The UK economy has held up surprisingly well since June 2016’s vote to leave the European Union, but the gloves might be now coming off. Economic growth is slowing in Britain as the brakes of uncertainty drag.

Latest data from consulting giant PwC anticipate UK GDP growth of 1.5% this year, slowing again in 2018 to 1.4%. That’s versus 1.8% progress in 2016, according to PwC’s latest UK Economic Outlook report.

‘While UK economic growth held up better than expected in the six months following the Brexit vote, growth slowed in the first half of 2017 as inflation rose sharply, squeezing household spending power,’ the report states.

SHOPPING SLOWDOWN

Consumers are right at the heart of the matter, pulling in their spending horns in the face of rising inflation and limited wage growth.

‘PwC expects consumer spending growth to continue to moderate in 2017 and 2018 as inflation eats into real spending power and wage growth remains subdued despite record employment rates.’

Higher borrowing has allowed high street and online spending to remain reasonably robust to date, but as PwC points out, ‘there are limits to how much further this can go as household savings ratios have already fallen to very low levels.’

Business investment is also showing signs of strain, in some areas anyway. Much of this is down to limited visibility, which makes budgeting for business far harder. ‘Brexit-related uncertainty may hold back business investment, but this should be partly offset by planned rises in public investment,’ says John Hawksworth, chief economist at PwC.

PUBLIC PURSE & EXPORTS

Which makes today’s news of £6.6bn worth of government contracts being handed out for the next phase of High-Speed 2, the fast rail line being built between London and Birmingham, a timely announcement.

The weak pound and exports may offset some of this, especially for the UK’s very biggest companies in the FTSE 100 index. These typically earn 70%-odd of income from overseas markets, so declines in sterling happily make British goods sold overseas more competitively priced.

That goes a long way to explain why the FTSE 100 continues to trade at close to record levels, at about 7,420 on Monday. That’s less that 2% below the 7,547.63 all-time high, hit first in May and again in June.

FTSE 100

With inflation eating away at dormant cash investors might wonder how they can best position themselves to secure attractive real returns. AJ Bell investment director Russ Mould may have struck on a few ideas.

ACTION FOR INVESTORS

In a number crunching exercise today, Mould has uncovered the fact that 27 FTSE 100 companies have grown their dividend every year for at least the past 10 years. That 13 of that number have a compound annual growth rate for their dividend of over 10% makes a big impact to on total returns, as the table below demonstrates.

Slowing growth, rising inflation, little real wage improvement and lots of uncertainty sound like a poisonous cocktail for UK investors. But as Mould’s research shows, there are always opportunities for investors willing to keep themselves informed.

Total return Dividend CAGR
since 26-Jun-07 2007-17
Ashtead 1152.3% 26.6%
Micro Focus International 1096.5% 29.8%
Hargreaves Lansdown 746.0% 23.2%
Croda 702.2% 16.7%
Paddy Power Betfair 644.3% 16.0%
Compass 531.6% 11.4%
DCC 473.9% 11.2%
Intertek 426.1% 13.2%
British American Tobacco 387.9% 9.9%
InterContinental Hotels 353.0% 12.9%
Bunzl 332.0% 8.4%
Scottish Mortgage 317.5% 3.8%
Sage 311.7% 7.3%
Shire 295.2% 17.8%
Associated British Foods 288.0% 6.5%
Prudential 249.4% 9.2%
Whitbread 203.7% 10.3%
Diageo 196.7% 6.1%
Imperial Brands 181.4% 9.9%
BAE Systems 152.2% 5.2%
Babcock International 141.6% 13.0%
Vodafone 141.0% 4.8%
St. James's Place 138.4% 22.6%
Johnson Matthey 125.2% 7.6%
Sky 111.7% 8.0%
SSE 98.2% 4.2%
Standard Life 95.9% 5.6%
Average 380.5% 12.4%
FTSE 100 65.4% 5.2%

Source: Thomson Reuters Datastream


Issue Date: 17 Jul 2017