Over the last few months, the outlook for the UK economy has become increasingly positive. There’s even more good news now. Experts predict that this year, the economy will grow at its fastest rate since the Second World War.
Here’s the scoop on what an improved economy could mean for investors.
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How has Covid-19 affected the UK economy?
The impact of the Covid-19 pandemic has been quite significant on the UK economy.
Data from the Office for National Statistics (ONS) shows that the UK’s GDP suffered its biggest annual decline for three centuries (9.8%) in 2020 as restrictions crushed business activity.
Much of the GDP shrinking took place in quarter 2 of 2020. During that quarter, GDP fell by 19.5% (compared to 2.8% in the first quarter) as the first lockdown took hold.
Things improved upon the reopening of the country in summer 2020. That improvement continued in the last three months of the year, albeit at a much slower pace.
However, another lockdown saw the GDP shrink again in the first quarter of 2021.
The UK economy to see the fastest growth on record
According to the EY ITEM Club, an economic forecasting group, the UK’s GDP will grow by 6.8% in 2021. This is the fastest rate since 1941.
The group had previously predicted growth of 5% but has revised these figures after also revising its estimate of how much the economy shrank in the first quarter of 2021 (from 3-4% to 1%).
Sky News reports that the EY ITEM Club now expects the reopening of the economy, continued support from the government and Bank of England policy to foster economic growth of 4-5% in the April-June period alone.
The group says that the UK economy will go back to its pre-pandemic level in the second quarter of 2022. That is three months earlier than was previously predicted.
There is also more positive news when it comes to the job market.
The EY ITEM Club has revised its unemployment forecast. Unemployment is now expected to reach 5.8% by the end of the year, down from the previously predicted figure of 7%.
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What does this mean for investors?
A strong economic outlook is good news for investors. For one, stock markets, which have been lagging due to a weak economy, are experiencing a rally.
The FTSE 100, for example, recently exceeded 7,000 points for the first time since before the pandemic.
On the global scene, two Wall Street indexes, the S&P 500 and the Nasdaq Composite recently reached new record highs.
Is now a good time to invest?
As the global economy continues to improve, the stock market may experience even more growth. As a result, now may be an excellent time for investors to consider adding a few more stocks to their portfolio in order to benefit from the rebound.
A strong economic outlook and the stock market growth that is likely to accompany it also present an opportunity for those who were able to save during lockdown to supercharge their savings.
Investing in the stock market through a proper investing strategy could help you grow your lockdown savings and build wealth over the long term.
As for how to invest, one excellent option is through a stocks and shares ISA.
This is essentially a tax-free wrapper that shields any investment gains from the taxman. Needless to say, this could make a big difference to your long-term returns.
Keep in mind that tax rules can change in future and their effect on you will depend on your individual circumstances.
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