While Guo Jinlong the mayor of Beijing passed the Olympic flag to his London counter part, Boris Johnson, at the closing ceremony of the games last Sunday many in the UK were hoping for some of China’s economic growth to magically rub-off on the next host country.
Latest figures from the UK’s Office for National Statistics (ONS) highlighted there was no economic growth in Europe’s second largest economy for the period between April and June further stoking fears that a recession may now be inevitable.
In my January article entitled ‘Outrageous Predictions for 2008’ I made three predictions which I felt could help shape 2008. One was ‘following their fantastic growth over the previous few years China could experience a sharp correction in their stock markets in this their Olympic year, possibly by as much as 40% from their high point’. Although figures from the Chinese National Bureau of Statistics show their economic growth is still holding up at above the 10% level their leading stock market index has in fact now past the predicted minus 40% level.
The second prediction was that of UK growth turning negative. In January, I stated ‘the credit crunch will hit over-extended consumers hard in the UK this year and GDP growth will move into negative territory by year’s end’. Following last quarter’s flat performance fifteen years of consecutive growth has now come to an end and unfortunately this prediction is also on track to being fulfilled.
Following the country’s biggest haul in gold medals for a century Prime Minister Gordon Brown’s ‘Beijing bounce’ in popularity may prove only to last as long as his trip home from China. Inflation is currently running at more than twice the 2% target rate, exports to Europe - the UK’s largest trading partner - are down while worrying figures from the ONS indicate the number of British people who are out of work is increasing. Furthermore, the month of August saw Sterling drop to its lowest level against the US Dollar for over a year as worsening data in both the UK and Europe conspired to suddenly make the American situation look better.
Investors in the UK markets and Sterling are faced with a difficult choice, is it better to sit tight or look for other options? Currencies fluctuations are of course notoriously difficult to gauge leaving most investors in Sterling deciding to probably just sit tight while trying to achieve the best rates available for their cash and while Independent Financial Advisers can guide their clients to banks offering one year fixed rate deals giving around 7% gross interest this will probably remain enough of an incentive not to switch currencies at this time. And while it is likely to get a little worse before it gets better for those investors who have remained in the UK markets, history shows us that shares in the UK have outperformed cash over the longer term.
Equally, given time the expected ‘London lift’ from being the next host city of the Olympics could gradually ripple outwards thus improving the economy as a whole.

Mark Lamb is Director of FPC Investment Consultants who are Independent Financial Advisers and regulated by the MFSA to provide investment services under the investment services act 1994. For further details please contact Mark Lamb, by email on marklamb@fpc.com.mt by phone on 21318008 or through FPC’s website www.fpcmalta.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek independent financial advice before making any investment decision.