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Picking the right time to make the most of an economic recovery

by Nikki Dale -

Only two months into the eleven-month Brexit transition period a global pandemic hit the UK.  As if the government didn’t have enough on its plate in 2020 with ‘getting Brexit done.’

The Coronavirus has seen the UK – along with many other countries worldwide – in and out of lockdown or restricted by some form of regional tier since March 2020.  Subsequently, this turned the economy upside down, with GDP shrinking by 10% in 2020.

The UK economy felt its biggest slump on record between April and June 2020 as the first national lockdown pushed the country officially into a recession. The economy shrank 20.4% compared with the first three months of the year.

Household spending fell as retail and hospitality were ordered to close, and factory and construction output also dropped.

A recession is defined as two consecutive quarters of economic decline, and this was the UK’s first recession in 11-years – since the financial crash in 2009.

The UK economy will ‘recover quickly’ as vaccines are rolled out in 2021

The Bank of England has predicted a fast recovery for the economy, as vaccines are rolled out across the UK – but has lowered its growth outlook for the year.

GDP is anticipated to shrink by around 4% in the current first quarter, holding back Britain’s recovery from the COVID-19 crisis, because of the latest lockdown.  It will no doubt lessen growth overall for 2021 as a whole, which the Bank predicts will be only 5%, compared to a previously-predicted 7.25%.

However, the quarterly monetary policy report indicates a brighter outlook for pretty much the rest of 2021.

“GDP is projected to recover rapidly towards pre-COVID levels over 2021, as the vaccination programme is assumed to lead to an easing of COVID-related restrictions and people’s health concerns.” it said.

While it’s positive to have some recovery predictions, it’s also relieving to have avoided a “double dip” recession, which some officials were afraid of.

The Bank of England has left interests rates on hold at a 0.1% record low and Governor Andrew Bailey recently said: “COVID vaccination programmes have begun in a number of countries, including the UK, which has improved the economic outlook.”

“Nevertheless, recent activity has been affected by an increase in COVID cases, including from newly identified strains of the virus, and the associated reimposition of restrictions.”

Consumer spending could be higher than predictions though

The Bank of England has also commented “The current environment is clearly highly unusual historically, and there are reasons to think that households may choose to spend more of their recently accumulated savings,”

While many businesses and households have struggled, many households have put by more than usual – data showed over £125 billion between March and November 2020.  And obviously now, three months later, this would have increased, with present lockdown measures.

It’s clear to see how hard it is to make projections about recovery in spending in such unprecedented times, but at least the vaccine roll out is making it more rational.

So, its good news – almost 9-months after the UK officially fell into a recession (April – June 2020) – the BoE and forecasters are predicting a steady road to recovery; with recovery of pre-pandemic levels by Spring 2022.

What is your investment mindset right now?  

Hopefully, in the last 12-months investors have not panicked and reminded themselves why they became an investor, and what their investment goals are long term.  Savvy investors would have taken stock of their portfolio when the pandemic crisis hit; this might be some tweaks in terms of diversifying and lessoning a more high-risk portfolio, which is always a sensible move.

Through every economic downturn investment experts often express a ‘stick to your long-term investment goals’ strategy.   Rational and well-advised investors do not tend to jump out at short term volatility or a slowdown in investment markets or sectors.

The key, whether investing before, during or after a recession is to always look at the bigger picture.  Investors trying to time their way in and out of various investment sectors or stocks, for everyday retail investors, is often beyond range and scope.

That said, retail investors or potential investors should not be deterred at this opportune time.  There are many options for retail investors; whether you have accumulated disposable income working from home (with the recent noise about zero or negative interest rates a new wave of investors could be well emerge) and now looking at making your money work for you, with something hands-off but tangible and sustainable at the same time; or you may be diversifying an existing investment portfolio; or bolstering an already well diversified portfolio.

Is it picking the right time or making the most of the right investment opportunity?

We’ve seen the pattern with companies, those with a strong balance sheet, little debt and healthy cash flows, often thrive, maybe not during a decline, but they are planning now for the inevitable period of growth.

There has been some winners and some losers during the coronavirus pandemic.  With the economic downturn it has caused, a lot less precedents have been observed when looking back at the recessions in previous decades, including 2009. Meaning investments and sectors that were dubbed countercyclical have not stood up this time round necessarily.

However, they now have the potential to thrive as the economy starts to recover, life starts to return to normal, and we see a post-pandemic view insight.

With a light at the end of a long tunnel it’s time to look at strategies to move forward during this recovery period and take advantage of opportunities of sustainable investments that provide a stable return.  This could be buy to let to save on the extended Stamp Duty Holiday.  Or the expected surge on purpose-built student accommodation in 2021 or how investors are finding recovery potential in property shares.

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