When we compiled our predictions for 2013 we started off by saying ‘when you look ahead to 2013 your glass could be half-full or half-empty.’ At the time the US was teetering on the edge of the Fiscal Cliff; in the UK the lights had just gone out on the last Comet store, the national high street was in disarray and the prophets of doom were muttering about a triple-dip recession.

In the end, 2013 turned out to be a relative success – at least at the time of writing…

There were no more financial earthquakes, most of the world’s major stock markets enjoyed significant rises and the year even ended with Spain seeing its credit rating lifted.

Of course, there are still problems. Youth unemployment in Europe remains at a frighteningly high level, the economic recoveries in the US and the UK remain fragile and political and military tensions between China, Japan and South Korea are starting to simmer.

But overall there is good reason to be optimistic as we look ahead to the coming year. Naturally there have been the usual predictions of a ‘global meltdown’ in some quarters, but we need to remember that sensational headlines sell newspapers. A continuing gradual recovery isn’t going to set anyone’s pulse racing, but it’s what we expect to happen.

The UK Economy

In his Autumn Statement, Chancellor George Osborne predicted growth for this year of 1.4% with 2.4% expected in 2014. These figures were higher than those predicted in the March Budget – when there were still real fears about the UK slipping back into recession – and confirm that the UK is gradually recovering from the world financial crisis. The phrase George Osborne used was “responsible recovery” and you can expect to hear plenty more along similar lines as the run up to the May 2015 General Election gathers pace.

The coalition government seems determined to go to the country with a message of ‘we’re gradually recovering; don’t let Labour ruin it’, so there’ll be no shocks from the Chancellor and (sadly) probably not a lot in the way of pre-election giveaways.

We expect to see plenty of encouragement given to new businesses in general and manufacturing in particular. And you can also expect to see more of the Prime Minister’s charm offensive towards China as he tries to position the UK as China’s favoured trading partner in Europe.

The UK Housing Market

Depending on which index you use, the UK housing market is expected to have risen by between 3.5% and 6% by the end of 2013, with – as always – some hot-spots recording rises well above this figure.

Most forecasters are expecting a similar level of growth in 2014, with the National Institute of Economic and Social Research plumping for 5% growth. Some commentators are slightly more cautious, worrying that interest rate rises – which would seem likely at some point in 2014 – may depress the market. Looking further ahead it is generally expected the house price rises will slow down: Mark Carney, the new Governor of the Bank of England certainly does not see ever-rising house prices as an indicator of a country’s economic health.

The US Economy

The continuing stand-offs between President Obama and the US Congress have led to some perilous economics in the US, including a partial Government shutdown at one point this year. At the moment there isn’t a political/economic crisis facing the US, but the current deals are scheduled to need renewing early in the New Year.

Despite this added uncertainty, it seems likely that the US economy – still the driver of so many other economies – will continue to grow in 2014 and the consensus seems to be that 2.6% will be the likely figure, perhaps rising to an annualised rate of 3% by the end of the year. That would suggest that the US economy could add 200,000 new jobs per month, helping to sustain consumer demand. Unfortunately much of that demand will be directed at products made in the Far East: there is no sign of the US getting to grips with its balance of payments deficit any time soon.

Nevertheless the US stock market was in a buoyant mood in 2013, and at the end of November the market was 23% up for the year. Most forecasters expect – or hope for – further rises in the New Year.

The World Economy

The Organisation for Economic Cooperation and Development (OECD) has recently downgraded its forecasts for global economic growth. In May it was looking for growth in the global economy of 3.1% in 2013 and 4% in 2014. It has now downgraded those forecasts slightly – blaming the uncertainty caused by the problems in the US mentioned above – so that it now expects growth of 2.7% and 3.6% respectively.

The only real certainty is that some countries will do well and some badly and whilst the global economy is improving, local disputes and problems are bound to impact on individual countries’ economies. We’ve already mentioned the tension in the Far East – and we’re now seeing regular pro-EEC demonstrations in the Ukraine as the opposition parties try and prevent closer ties with Russia. At the moment these protests seem unlikely to end happily, given that Russia largely controls the Ukraine’s supply of gas.

 What does it mean for you? And us?

As we stated in the introduction, 2014 should be a year of gradual recovery – but there are bound to be bumps along the way. Long term financial planning will be as important as it has ever been. We will keep you informed of any changes that are likely to impact on you and we’re always at the end of a phone – or an e-mail – should you have any questions. We’ve never been more committed to working with our clients and look forward to guiding you all through the coming year.

Please note: The comments in this article are general comments only, and should not be taken as being specific investment advice.