To read the newspapers, you would think so. It takes a little while for the benefits of a weak currency to work their way into the economy… but here they come…
First off exports were up 9.5% in February, according to Office of National Statistics (ONS). We’ve been waiting for an improvement in the trade deficit, so roll on the great British exports machine.
Then the British Retail Consortium (BRC) tells us retail sales are up 6.6% to the end of March.
And even foreign holiday makers are flying over to join in the party, up 3% from last year. While us Brits have cut foreign holidays by 7%.
Could it be that we’re happier to stay home and enjoy this magnificent recovery?
Things were so bad last year, they’re bound to look better now
Let’s put all this data into perspective…
Analysing data from one point in time to another is dangerous. The starting point is absolutely critical as it puts the final figure in context. And we mustn’t forget that here we’re comparing the first quarter of this year with the same period last year.
Cast your mind back to early last year. As it turned out, the first quarter was the financial crisis’s ‘darkest hour before the dawn’. There seemed to be a new crisis every other day, culminating in the stock market bottom in March.
[Editor's note: Read our predictions for the stock market to see what we think is ahead]
So today’s export figures are bound to look good compared to last year when global industry had gone into hibernation. Remember, nobody was ordering anything. Businesses ran down stock as their bankers got tetchy.
In the same way, retail sales are bound to look good compared to a time when consumers were paralysed by fear and their investments had been hammered.
So are there really any winners from this debased pound?
Looking a little closer at the export figures reveals more disappointing news. Yes, the monthly trade deficit did fall from £8.1bn to £6.2bn. But this is still a deficit.
Sterling has been weak for a couple of years now and yet, in February we still imported £6.2bn more than we exported.
And the low pound means we’re paying more for these imports. The pain is inflicted on the public in subtle ways. Foreign holidays become dearer – so either pay more, or stay home. Higher fuel prices (as we looked at last week) and food bills hit everyone.
Exporters, on the other hand, have been increasing profits as their foreign income translates into big sterling gains.
The stock market too has enjoyed a decent recovery. It would be hard to imagine such a robust performance (given the UK’s structural problems) had the pound not been so weak.
With around 70% of the FTSE 100 earnings coming from abroad, these multi-nationals have been doing pretty well as their foreign earnings get changed into sterling.
One swallow does not a summer make…
We need to keep our wits about us at this stage. All the good news stories in the papers aren’t necessarily what they appear. Figures that compare today’s revenues with last year are misleading.
The stock market is doing well because it’s full of multi-nationals that report earnings in a weak currency. It isn’t a reflection of a strong UK economy.
For UK investors it still pays to be defensive. We are by no means out of the woods yet. The markets appear to be on ice until the real action begins after the election.
Good investing,
Bengt Saelensminde
For The Right Side
P.S. My colleague Tim Price runs an investment service advising on defensive investing. Tim’s aim is to keep capital safe above all else. His investments aim to deliver long term performance with low risk.
He’s identified four investments to buy before the next big sell off. If you haven’t already, maybe you should take a look.
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