UK has raced out of recession at 0.1 mph (sorry 0.1% growth in Gross Domestic Product) according to the Office for National Statistics. The problem is that: (a) we all know that these figures are likely to be revised upwards or downwards over the next few months; and (b) this is only a quarter of the growth many had expected and could well be a precursor to the second half of a double-dip or “W” shaped recession.

Surely any growth is good news?
Actually this is not necessarily, true. In the first place, we are well behind most of our competitors in recovering from recession. Arguably, things could be much worse had the government not decided to try and spend its way out of recession in a Keynesian way. On the other hand, had we not been so much in debt at the start of the banking crisis, we might have been better able to weather the storm in the fist place.

We need growth in consumer spending, if the economy is to recover; what we largely got is growth in the hotels and catering sectors plus, of course, motor trade. The latter was helped largely by the government’s scrappage scheme – which has been far more successful than we had initially feared. However one bright spark on the horizon (real recovery is clearly still ahead of us) was that manufacturing grew by 0.4%, the best performing sector.

The real fear is that much of the growth was driven by government support, including quantitative easing, which is finite and will have to be withdrawn – probably sooner, rather than later – as it becomes increasingly unaffordable.

So where does this leave us?
Firstly, the government’s plans are based on what we can now see are overly optimistic projections of tax revenue, as GDP was expected to grow faster. This throws all its spending plans – and any hope of repaying its massive borrowing – into jeopardy. But is also has wider implications. Sterling fell on the news, making it theoretically possible that interest rates would have to rise here in order to attract money back to a weakened economy.

Actually this is unlikely (a pity for savers) because the money pumped into the economy over the past year or so via the Bank of England’s quantitative easing programme is potentially inflationary and increasing interest rates could exacerbate the position.

What can we do?
A weak pound is usually good for exporters and we have long held that the economy needs to be re-balanced towards industry. Finance certainly attracts invisible exports, and we have benefited from this for a long time. But a diverse economy could be better for us in the longer term because it would reduce our reliance on a sector that is more globalised than any other – and therefore susceptible to large organisation threatening to take their HQs overseas, thus reducing the power and importance of London.

Perhaps we need to ask ourselves some fundamental questions: are we still a world-class power; should we strive to be; would it matter if we were not? If the answer to all three were to be a resounding “no” then we could review our spending on overseas issues and consider cutting some unnecessary budgets.

Getting advice
As ever, when it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.