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The UK economy’s back at pre-pandemic levels! What does it mean for FTSE 100 stocks?

macro shot of computer monitor with FTSE 100 stock market data in trading application
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It feels like a long road back to economic recovery for the UK. But it has arrived at a crucial stop, finally. In November 2021, UK’s economy grew by 0.9% from the month before. The number in itself is not eye-popping. But it is significant, because the economy has now grown beyond its pre-pandemic levels of February 2020, and by a decent 0.7%, no less. This bodes well for my FTSE 100 investments. 

Good news on the economy

The sluggish economic recovery, I have to admit, was making me somewhat jittery about 2022. While there was little doubt that it would continue, recovery at snail’s pace meant that it was more vulnerable to risks like inflation or even a resurgence of the pandemic. However, now that it has managed to push past pre-pandemic levels, I am more confident about the returns from my investments. 

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What it means for my FTSE 100 investments

Consider construction output, for instance. It is one of the components of gross domestic product (GDP), the headline measure for the economy’s performance. Some readers might recall that the previous print was pretty bad for construction. If the trend had continued, it could have had an impact on FTSE 100 construction stocks, including those in my own portfolio, like CRH. 

But construction can also be seen as a proxy for the real estate market. And plenty of house builders are also part of the index. Again, one example from my own investments is Persimmon. In another article today I have already written about whether or not it could sustain its 9% dividend yield in 2022. And if the latest economy numbers had been weak, it might no longer have been a question in my mind, but a foregone conclusion that it could not. Now, however, I am hopeful.

Also, the services sector has encouraging trends in sub-segments. Transport and storage, which includes postal and courier services has seen strong growth. This could bode well for a FTSE 100 stock like Royal Mail. It is one of the best performing stocks in my portfolio. And now I am even more optimistic about it. Of course there is a possibility of a seasonal bump up in demand for these services because of the festive season. So I would look out for future trends in the segment as well. 

What I’d buy next

The professional, scientific, and technical activities segment also showed strong growth. It includes business activities like architectural and engineering services among others. This is a good reminder to consider stocks that have been long on my investing wish-list, like Spirax-Sarco Engineering. It might be the priciest FTSE 100 stock in absolute terms, but it has also been a good growth buy for long-term investors.

A note of caution

However, I cannot just base my investment decision on one month’s GDP numbers, especially now when there is so much uncertainty in the air. The Covid-19 situation is still not completely under control, and we just do not know when it might throw up another nasty surprise. Also, inflation numbers are basically out of hand right now. And FTSE 100 companies are quite concerned about its impact on their financials. Still, I do believe that we have made a lot of progress and even with stops and starts, FTSE 100 stocks could continue to perform well. I would only add to my investments now. 

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Manika Premsingh owns CRH, Persimmon and Royal Mail. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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