Although the latest gross domestic product (GDP) statistics revealed the UK suffered a record slump in 2020, there are now growing hopes the economy is on the cusp of recovery.
Figures published by the Office for National Statistics (ONS), showed the UK endured a record fall in output last year as coronavirus restrictions ravaged the economy. Across the whole of 2020, GDP fell by 9.9%, more than twice as much as the largest previously recorded annual decline.
However, the data did reveal a positive growth rate across the final three months of the year, meaning the UK avoided a double-dip recession. Furthermore, in the month of December alone, the economy actually grew by 1.2% after some lockdown restrictions were eased.
While January’s reintroduction of stricter national lockdown measures is expected to result in first-quarter economic contraction, data from February’s IHS Markit/CIPS flash composite Purchasing Managers’ Index, paints a more optimistic picture of current activity than many analysts feared. The closely watched survey’s headline figure rose to 49.8 last month, up from 41.2 in January, suggesting that the economy was barely shrinking in the first half of February despite being in lockdown.
Commenting on the survey, IHS Markit’s Chief Business Economist Chris Williamson said, “Although the data hint at a renewed contraction of the economy in the first quarter, business
expectations for the year ahead improved to the highest for almost seven years, suggesting the economy is poised for recovery.”
Bank of England (BoE) Chief Economist, Andy Haldane, also recently predicted the UK will witness a sharp rebound in growth by the spring. Mr Haldane described the economy as a "coiled spring" ready to release large amounts of "pent-up financial energy", with consumer confidence set to surge thanks to the success of the NHS vaccination roll out programme.
Markets: (Data compiled by TOMD)
Major global indices closed in positive territory at the end of February, as recovery hopes gained traction. With the vaccine roll out continuing at pace and a roadmap for exiting lockdown unveiled in the UK, cyclical stocks such as airlines, banks, housebuilders and fashion retailers made strong gains toward the end of the month.
Despite this positivity, many global stocks closed lower on the last trading day of the month, as investors took profits in technology and commodity-related equities. Concerns weighed over rising global bond yields, after US Treasury yields jumped at month end. Increased hopes of an economic rebound fuelled fears of rising inflation and a shift to tighter monetary policy, making investors question whether central banks would retain ultra-low interest rates. However, better-than-expected Q4 earnings did serve to reinforce some optimism about a quicker corporate rebound in 2021.
In the UK, the FTSE 100 closed the month on 6,483.43, a gain of 1.19%. The FTSE 250 gained 3.37%, while the AIM index closed up 1.95%. The Euro Stoxx gained 4.45% in the month, while the Nikkei 225 closed February up 4.71%. In the US, the Dow closed the month on 30,932.37, a monthly gain of 3.17%, while the Nasdaq closed up 0.93%.
On the foreign exchanges, sterling closed the month at $1.39 against the US dollar. The euro closed at €1.15 against sterling and at $1.20 against the US dollar.
In February, the Organization of the Petroleum Exporting Countries and its allies (OPEC+), agreed to maintain its oil output policy, a sign that producers are content that deep supply cuts are causing inventories to tighten. Brent crude closed the month trading at around $64 a barrel, a monthly gain of over 17%. Gold is trading at around $1,779 a troy ounce, a loss of 3.99% on the month, as a stronger dollar and expectations for improving economies reduced demand for the safe haven asset.