Rathbones warns economic uncertainty at 2008 levels

Rathbones warns economic uncertainty at 2008 levels

Concern about UK economic performance is nearing levels last seen during the financial crisis, according to an analyst for fund house Rathbones, in a warning on the future for British-based assets.

In the aftermath of the UK’s vote to leave the European Union and the appointment on Tuesday (12 July) of Theresa May as David Cameron’s successor to become prime minister, Rathbones reported it’s index of economic uncertainty is “within a whisker of the levels reached during the global financial crisis of 2008 to 2009 and the Eurozone crisis of 2011.”

Edward Smith, asset allocation strategist at Rathbones, said experienced front-bencher Ms May as prime minister could put a ceiling on economic uncertainty, but warned “it is unlikely to do anything to lower it”.

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Mr Smith said he does not expect economic uncertainty to retrench until the government lays out concrete terms on how the UK will be able to withdraw from the EU.

“This could be months, if not years, away and uncertainty will weigh on GDP growth and the valuations of UK-focused assets in the meantime,” he said.

Government spending on large scale infrastructure projects could be key to bolstering the British economy, Mr Smith added.

“It was pleasing to hear Ms May discuss the need for infrastructure spending. If immigration is curtailed, GDP growth will be reliant on higher productivity growth.

“The UK has the second lowest government debt to GDP ratio in the G7, and it really should be capitalising on now negative borrowing costs to invest in future growth.

“There is a wealth of literature to suggest that the fiscal multiplier of infrastructure spending – ie. its effect on total output – is very substantial, especially when higher spending is not offset by tighter monetary policy.

“Ideally, from a growth perspective, infrastructure spending will not be accompanied by higher taxation elsewhere, but her comments this week suggest that this may be too much to hope for.”