Kay Burt provided the network with her ‘digestible’ annual financial outlook, taking a look at the impact of events in 2016 on the economic and investment markets in the UK and around the world and looking ahead in 2017.

The full report is available to download below but here’s a summary of some of the key headlines . . .

Despite tumultuous times, the UK economy grew by 2.2% in 2016, which is the fastest growth amongst the seven leading industrial economies. We have now grown for 8 consecutive years. Our dominant service sector is producing about 10% more than before the credit crisis, construction about the same, while manufacturing is still about 5% lower, but picking up. The UK’s leading blue-chip index ended 2016 at record levels, despite a tumultuous year, with the FTSE 100 closing at a new all-time high of 7,142.83 points on Friday 30 December.

The economic outlook for 2017 is for global growth of about 2.8%, global inflation of about 2.5% and continued low interest rates, with more political headwinds around the world than usual. The uncertainty of political leadership in the US, Germany, France and Italy is not helping investor confidence. However, productivity growth, and aging populations in China and many developed countries are also structural headwinds for markets, even before politics stepped in, although the all important company earnings outlook is showing some signs of improvement.

In the US, consumer confidence is robust.  However, undoubtedly the US election has introduced a lot of uncertainty regarding the future, despite more certainty that fiscal (government) policy will be stimulative in the short term. The new government is likely to implement corporate tax cuts, provide incentives for big companies to bring back US cash stashed all over the world, and possibly begin some infrastructural expenditure with the aid of the private sector. In summary, President elect Trump’s inauguration should boost US growth over the next two years, which still makes US equities look attractive, despite their rich valuations. In terms of the UK, Mr Trump is an outspoken supporter of Brexit. He has also said that he is in favour of bilateral talks rather than multilateral ones which would favour a US/UK trade deal going forward, however his “America first” motto does not suggest that the road to a deal will be smooth for the UK.

In Europe, economic growth is projected to remain subdued at about 1.5% in 2017, and there are still concerns about what Brexit means for Europe and the future of the euro longer term.

At home, most forecasters expect economic growth to slow in 2017 to 1.2%, compared to 2.2% in 2016. Sterling’s 14% fall in 2016, higher wages in the developing world and slightly higher commodity prices will all make imports more expensive this coming year. This will reduce consumer’s disposable income, and their propensity to shop – the main driver of our economy. It will also increase companies’ import costs, which will affect supermarkets prices etc. However, UK consumer and business confidence is still growing so far, and global growth is forecast to pick up this year, which is all a good sign for 2017.

The impact of Brexit is less certain at this stage. We know article 50 will be triggered by the end of March 2017, and we will have to leave two years after it is triggered. However, we do not know the terms, nor what trade deals will be in place by when with Europe, or the rest of the world.

In the UK, house prices grew by 6.9% over the last year, according to the Office for National Statistics, while Zoopla showed that the east of England had the biggest price increase of 12% in 2016. So whilst the rate of growth is slowing, and indeed falling in London, it’s good to hear that most UK based forecasters are estimating a 2-3% house price increase across the UK in 2017, with strongest growth expected to come from East Anglia and the West Midlands.

In summary, although there is a lot of uncertainty about in the world, it appears that global economies prospects appear better going forward into 2017. This should favour investments made in equities and commercial property, over fixed interest, residential property and cash. Amongst equity markets, prospects appear better for the US, the UK and Europe than for Asia and the emerging markets.

Download a copy of Kay’s Financial Market Overview January 2017.