Market Insight - January 2016
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Will 2016 See a More Balanced Recovery?

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Time for a Cocktail George?
George Osborne suddenly became a gloomier man this month.

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After a relatively upbeat stance as recently as in his autumn statement in December, January brought the austere chancellor back to the fore, telling us that the UK faced a ‘dangerous cocktail of threats’ in 2016. 

While UK economic growth is still relatively strong, unemployment is falling and real wage growth is positive, the latest set of national accounts were disappointing. Once all the data was in, the ONS revised down its estimate of annual GDP growth to 2.1 per cent from 2.3 per cent as growth in the third quarter of 2015 turned out to be weaker than expected.

Global economic conditions are clearly uncertain. Wobbles in China have caused ripples across the world stock markets and this has unsettled forecasters of future global growth. But on top of developments in China, growing tensions in the Middle East and low oil prices add to the uncertainty. It may sound odd that lower oil prices could be a bad thing – they make it cheaper for us to move around and for goods to be made and shipped. But the downside is the importance of the oil industry to the world economy. Lower profits make a difference.

The Chancellor is concerned that any slowdown in the global economy will stall our own recovery making it more difficult to repair British public finances from higher tax revenues. In Chancellor speak that means prepare for more austerity. He won’t jeopardise the UK’s budding recovery by tightening the belt too much. Rather, his comments are a warning that even though things are getting better, this is no time to increase spending on public services, new projects or tax and welfare giveaways…

…and maybe there is just a bit of politics aimed at giving us all a lift if things turn out better than he now suggests could be the case..

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