So how is the UK likely to fare? A rise of the same size as Nigeria is very unlikely – the rapid development in Africa over the past twenty years has rendered the base years particularly obsolete. In the UK, the inclusions are likely to be more subtle – addressing the accounting treatment of pension rights and Research & Development costs, rather than adding entire industries. Nevertheless, estimates are for approximately £60bn being added to total UK output, an increase of around 4 per cent.
Will it matter to investors? Again, looking at Nigeria, these figures are important for investors. One simple metric, often focussed on following the financial crisis, is debt-to-GDP ratio. By almost doubling its GDP, Nigeria halved its debt-to-GDP ratio. For macro investors, that is the sign of a healthy country. Clearly, the UK won’t be in the same position, but any decrease, even if only superficial, is likely to be well-received. Where it might matter is in the comparison of one country’s economy with another if they are not calculated on a comparable basis and time horizon, where managers are deciding which securities offer better value in different country bases.
Will it matter to individuals? Unlikely – balance sheet tricks and recalculations are rarely directly observable – no one will have more (or less) money in their pockets than before. However, a confidence boost may filter through – good news tends to increase consumption as people feel more secure and headlines can be very influential!
Ben Kumar is investment manager at Seven Investment Management
