The economy, slowly recovering from the downturn of the past five years, is still prone to ups and downs, giving neither policy makers nor investors a clear direction, according to Chief Investment Officer, Haig Bathgate.
While the British economy expanded 0.7% in the second quarter, a recent report showed that some of our companies are like"zombies", kept alive only by the policies of the Bank of England and the government. Quantitative easing has kept interest rates so low that businesses are able to cover the interest on borrowings they otherwise would struggle to pay, while the fact that many banks are majority government-owned means they find it politically difficult to speed up the foreclosure process. The upside is that this has kept unemployment lower; the downside is that an inability to weed out failing companies lowers productivity and in the long term slows recovery.
Our economy in many ways is very similar to that of the US – we are both nations that depend on consumption to keep things moving. In the US, a similar mixed bag of data – house prices are rising but consumer confidence is stalling – led the Federal Reserve to balk at tapering its quantitative-easing programme earlier this month.
The balance of UK data seems to be positive for those companies struggling after years of lacklustre economic activity. The British Bankers Association said yesterday that consumer credit has increased for the first time since 2009. Government initiatives such as the Help to Buy scheme and the Bank of England's Funding for Lending programme are all helping to kickstart the economy.
But in the end we live in a globalised world. Our interest rates will track whatever the Fed decides to do, and our economy is doing better because of the increasing stability in the Eurozone. For investors, it's still unclear whether the tentative upturn, both domestically and internationally, is feeding into the results of companies, and helping them become less like zombies.
Haig was speaking on BBC Radio's Good Morning Scotland.
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