Norwich Union comments on UK economy

Article date: 11 February 2008

Senior economist Stewart Robertson believes the UK will avoid recession.

Economic highlights:

  • UK economy will slow down but avoid recession
  • The corporate sector is generally in good financial health
  • House prices will remain flat with falls in some areas
  • Household budgets will be hit by higher food and energy prices
  • Interest rates will fall to about 4.5% but the pace of the fall will depend on an improving outlook for inflation.
  • Economy will respond to lower interest rates and recovery to start before end of 2008.

Stock market highlights:

January 2008 was a difficult month for equity investors as stock markets around the world lost value.

  • Shares lost ground since the turn of the year with FTSE 100 down about 13%. Mining, retailers and banks have been among worst hit.
  • With many markets oversold, valuations of shares are now attractive against bonds, although earnings are expected to fall and some further volatility on the back of economic and political news flow cannot be ruled out.
  • Markets are unlikely to stage a sustained recovery until the second half of this year when the outlook should become clearer and wider realisation that recession has not occurred feeds into sentiment.

Stewart Robertson, Norwich Union senior economist, said: "The UK economy will probably slow in 2008, led by weaker housing and consumer
spending. Economic growth for the year overall looks set to drop below 2% from 3.1% achieved in 2007. Weaker growth and fears about the effects of the credit crunch will allow the Bank of England to reduce interest rates by at least 1% this year. Consumer confidence has tumbled in recent years and the retail slowdown will continue over at least the first half of 2008.

"The housing market may see falls in some areas, but fears that prices will fall by 20% or more is probably overdone. There has been some good news: car sales appear to be improving while the number of new jobs created picked up sharply towards the end of 2007."

Neil Davies, director of marketing - investments at Norwich Union, said: "We recognise that our customers may be concerned that 2008 has begun with a volatile period in investment markets. Recognising the probability of a more challenging economic environment, Norwich Union customers should be confident that our fund managers are managing our funds accordingly with a clear focus on achieving the best possible returns."

Any opinions expressed are those of Norwich Union and should not be viewed as a recommendation of any nature.

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About Norwich Union

  • Norwich Union is the UK's largest insurer. It is a leading provider of life, pensions and investment products and one of the largest Financial Adviser (FA) providers. FAs provide over 70% of the company's long-term savings business in the UK.
  • Norwich Union is the UK's largest general insurer with a market share of around 14%, with a focus on insurance for individuals and small businesses.
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