UK Equity ETFs: UK recession not inevitable, says BCC

Jan 10th, 2012 | By | Category: Equities

The latest British Chambers of Commerce (BCC) Quarterly Economic Survey points to a period of stagnation in early 2012, but a new recession is not inevitable, says John Longworth, BCC Director General.

UK Equity ETFs: 'UK recession not inevitable'

Survey points to stagnation in early 2012, but a new recession is not inevitable, says John Longworth, BCC Director General.

“The results of our latest survey are a cause for concern and point towards stagnation in the first quarter of this year. Many of the balances are now at levels last seen in the third quarter of 2009, meaning improvements seen in the last two years have largely been cancelled out,” says Longworth.

The new survey, which comprises responses from some 7,850 businesses across the UK, shows declines in most indicators across both manufacturing and services in the last quarter. While measures for the previous three months indicate minimal growth, expectations for the coming three months have significantly weakened.

However, the results do not indicate a recession and are better than those seen in the worst phase of the last downturn. Still, the worsening international situation and the growing risks facing the eurozone present challenges for UK exporters and business confidence as a whole.

“A new recession is not a foregone conclusion. A slowdown across the eurozone is inevitable, but Britain need not suffer a similar fate. The UK does have the potential to recover and make its way in the world,” says Longworth.

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Indeed, as recent earnings results from two of Britain’s leading retailers testify, many UK companies are pulling through.

“All in all, we’ve seen some cracking results from two of Britain’s leading high street retailers. The gloom and doom factor regarding Marks & Spencer and Debenhams was palpable last week; commentators and analysts were in the main deeply pessimistic ahead of today’s results. Yet in both cases results have exceeded expectations, and we are seeing relief rallies as a result,” says Peter Mumford, Senior Fund Manager at Cavendish Asset Management.

Even so, the outlook for the UK economy is challenging. Referring to the BCC survey, David Kern, the Chambers’ Chief Economist, says, “The results point to a worsening in the economic situation, with signs that the UK recovery is stalling. The survey shows stagnation in manufacturing and minimal growth in services in Q4 2011.”

Though Kern points out that most export balances are still positive, “the forward-looking home order balances moved deeper into negative territory, and highlight risks of declines in domestic activity early in the New Year. We believe UK GDP will stagnate overall until mid-2012, with one quarter very likely in negative territory. “

In an effort to avert recession, Kern expects the MPC to announce a £50 billion increase in the QE programme, to £325 billion, early in 2012. However, “QE will not achieve its full potential in supporting growth unless supplemented by the early introduction of a sizable and effective credit-easing programme,” says Kern.

But it’s not all gloom, as Mumford highlights, “the upside of climates like the current is that businesses are forced to focus on squeezing costs in order to maintain margins, laying improved foundations for future growth.”

For investors wishing to gain exposure to UK equities, there are a number of ETFs to choose from, tracking a range of different equity indices.

iShares FTSE 100 ETF

PowerShares FTSE RAFI UK 100 ETF

Lyxor FTSE 250 ETF

DB X-trackers FTSE All-Share ETF

Credit Suisse MSCI UK Large Cap ETF

Credit Suisse MSCI UK Small Cap ETF

Amundi FTSE UK Dividend Plus ETF

ETFX FTSE 100 Leveraged (2x) ETF

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