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January 2018 market update - Pound's rally gathers strength on growth boost
January gave us freezing temperatures, along with snow and short dark days, however things were a lot brighter in the investment and currency markets. As we look ahead to February and the start of the 6 Nations (which I always count as my unofficial start of Spring!) we wait to see what impact the long awaited Brexit trade talks have upon the outlook for 2018 and beyond!
In January the pound continued its strong run against the dollar after news of a better-than-expected performance from the UK economy in the last three months of 2017.
Growth in the last quarter of 2017 hit 0.5%, ahead of the 0.4% investors had been expecting. That pushed the pound as high as $1.428 against the dollar, although sterling later fell back to $1.417, still up 0.2% on the day.
The pound is now trading at its highest level against the dollar since the Brexit vote, with January’s GDP boost enough to help the currency recover some ground lost to the dollar at the start of 2018.
It's certainly fair to say the economy has performed much better than many feared in the aftermath of the Brexit vote, boosted by the rising tide of a global recovery which has lifted all major economies against a background of uncertainty.
The latest growth figures mean the UK economy grew by 1.8% over 2017. While that is higher than expected, it is worth noting that it is also the slowest pace of growth since 2012 and contrasts with faster growth globally.
'This is not impressive for a small, open economy that would normally expect to be benefiting from 2017's healthy global pick-up,' commented Lucy O'Carroll, chief economist at Aberdeen Standard Investments.
'We'll have to wait to see whether the numbers are revised, as they often are, but it does underline the IMF's stark message earlier this week: the world economy is doing very nicely, the UK economy less so.'
The FTSE 100 meanwhile rose towards 7,700 in January, despite the pound's jump.
A stronger pound tends to traditionally hamper the FTSE index as its companies rely on overseas markets for around three-quarters of their earnings.
Since the UK's vote to leave the European Union in June 2016 one straightforward trade has been "pound down, FTSE up" as a result of the high proportion of stocks with a big percentage of their earnings overseas, however, the pound's sudden surge could force a rethink and lead investors to focus on other opportunities within the domestic economy.
To discuss your financial planning needs in 2018 please contact Adam at Argents Wealth Management.