Editor's letter

The UK is doing fine

The small matter of the productivity problem aside, the UK economy is doing fine, and should carry on being fine.

Regular readers might have noticed that I have been taking some time off. For the last six weeks or so I have barely glanced at the papers – an odd feeling for someone who has read almost all of the UK dailies pretty much every weekday and all the weekend papers (bar a few redtops) every Saturday and Sunday for over 20 years. What have I missed? When I asked this question on Twitter I was told that nothing had changed. Not so. The exciting fact that we have actually (sort of) left the European Union aside, I do see some interesting changes in the conversations going on in the UK at least. 

The UK’s productivity problem

The most interesting might be the growing recognition that the UK’s productivity problem (output per hour has barely budged in over a decade) might be connected to, as Alistair Osborne puts it in The Times, the tendency for companies to “hire cheap sackable labour rather than invest in new factories or kit that could produce a leap in productivity”. Our old friend, economist Andrew Smithers, has a book out on the subject, in which he points out that one of the main drivers of this may well be the bonus culture at big firms – if you can get rich by keeping costs down over a three-to-five year period, why indulge in expensive capital investment, particularly if cheap labour is abundant? It’s something the new immigration points system seems to recognise as well: by limiting access to low-cost workers, might it force investment and push up productivity? It’s possible. 

The UK economy is doing fine and should keep doing fine – with employment at a record high, real (after-inflation) wages rising nicely, the benefits freeze ending in April, and a strong chance that the new chancellor, Rishi Sunak, will be a bit more “spend spend spend” than his predecessor (see our profile on him in this week's magazine and also our briefing on economic policy), growth is likely to surprise on the upside in the short term. If we do start investing properly, it should do so in the long term too.

Virus-proofing your portfolio

The big new threat to growth (to say nothing of health) on the horizon is of course the coronavirus. I am already being asked how you can virus-proof your portfolio. The answer is that there is no perfect hedge. However, I suspect this might not be the best time to bump up your Asian holdings. If you must buy something at the moment, maybe make it something cheapish and UK-based (Max King gives his thoughts on one of our favourite investment trusts this week). 

I’d also point out that, with the “painful reckoning” several Financial Times writers are forecasting increasingly likely, the best safe havens are still the old safe havens. This week, we explain why the Swiss franc always comes on out on top, and relate the story of the gold-laden shipwreck Nuestra Señora del Juncal. However often one might think that diamonds and gold have had their day as stores of value, the fact that Spain and Mexico are prepared to work together to raise the ship from the seabed after 400 years in order to share its cargo of 150 tonnes of them tells you they have not.

Recommended

What will happen to the price of gold in 2022?
Gold

What will happen to the price of gold in 2022?

Gold is traditionally the go-to asset during inflation. But with inflation at 30-year highs, it has gone nowhere. Dominic Frisby investigates why, and…
20 Jan 2022
UK inflation is at a 30-year high and it hasn’t peaked yet
Inflation

UK inflation is at a 30-year high and it hasn’t peaked yet

UK inflation has hit 5.4% - its highest in 30 years. And it could be heading higher. John Stepek explains what it means for you and your money.
19 Jan 2022
Index fund
Funds

Index fund

Index funds (also known as passive funds or "trackers") aim to track the performance of a particular index, such as the FTSE 100 or S&P 500.
18 Jan 2022
Model Y: Tesla has nailed it once again
Cars

Model Y: Tesla has nailed it once again

The electric carmaker’s new SUV crossover, the Model Y, sets the benchmark in the sector.
18 Jan 2022

Most Popular

Five unexpected events that could shock the markets in 2022
Stockmarkets

Five unexpected events that could shock the markets in 2022

Forget Covid-19 – it’s the unexpected twists that will rattle markets in 2022, says Matthew Lynn. Here are five possibilities
31 Dec 2021
US inflation is at its highest since 1982. Why aren’t markets panicking?
Inflation

US inflation is at its highest since 1982. Why aren’t markets panicking?

US inflation is at 7% – the last time it was this high interest rates were at 14%. But instead of panicking, markets just shrugged. John Stepek explai…
13 Jan 2022
Tech stocks teeter as US Treasury bond yields rise
Tech stocks

Tech stocks teeter as US Treasury bond yields rise

The realisation that central banks are about to tighten their monetary policies caused a sell-off in the tech-heavy Nasdaq stock index and the biggest…
14 Jan 2022