The big topics in the investment world at the moment seem to be macroeconomic. With that in mind, we thought it would be useful to revisit some of the basics of the terms being used in the current environment, and to remind investors of the things to look out for (indeed, many younger investors may not have come across some of these influences in their investing lifetime):
The Bank of England (BoE) will struggle to get inflation down as fast as it hopes.
The mention of the word “recession” creates blind panic across the media and great foreboding among swathes of the population. What does recession mean, and should we panic?
Recession is the term used by economists to describe a period when an economy goes backwards. This is normally measured in terms of GDP. Most economies move in cycles, and the recession is the period of the downcycle.
The conventional economists’ definition of recession is a period of two or more consecutive quarters in which GDP declines. GDP is a measure of the wealth creation of an economy during a time period. It is not a measure of total wealth at any one time point. GDP is akin to the amount an individual saves during the year, rather than a measure of his/her total savings at the year-end.
Of course, there is nothing magic about this definition; it could just as easily be defined as a down period lasting three quarters, but, nevertheless, two is a good yardstick.
Larissa asks Keith, ‘Should we care about the UK recession?’ in our latest Hardman Talks interview. Watch it to gain further insights on how timing and sector can influence the magnitude of the recession, the impact of interest rate hikes, who the true beneficiaries are of inflation and why growth stocks are being devalued.
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