Growth returns to the UK

The UK economy grew by 1% in the third quarter.

After three consecutive quarters of contraction, the UK economy grew by 1% in the third quarter, its biggest quarterly increase in five years. The end of the ‘double dip’ recession was widely expected but, as the graph shows, the UK economy remains 3% smaller than it was five years ago.

The third quarter benefitted from the Olympics and a bounce back from the economically depressing effect of an extra Bank Holiday in the previous quarter. Strip these out and there is still a small rise in the UK’s output, which is a hint that recovery may be underway. Other indicators are also looking better: retail sales in the third quarter rose at their highest rate for two years and new car registrations in September were up over 8% on a year ago.

Do not forget that if you are looking for a direct link between the UK economy and the stock market, the index to watch is the FTSE 250, not the FTSE 100. The FTSE 250 covers the 250 companies below the giants of the FTSE 100 and is rooted in medium-sized, UK-focused businesses. By contrast, the FTSE 100 constituents are increasingly international and commodity oriented. From the UK market low point in March 2009 to the end of October 2012, the FTSE100 had risen by 64.6%, but the FTSE 2500 had added 104%.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

23rd November 2012