of 2%.

Asia

China was one of the first economies to post signs of recovery following the impact of the pandemic. However, there have been concerns that inflation will rise. The latest Producers Price Index (PPI), which measures the cost of goods sold by manufacturers, suggests inflation is increasing. Year-on-year, prices have increased by 6.8%.

Reports from Malaysia could also have an impact on global businesses. The country’s disgraced state investment fund 1MDB is reportedly suing Deutsche Bank, Coutts and JP Morgan in a bid to recover some of the billions lost in a huge corruption scandal.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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I would highly recommend Darius and John. I’ve used a financial adviser previously and could never get in contact with them when I needed their help. Stratton Wealth Management have been excellent from the start. They are always available to talk, and they also don’t talk in financial jargon!

Dave Rigby -

A client since 2015

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A client since 2019

As a business owner and father of four children, finances are usually the last thing we think about. Stratton oversees and manages our finances, both in terms of advice for my business and our personal investments. It is comforting to know that our retirement, investment and life insurance planning has been taken care of. Darius and John are always so efficient in dealing with our affairs. As someone with no real understanding of the ins and outs, it has been fantastic to have experts giving us great advice and making sure our best interests are always the top priority.

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Clients since 2016

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Jonathan Dennis -

A client since 2019

I knew I needed to begin saving and planning for the future but didn’t know where to start. Stratton helped me to understand my finances and put together a savings plan that is affordable and works for me. I now have and an ISA and a pension, and whilst retirement is many years away, I have the peace of mind that I am saving for my future. I look forward to working with them for many years to come.

Martin Corrigan -

A client since 2016

I have been impressed with the advice and service provided by Stratton Wealth Management and have always found Darius to be approachable, dependable and highly professional in his approach. It is reassuring to be able to have such a high level of confidence and trust when it comes to financial advice.

Russell Jones -

A client since 2018

Many thanks indeed for your in depth report for my client Mrs H – it is most thorough and above all readable. This might sound particularly strange; however you may well gather that in my profession we see many such reports, and I often feel that if the adviser fills it with charts and graphs it evidences a level of research. In truth most of what is produced is readily obtainable from the internet.

I would like to thank you (and your organisation) for your prompt and professional attention to my requirements on behalf of my client. As a practice we shall definitely be putting Stratton Wealth Management on our “preferred supplier list".

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A client since 2015