Stock Take
Jeremy Hunt declared the UK economy was finally ‘turning a corner’ late last week, after the Office for National Statistics (ONS) revealed the economy grew by 0.1% in February.
The ONS also revised up its January growth figures from 0.2% to 0.3%. Together, these figures suggest the UK will end the first quarter reporting some economic growth, meaning the UK has likely left its recession.
There are some important caveats to this, however. One is that 2024 is a leap year, meaning February had an extra trading day to generate GDP. Also, even after this 0.1% growth, the ONS estimates the UK economy is still smaller than it was at this time last year. Over a slightly longer term, the UK economy has barely moved since 2022.
Nevertheless, the combined figures provided a positive step for the UK, and economists will be hoping the reduced National Insurance rate will help boost consumer spending and encourage further growth going forward.
Speaking shortly before these figures were released, Kristina Hooper, Chief Global Market Strategist at Invesco, suggested the UK could be the first major Western economy to reduce interest rates. She said: “I believe the combination of a tepid economy and significant disinflationary progress means rate cuts can begin very soon. It seems markets are anticipating a cut in June, but I think we could see Bank Rate cuts as early as the May Monetary Policy Committee (MPC) meeting.”
Investment markets certainly took some confidence from the figures, and the FTSE ended the week up 1.1%, leaving it close to record territory.
The UK stock market was a beneficiary of the increased tensions in the Middle East. The tensions between Iran and Israel lifted the prices of oil and metals, pushing energy and mining stocks higher. As the FTSE 100 has several large players in both sectors, these changes lifted the overall index.
In the US, focus once again returned to inflation. On Wednesday, it was revealed that headline CPI inflation in February hit 3.5%, exceeding market expectations. This was also up from the 3.2% recorded for January. Increased energy and shelter costs helped lift inflation to its highest rate since September.
The recent bump in US inflation has challenged the narrative that inflation is on a one-way downward path to 2%.
Increasing inflation, combined with comparatively strong economic growth are also pushing back the Federal Reserve’s expected timeline for an interest rate cut. These expectations have now been moved back to the third quarter of the year, a delay from previous hopes of a June move. Perhaps unsurprisingly, this helped push markets down, with the S&P 500 ending the week 1.6% lower in dollar terms.
Even so, Mark Dowding, Chief Investment Officer at BlueBay noted: “In DC, there remains a narrative that Powell would like to cut rates, if only data would permit him to do so.” There is discussion that the Fed Chair wants to go into the history books as the central banker to have mastered the soft landing, and so secure himself a position in the figurative hall of fame. Yet for the time being, the data is just not co-operating. However, if there is an opportunity to do so, then a rate cut ahead of the election remains on the cards.
Turning to Asia, Japanese equities also advanced last week, the Nikkei 225 rose by 1.4% thanks in part to persistent weakness in the nation’s currency. As for China, the Shanghai Composite recorded a 1.6% fall (local currency) on the back of muted economic data, including further weak inflation numbers alongside lower export and import figures during March.
Wealth Check
Thomas Farquhar and his co-founder Simon Roberts have taken on a huge challenge and need to move hard and fast. They started Heatio in April 2022, aiming to help UK homeowners improve energy efficiency using the latest technology.
Heatio’s Flexx platform combines sensors, smart-meter data, artificial intelligence and, home-energy modelling (software simulation of energy use) to give homes a complete energy profile. It can then supply customers with all the information they need to reduce their energy use.
The first version of the Heatio Flexx platform is due to launch in April 2024. Here are the lessons he has learnt from the first two years:
Learn how to get investment
Raising funds for your company can be incredibly time-consuming and challenging, taking focus away from the business, Thomas says.
“Raising finance is similar to selling, except investors have different motivations and proof points,” he says. “We found it a new, scary, and daunting world. You’re immediately thrown in front of the headlights. It can become an all-consuming part of your business that never stops.”
Fail fast
“Nothing is more expensive than delaying a decision to change something that isn’t working or delaying a necessary pivot”, says Thomas.
“It’s better to go quicker, harder and invest slightly more so you can get failures out of the way and the business can evolve faster,” he says. “Knowing when to change course and acting rapidly is vital. For example, we hired technical expertise, then realised within a month that the task was way beyond the person we’d recruited. But they didn’t want to admit that.”
Hire people better than you
Thomas says he has found employing more experienced staff in core roles, while more costly, saves time and errors.
“There may be people better than you at that job, and the best thing you can do is hire them,” he says. “Many founders employ junior people because it’s cheaper. These risks are slowing you down. We hire more experienced heavyweights because we need to develop quickly.”
Find a complementary co-founder
“Simon and I have complementary skills – I’m technical; he’s commercial,” explains Thomas. “If you’re a founder with no commercial experience, I’d advise finding a commercially minded co-founder.”
Stay grounded and realistic
“If you win funding, investors can put you on a pedestal and say you’re the next big thing”, says Thomas.
“They’ll ask how much you think you’re worth,” he says. “Founders can pull figures out of the air. Instead, put your ego aside and calculate the minimum you need to get, proof of concept, and validate your model. Your business is worth nothing until you’ve proved the concept. So, stay grounded.”
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
In The Picture
Although the UK economy recorded growth in February, is has remained fairly flat since the start of 2022.
Source: ONS, Index, 2019 = 100
The Last Word
“This is a time to think with head as well as heart, and be smart as well as tough.”
UK Foreign Secretary David Cameron calls for restraint after Iran’s missile and drone attack on Israel over the weekend.
BlueBay and Invesco are fund managers for St. James’s Place.
SJP Approved 15/04/2024