Arbuthnot Banking : Turmoil in the markets: but Britain’s economic recovery will not be derailed

Date: 18 January 2016

Turmoil in the markets: but Britain's economic recovery will not be derailed

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, includes discussion of British economic developments in the light of the ongoing market turmoil.

The main points to note are:

• Market sentiment has deteriorated in so far in 2016 and even the Chancellor has been uttering warnings about a 'dangerous cocktail' of risks.
• The MPC was dovish at its January meeting, showing no signs of following the Fed's December hike in interest rates. The Bank has, moreover, downgraded their GDP growth forecasts for 2015Q4 and 2016Q1.
• The UK's industrial production and construction output data for November were very disappointing. Lower oil prices helped the trade deficit in the month.
• The pound has weakened further against a strengthening dollar and, recently, even fallen against the euro. This should help competitiveness.
• Commodity prices have fallen further in the past 12 months, especially in dollar terms. But the Economist's 'All Items' index in sterling terms has risen in the past month, reflecting the weaker currency.
• The fall in oil prices has been especially marked, not least of all in the past 2-3 weeks. Weaker demand is a factor, but the main reason for the recent price declines is oversupply.
• There are winners and losers from lower oil prices, with the UK consumer a winner as lower prices boost real incomes.
• There are three main developments relating to China at the moment. Firstly, the real economy is undergoing a transition from manufacturing to services. Secondly, the currency is slipping, unsurprisingly, against the strong dollar. Thirdly, the bursting of the equity market 'bubble', which began last summer, assumed a new and vicious turn in 2016, with serious knock-on effects for global stock markets. Market turmoil has been exacerbated by the seemingly ad hoc and inconsistent policy responses by the Chinese authorities.
• FTSE100 fell by 7% in the first two weeks of 2016.

Ruth Lea said, 'There is no doubt that the market turmoil so far this year, both globally and domestically, has been momentous, with global equities possibly having their worst start to the year since 1970. But, whilst this is undoubtedly a 'headwind', it should not derail Britain's economic recovery as there are positive factors, such as growing real incomes and a strong labour market, which will drive the economy forward.'

For full story:http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
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Follow Ruth on Twitter @RuthLeaEcon

David Marshall, Director of Communications
020 7012 2432, 07502 285 835
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