The Bank of England surprised all economic estimates today when it revealed that the UK GDP continued to contract in the third quarter. Most analysts were expecting modest growth, and the Bank of England itself had been jawboning the notion that there would be growth. Instead, GDP contracted by 0.4%, which raises questions about other countries currently talking up economic growth – will there in fact be any? Perhaps Australia is quite an anomaly.
To make matters worse, perhaps, continued GDP contraction and weakness in the manufacturing, service and construction sectors has occurred even in the midst of massive economic stimulus, direct spending, quantitative easing and bond purchase programs.
The Neverending Recession; Bad For Gordon Brown and the Pound
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Britain’s elections are coming up in June 2010 and the news of a continued recession is not expected to sit well at the polls, in which Brown is still not doing well. Worse, as Linda Nazareth reports on BNN, the Bank of England is expected now to have to continue to intervene in the markets and continue its bond purchase program rather than think about raising interest rates anytime soon.
Nazareth also notes that the British pound is down about 1.3% on the news, although it is still up considerably against the US dollar recently, carving out a chart similar to Canada’s dollar in some respects.
Britain’s situation puts Australia’s into perspective, says Nazareth. Australia never saw the housing bubble burst, and they have, relative to Britain, come out of the recession rather unscathed.
Australia Raises Central Bank Interest Rates
Right now Australia and Britain thus sit at opposite economic extremes – as we get more data in from third quarter results of other countries, we will find out whether it will be Australia or Britain that is the economic anomaly at this point – and possibly how long the rest of the world can expect the recession to last, or whether it will also bounce back before the US to some degree.
Investing in the UK Recession
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You might still want to think about putting some money on the UK, however – if they’re down, there may still be bargains on some stocks. My colleague at the Monevator has written the following two articles for foreign investors you may want to read.
Good Time For North Americans to Buy UK Dividend Stocks Cheap
Top UK Dividend Stocks For Building International Income
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{ 4 comments… read them below or add one }
The GDP figure here was indeed a shock you’re quite right. However I’m in the camp that it will be revised back at least a little. It’s so shockingly bad that people are questioning where they’ve got their figures. Or it may be that people are for instance paying down debt, for instance, that’s skewing things.
The big question of UK dividend paying stocks currently is do you trust the big oil companies to keep paying dividends, and do you think the banks are going to come back?
If you think neither you could buy shares in investment company Edinburgh Investment Trust (ticker –EDIN) which is run by one of the UK’s best fund managers, and which pays a 5.8% yield. He mainly likes big pharma and energy companies at present.
Not a recommendation of course — you must do your own research. :)
Thanks for the feedback, Monevator. Would EDIN trade only on the LSE? It sounds like a closed-end fund with monthly distributions. Either way, it seems unlikely for the pound to fall much further. Seems like it’s a bit of a race to the bottom against the USD, but for sheer size of QE, I think the USD will win that race.
The UK should know better. George Soros destroyed their currency in 1992, and he is now in a position of power to do the same to the US dollar. There is no coincidence that he is the left’s biggest funder and is pushing policies that will destroy the world economy. Government cannot create jobs, only the private sector can do that. Soros and the left want economic collapse so the left can seize control and Soros can make billions.
@Karl – by this logic I’d better hope you’re also against the government printing excess dollars and deliberately weakening its own currency – otherwise you’ve got a nice contradiction in there… (or would you say Soros is the puppetmaster of the Fed and US Treasury?)