Global Economic Update

Fears of a double dip recession in the UK have been dampened by growth in the manufacturing, construction and service sectors in March. The economy grew by 0.5% in the last quarter and helped to restore business confidence. Manufacturing in particular has benefited from the falling Pound. Economists have revised their forecasts and are now predicting that recession will be avoided. Feeble growth is anticipated in the UK but this is better than a double dip. However, rising oil prices and the Eurozone crisis may well affect their forecasts.

The US economy is showing signs of recovery with increase employment reported in the last quarter.  A strong manufacturing base leaves the US well placed for an export led recovery. The housing market has also hit rock bottom and economists are predicting a recovery is imminent. Wealthy individuals would be advised to look for value by investing in the US housing market.

The reported slowdown in China continues as the country feels the effects of the global economic recession. Many economists have been predicting a hard landing for China which sells a large proportion of its exports to the Eurozone.  Reduced productivity, car sales and steel output have all been reported in 2012. The Chinese property bubble has also slowed down following a restriction in lending by the government and the banks. China is also facing increased wages, a rise on the cost of power and raw material costs and will face a battle to flight rising inflation. China can expect a slowdown in 2012 but it’s strong manufacturing and export base leave the country well placed to show continued growth (albeit at a lower rate) over the next few years.

The Eurozone crisis continues. The recent cash injections by the European Central Bank (ECB) have averted a crisis in the European banking system. The solvency of peripheral countries remains in question with both Greece and Portugal expected to require further bailouts. Spain and Italy are also reported to have serious problems and may well require rescue in future. The Spanish economy is shrinking with unemployment at 23% and can expect further austerity as announced in the latest budget. Our view is that France and Germany are likely to be considering an exit strategy as the ECB cannot continue to bail out entire governments. Any decision is likely to be discussed in secret and it will take time for new currencies to be printed should an exit strategy be agreed. The question is how many countries will be ejected from the Euro? Greece in our view is inevitable, Portugal highly likely. But whether anything can be done to salvage the problems in Italy and Spain is anyone’s guess.

Panic Over Fuel Shortage

David Cameron sparked panic over a potential fuel shortage in the UK after making reference to proposed tanker strikes to the media. The announcement gave rise to widespread panic in the UK with long queues of motorists rushing to petrol stations. The panic lasted for 2 days after which the fuel shortages never materialised. The announcement is likely to have been the result of spin used to deflect from the prime ministers relationship with Rebekah Brooks during the Leveson enquiry.

Royal Mail to Raise the Cost of First Class Stamps to 60p

The Royal Mail has announced a record rise in the price of stamps effective from 30 April 2012. The cost of a first class stamp will rise from 46p to 60p and second class stamps will go up from 36p to 50p.

The Royal Mail claim that the current prices are unsustainable due to a reduction in volumes as more people are using email rather than sending letters in the post. The Royal Mail has reported losses of approximately £1 billion over the past four years and the news follows recent announcements that the Conservatives will be looking to privatise the Royal Mail in 2013.

Our view on the recent price rise is simple: we advise our clients to go out and buy stamps before the price rise on 30 April and to take advantage of discounts by companies such as Superdrug who currently offer a 5% discount (till 10 April).

With regards to the economy, there is now a significant risk of inflation. The recent increase in the cost of postage combined with rising oil prices and utility bills will mean that consumers will have less disposable income and make the threat of a double dip very real. Increased inflation will affect savers and will also put pressure on the Bank of England to raise interest rates which will further damage the economy.