UK avoids triple dip: Investors warned not to overpay for safehavens

Britain’s economy grew by an estimated 0.3% in the first three months of the year, narrowly avoiding a triple dip recession.

UK avoids triple dip: Investors warned not to overpay for safehavens

Despite the uplift the statistics still suggest that underlying growth is flat lining with first quarter GDP estimated to be 2.6% below the peak in Q1 2008.

The marginal improvement on the last three months of 2012 came largely from better output from service industries.

There was also a small step up in production mostly due to mining and quarrying, which increased by 3.2% following a weak Q4 2012 when extended maintenance in the North Sea reduced output.

Construction fell by 2.5% however, reducing GDP growth by 0.17 percentage points.

Chancellor George Osborne defended the numbers saying Britain was “making progress”.

Shadow Chancellor Ed Balls meanwhile dismissed them as “lack lustre”.

Investment impact

Towry’s head of investment Andrew Wilson said rather than overanalyse each minute change in growth investors would do better to accept low growth in Britain for some time to come.

“This year has seen an arguably overdue shift into longer duration and higher quality assets, rerated by professional investors, who are starting to accept that economic growth and interests rates will, in fact, be lower for longer,” he said.

But he warned: “The flip side to this is that we now see a greater number of investors increasingly overpaying for an increasingly small number of supposed safe havens, which is the type of scenario that rarely ends well.

“Instability in markets mixes poorly with the emotional reactions of fear and greed, but equally will likely lead to opportunities for disciplined investors, regardless of the consensus interpretation of the next data point.”

Sterling performance

The pound rose sharply versus the euro and US dollar after the growth figures were announced earlier this morning.

“Despite the mildly positive GDP outcome for Chancellor Osborne, this does little to alter the bleak overall picture,” said Chris Saint from Hargreaves Lansdown.

“It also does little to enable the government to refute critics’ claims that its austerity programme is doing more to stifle growth than it is to curb rising public debt.”

And he added: “Absent an improbable U-turn from the government’s plan A, hopes of the recovery gathering momentum will inevitably be pinned to monetary measures such as quantitative easing and the newly extended Funding for Lending Scheme.

“From a currency viewpoint, this should keep the pound on the back foot in the near term given a widespread scepticism that these measures will be sufficient for the economy to gain suitable traction going forward.”

Sterling remains some 2% lower versus the dollar compared to three months ago.

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