Budget 2011: What does downgraded UK growth mean for investors

23rd March 2011

In a growth-starved environment, with inflation figures stoking fears, today's budget was awaited in eager anticipation.

Aiming to simplify our complex tax system, increase competitiveness and boost domestic industry, the politically astute rhetoric rang loud while bottom-line impacts remained mixed. Most crucially as an investor, how has the budget impacted the outlook for investment?

Growth alone does not drive equity returns

Much noise has been made over the downgrade of this year's growth forecast (from 2.1% to 1.7%) but studies carried out to investigate a link between growth and equity returns have come back empty handed.

Taking the recession during the early 1990s as an example, during its duration the UK All Share Index increased in value by more than 16%. Furthermore, as I write this article, the FTSE 100 is barely reacting.

Outlook for stock pickers remains buoyant

The government has picked certain sectors for penalty, others for promotion and the budget will impact companies in different ways. Investors and fund managers able to differentiate and exploit this will be well-placed.

The following bullet points give a high level overview highlighting some of the discrepancies:

 

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3 thoughts on “Budget 2011: What does downgraded UK growth mean for investors”

  1. Anonymous says:

    Ken – a most prescient piece from you. I agree 100% with your comment:
    “It might be too frightening to see the whole, and we might start to feel the need to do something about it.”I believe the “average” individual can muster enough strength of mind to consider his immediate circle, but outside that – it’s just too vast to take in, let alone DO something about. We cannot rely on “leadership” as there is none so the answer is to focus energy on that which we can do something about – the inner circle. Will things change? Not in my lifetime, sad to say.

  2. Anonymous says:

    I live in S Africa in Johannesburg which has been described recently as a city surrounded by a ring of fire.   The growing gap between rich and poor is very noticeable and, at least here, seems to be between the skilled and unskilled.   As the gap widens greed seems to become inspired.   The whole thing is frighening, and you are in the right country for elephants!   I appreciated your comments.     The mechanics of the present wage and income structures really needs examination on a world wide basis before disaster strikes.

  3. The figures only show incomes. What about the facts on wealth, which for some makes a far bigger difference.
    How does the effect of immigration effect the figures? In countries with a large number of immigrants this over a period of time is a different group of people, so that are there measures showing what happened to the original people over time? Hence a country may become more unequal simply by allowing more poor people in, and conversely by allowing a large number of tax exiles in distorting the figures.

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