GDP drop prompts investment opportunities

A drop in GDP could provide buying opportunities for UK investors, intermediaries say.

Their comments come in light of the latest UK growth figures, which may indicate a double-dip recession is on the horizon.

"The latest UK GDP figures have been distorted by the weather, and we expect the overall trend to still be one of anaemic growth," said EFA OPM Equity High Income manager Tony Yousefian.

"The figures represent a buying opportunity and don’t change our minds about the direction we are headed."

Alan Easter, director at discount broker Willis Owen, advises shifting money out of high street savings accounts.

"The reaction of many will be to save more and spend less, but with this shrinkage in the economy likely to put the Bank of England off raising interest rates in the foreseeable future, high street savings accounts will continue to provide below-inflation returns for savers," he said.

"Placing savings in an investment fund could potentially yield much better returns. And with its tax efficient benefits, the ISA allowance should be the first step for all savers."

Easter also said emerging markets investment would get a boost from the GDP numbers, as investors will look to overseas markets when the UK economy struggles for growth.

Tom Stevenson, investment director at Fidelity International, agreed. "Tempting as it is to think we might be returning to an era of lava lamps and platform shoes, there are some key differences between then and now," he said.

"Investors should not simply look at the poor returns from the stock market in earlier periods of stagflation and assume that history will repeat itself.

"The backdrop of buoyant demand in emerging markets and the absence of a wage-price spiral mean today's environment is very different."

David Buik, market analyst with inter-dealer broker BGC Partners, warned the Monetary Policy Committee (MPC) not to be too heavy-handed in response to these figures.

"Despite inflation and the inevitable threat of stagflation, the MPC must surely stick to its policy of no change in official interest rates," he said.

"The recovery process would be irrevocably damaged by any kind of an immediate hike. We remain optimistic that the economy will continue to expand in 2011 but, with the housing market weak and consumer confidence shaky, monetary policy should remain loose."