At the start of 2017, there was talk of a Brexit-inspired economic meltdown in the UK, a market correction and interest rate rises. None of these happened. Why was this – and what can investors expect in 2018?
After June 2016, proponents of ‘Project Fear’ and other doomsayers kept predicting an economic meltdown and this was the mood as we entered 2017. The FTSE 250 certainly slumped, sterling slipped and the Bank of England halved the base rate to 0.25%, as it sought to maintain consumer confidence. Quantitative easing also resumed.
However, whilst the economy slipped somewhat, with a reduction of GDP growth since the referendum, no meltdown occurred. The predicted post-referendum recession never materialised, consumers have continued to spend, and global growth has helped to invigorate British manufacturers. Figures are suggesting that economic growth for 2017 could be 1.5%-1.7% - not great compared to the rest of the G7 but respectable enough under the circumstances.
This trend could continue in 2018. Unlike the most pessimistic forecasts, Capital Economics believes UK growth could be 2.2% this year, ahead of both the 1.4% official forecast from the budget and lower forecasts from other pundits. Should consumer spending hold up, and should UK manufacturers continue to benefit from global growth and the weaker pound, then it might be achievable.
In January 2017, many pundits were also predicting that the year would see a significant market correction. However, the year saw the FTSE100 start off with a record run of new all-time highs that continued throughout the year. 2017 also ended trading on 29 December at a new all-time high of 7,687.77, after setting a new intraday high of 7,697.62 earlier in the day. Again, compared to some other markets around the world, this growth was still modest but it was respectable nevertheless in this Brexit interim period. At the end of the day, an all-time high is an all-time high.
So what can we expect from the markets in 2018? Once again, some pundits are predicting a correction of between 10%-30%, but others are forecasting that the FTSE100 will breach the 8,000 barrier this year. So no clear consensus on the way forward.
However, whilst a correction didn’t happen in 2017 and whilst it may not happen in 2018 either, investors should bear in mind that at some point, it will happen. History shows that to be the nature of things.
So as you review your investment portfolio in 2018, you need to bear this in mind, as a correction could impact on your wealth and your financial plans. If you aren’t already thinking about what to do, it’s time to start. For help with this, talk to your financial adviser.
The opening statement about no interest rate rises in 2017 is not strictly true, of course, because there was a cut to 0.25% early in the year that was reversed. So we have reverted to a Base Rate of 0.5%.
However, the expected start of the rise in interest rates did not materialise in 2017. For now, this means that equities and bonds are still the only real options for investors looking for income.
So will rates rise in 2018? The simple answer has to be ‘who knows’? Obviously, Interest rates are likely to return to what are perceived as more normal levels at some point. With the ongoing uncertainties caused by the Brexit negotiations, it is likely that the Bank of England will not be looking for any major increases, however - though a move to 0.75% is a possibility.
If rates were to rise, share prices could come under pressure and this would impact on investment portfolios – something else for investors to bear in mind.
So on the home front, there is still a lot of uncertainty out there, as there was at the start of 2017. As we can now see, 2017 didn’t work out too badly for investors, but the key again is to be prepared for the unexpected and to position your portfolio for any eventuality.
This article is obviously just a general view on the marketplace and what's happening in the economy. For more information or help with your financial planning and your investments, contact Kellands.