Although the world economies are recovering, all be it at different rates yet overall the recovery does not give the impression of being as strong as it might be. This appears to be because of the lack of liquidity. Central banks have been very accommodating in releasing the money but commercial banks have not been forthcoming in lending out the capital which would create the needed growth in the economies.   UK and Europe Commercial banks appear to have an aversion to taking on risk hence they are loath to lend.  In fact in Europe bank lending has actually declined on a year on year basis. Even in Japan where the Government’s policy is to expand the economy  liquidity provided by commercial banks has hardly picked up at all

At the same time the reduction in personal debt around the world is slow. The only country where a noticeable difference can be seen is the US where debt is down to the same levels relative to GDP as in the mid 2000’s but in the UK we have made less progress and Europe is even further behind

With slow money growth, low nominal GDP growth and credit growth a leading economist predicts that we were unlikely to see a sudden upswing of growth, inflation or interest rates so it would appear that the economic recovery is  set to continue for several more years.

UK – Can the UK sustain the recovery to date?

This is the big question and the answer is most probably not. In fact one economist has predicted  that by 2016, growth rates in the UK will have fallen from 3% – 3.5% to 2% – 2.5%. One of the main reasons is that wage growth is slow which in turn puts a restraint on household spending.  There appears to be little chance of this changing in the short term. In addition we are about to face a period of uncertainty in the run up to the General Election and the newly elected Government will have to face prolonged  negotiation of further devolved power to Scotland.

Overall the outlook for the UK is not particularly “rosy. However, we still favour UK equity income funds. Large Cap Companies feature in these funds because they produce high and sustainable levels of dividend. These companies should withstand the volatility in the markets particularly as part of their earnings will undoubtedly arise from overseas. For many of our clients, the UK equity income fund provides a regular income higher than that available from the building society with the opportunity for an income increasing at least in line with inflation. Some clients have switched from cash to stocks and shares ISA’S in order to avail themselves of a higher income on the understanding that this does come with a commensurate increase in risk


We have been bullish about Europe for some time and continue to increase our clients’ weighting in this sector, using European equity income funds for the more cautious. The value is to be found in the individual shares not the individual countries. Many shares are very reasonably priced with the opportunity for earnings growth. There are some excellent companies in which to invest and those involved in export will be helped by the weakening of the Euro.


Many clients have benefited  from investments in US funds over the last few years.  There is now more risk in the US economy but many factors continue to be strong. We saw improved employment figures released at the end of last week, there  are no signs of inflationary pressures, the US  will b energy self-sufficient in the next 10 – 15 years and  the national debt has fallen from 12% – 4% and some predict that the budget will be in surplus by the time that Obama leaves office. We continue to recommend some holding in the US most probably in a tracker of US income fund

Looking to the future

To a large extent the world stock-markets have already discounted the political unrest around the world. However, we cannot ignore the fact that we re in a period of political and economic uncertainty and to keep a well spread portfolio and to invest gradually over a number of months rather than at one point in time may be a good philosophy.