UK will avoid recession, SIG survey suggests

UK equity managers believe the country will avoid a recession, but are resigned to a low growth environment in which further quantitative easing may be necessary, a Skandia Investment Group (SIG) survey suggests.

SIG asked 10 UK equity managers with a total of more than £10bn under management for their view on the risk that the country will fall into a so-called double-dip recession.

None of the 10 saw any great risk of this happening. However, they also said that the economy us likely to be caught in a slow growth environment. This could put pressure on fiscal balances and the current coalition government’s plans for economic recovery. It could also bring about another round of quantitative easing (QE) by the Bank of England in 2012.

Nigel Thomas at AXA Framlington, one of the managers surveyed, said: “Double-dip recessions are fairly rare, so no I do not think the UK will go back into the formal definition of a recession. However, with low growth here and in the eurozone, our largest trading partner, it may feel like a recession. A US recovery and 5-6% emerging markets growth will ultimately be more important for global growth. These areas are important to the UK as many of our exports to the eurozone ultimately end up in products consumed in high growth parts of the world economy.”

Colin McLean at SVM said: “We do not expect the UK to fall back into recession over the next few months. QE should keep growth positive, but we do not expect overall UK growth to exceed 1% in 2012 and QE will be needed again in twelve months’ time.”

Richard Buxton at Schroders said: “We do not believe that the UK economy is going to sink back into a significant recession in the coming months, although we do think that the environment will remain one of near zero / sluggish growth.”

Audrey Ryan at Kames Capital was more positive. He said: “For the first time in some years, the UK outlook is relatively attractive within a global context. The Bank of England has been amongst the most dovish of central banks and appears to enjoy a greater political freedom to act, as the recent announcement of QE2 demonstrates.”

SIG portfolio manager Ryan Hughes said: “There appears to be consensus that despite the gloomy global outlook, the UK economy will avoid falling back into recession which is good news for consumers. However, it is also clear that this recovery will be slow and painful with a very real chance that the economy will need further injections of quantitative easing in 2012.”


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