Triple-dip recession threat & FTSE 100 bull run

Compare and contrast these two headlines, both appearing in my news feed this evening.

UK heads for triple dip as GDP contracts 0.3pc

FTSE higher, edging towards 6,300

Most publications are reporting tonight the latest economic figures which show the UK economy contracting by 0.3% in the final quarter of 2012.

This fall in economic output was blamed by the Office for National Statistics on a drop in mining and quarrying activity. Bad miners and quarriers.

It means that the economy was broadly flat during 2012.

While this is only the first estimate of economic activity in the final quarter of last year, and could be revised in either direction over the coming months, it does bring Britain one step closer to the prospect of a ‘triple dip’ recession.

One more quarter of negative economic growth and we experience an event which makes headline writers and opposition politicians salivate.

Despite this gloomy economic news, the press is also reporting today that the FTSE 100 index of leading UK company shares is getting close to 6,300 points.

The index reached a new four and a half year high today, closing up 0.3% at 6,284.45 and delivering 2.1% growth for investors this week alone.

So far in January, the FTSE 100 is up by an impressive 4.26%; not bad for a stockmarket operating in an economy that appears to be sliding towards a ‘triple-dip’ recession.

Of course the state of the economy and the state of the stockmarket are not always closely correlated. History tells us that growth in the stockmarket often leads economic recovery; we don’t need a buoyant economy for British companies to grow strongly in value.

Much of the operating revenues for the companies included in the FTSE 100 comes from overseas rather than domestic activities.

The state of the global economy is perhaps more important to the success of UK plc than how the poorly British manufacturers perform.

Photo credit: Flickr/Bill Gracey