8TH JANUARY 2021
With the development and roll-out of the COVID-19 vaccine in the early part of the year, the economic impact should begin to see positive trends. Unfortunately, with the finding of a new Coronavirus strand and increased infection rates, the UK has entered a new nationwide lockdown (Lockdown 3.0). Like previous lockdowns (1.0 in early April & 2.0 in November), economic growth within Q1 is expected to shrink until more vaccinations are administered and restrictions are lessened.
GDP: Prior to the introduction of the new COVID-19 lockdowns, economists expected the GDP (Gross Domestic Product) to increase by at least 5.5%. Today, there are many financial markets and banks such as Goldman Sachs that are predicting another recession. According to Sven Jari Stehn, the firm’s Chief European Economist “Given the return to nationwide lockdown, we now expect a 1.5% contraction in real GDP in Q1, putting the UK economy into a double-dip recession.” (Goldman Sachs cuts UK GDP forecasts with lockdown, sees first double-dip recession since the 1970s) While the GDP may be taking a hit in the short-term, the Bank of England is continuing to keep interest and borrowing rates low to help stimulate the financial system. Since the interest rate was set at 0.1% in March 2020 by bank head, Andrew Bailey the UK economy saw an increase of £200bn (Coronavirus in the UK: Bank of England slashes interest rates to historic low of 0.1% and pumps £200bn into economy) This news comes well received in the early parts of 2021 by many savers and borrowers looking to invest back into the economy via goods and services.
Trade: With the United Kingdom finally agreeing to part ways with the European Union, the UK government has begun to make strides towards worldwide trade deals and an increase in exports. While there may be new barriers to go through, companies continue to work towards opening new global supply chains.
Unemployment: With the UK furlough scheme expected to close at the end of April, the government may be faced with an increase in the unemployment rate. According to the Office for Budget Responsibility “the jobless rate will peak at about 7.5% in the middle of 2021 – representing about 2.6 million people out of work – up from about 4% before the pandemic struck.” (UK economic outlook for 2021: Covid surge deepens the gloom | Economic growth (GDP) | The Guardian) With a lack of financial support, many companies and employees will have a tough time in the early half of 2021.
With all this into consideration, it can be difficult to predict the investment outlook of 2021 purely based on historical data from the previous year. With dividend payments looking to make a return for some companies, many investors may begin to see boosted returns. Currently 15 companies of the FTSE 100 Index (Financial Times Stock Exchange) have declared their intention to begin paying dividends to their investors. Within the first three sessions of trading in 2021, the FTSE 100 Index saw an increase of 5.7% (surpassing the 4.6% mark in 2009). With many looking to buy UK equities low in hopes of a global economic recovery, the current benchmark proves to be an attractive investment for many.
As always, it is important to diversify your portfolio, and 2021 is no exception. With many companies and industries looking to rebound, there are a few avenues you should look out for in the coming months.
Property & Housing Sector: The current landscape of the property sector has a high potential to improve its overall stocks and shares based on increased demand, and property valuations.
Global Mining: With low operating risks involved, the strength of copper, iron, and oil are expected to remain steady and drive a strong cash flow for the economy.
Technology: The introduction of 5G and electric vehicles has been focused on by many of the tech giants in the world. The demand for these commodities has continued to rise even through the pandemic.
The investing landscape of the UK in 2021 may look and feel a little different, but the financial professionals at J Edward Sellars are here to help you navigate the market. While financial futures may appear uncertain or volatile at times, it is imperative to have a trusted partner by your side. With both savings' advice and managed investment services available to you, you can gain peace of mind knowing you have a tailored plan centred around you and your needs. Through our expertise in the field of market research and analysis, we can further help you understand and choose an investment solution. As part of our bespoke investment solutions, our in-house Stocks and Shares ISA offers you the performance of a stock market investment, with the added benefit of tax-efficient returns. This offer not only allows you to plan for future investment opportunities, but it also provides flexibility in your savings.
At J Edward Sellars, we are proud to be your source for sound financial advice and personalised financial planning during these times of uncertainty. For over 50 + years, we have helped individuals, investors, and families across Clevedon, Somerset control their finances. Shape your financial future, and prepare for the 2021 UK Stock Market, contact our offices today to get started.