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The UK economy is ok as we’re going on holiday and eating pizza…

‘Ideas are like pizza dough, made to be tossed around’ - Anna Quindlen

What did you make of the Autumn Statement last Wednesday?  

Certainly it is an unusual world when the government of the day is accused of underestimating future growth potential.  That however is the whole Brexit debate for you – there are still a million and one scenarios out there and to try and conclude anything definitive is not easy. Lower growth and a greater financial burden feels like a sensible view.

So picking apart the Autumn Statement is not really worth the effort.  Far better to look for some insights from individual companies and two in particular caught my eye over the last week.  The first is Thomas Cook (TCG) where after a barren five years as the company recovered from a near corporate death experience caused by building up too much debt, long suffering investors finally have a reward with a small dividend reward – and a sharp rise in the shares over the last week.

Now this was not because Thomas Cook’s results were rampant, in fact profits versus the equivalent period last year were slightly down.  However the numbers were better than hoped as the company managed the expensive transition from geopolitical and terrorism issues in locations like Egypt and Turkey in favour of old school areas such as Spain.  That’s the benefit of over 175 years of leisure and travel experience – they have seen it all before.  

There was another aspect which interested me and that was the clear assertion that the propensity of UK citizens to go on holiday is relatively undimmed – and Thomas Cook’s early data on Winter 2016-17 and Summer 2017 trading is perfectly solid.  So much for the grinding negative and uncertainty of Brexit and a lower Pound.  

And then there is fast food. Recovering from the Autumn Statement data deluge I listened to an investor day presentation from Domino’s Pizza (DOM) on Thursday.  Perhaps wired on fast food they were certainly excited about prospects anticipating continued growth scope, market share gains, ever more online/mobile ordering and heightened pizza takeaway location density. And that was just the UK: vignettes like the almost immediate profitability of the company’s fledgling Swedish pizza takeaway business (fact of the day: apparently Sweden has no national pizza brand) were pretty striking.  

Takeaway pizza certainly is convenient…but convenience comes at a price compared to the much cheaper pizza that can be bought at the local supermarket for example.  This hardly sounds like an austerity backdrop does it? Or maybe people wanted to stuff their face with Italy’s finest export to forget all the gloomy economic prognostications out there.

Consumers matter in a developed market economy typically accounting for between 60 and 70% of overall gross domestic product (GDP).  So those essentially gloomy Autumn Statement economic growth forecasts are basically saying the consumer is going to be more than a bit coy going forward.  Judging by the comments from Thomas Cook and Domino’s Pizza – two companies in the direct firing line – domestic UK economic life is not as bad as some worry about.  

Yes, wage growth is likely to be patchy, the housing market – especially in London – looks stretched and a Hard Brexit reality has the scope to hurt, however the UK is not down and out. The Pound is cheap, domestic politics is more benign than many would have thought and the consumer is still buying holidays and takeaway pizza.  In a word a backdrop that feels ‘workable’ – as evidenced by today’s UK GDP update which confirmed 0.5% third quarter growth – with private consumption growing faster than this.

In short, don’t be scared of investing in more domestic UK economy centred investments for 2017.  

Chris Bailey has 20 years of investment industry experience at long-only and long-short institutions as a global multi-asset fund manager, strategist/macro thinker and, in the earlier part of his career, as a securities and fund analyst.

In 2013 he founded Financial Orbit focusing on daily macroeconomic comment and securities analysis.

The content on this page does not constitute financial advice and is provided for general information purposes only.  Nothing on this page should be regarded as an offer to conduct investment business or to buy/sell any investment

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