A few days ago, the Office for National Statistics (ONS) published their projections for UK population numbers. The projected changes have really important implications for stock market investors. The ONS forecast that residents will grow to 70 million in the next 12 years from 65 million at present (that’s an increase equivalent to the size of the Irish Republic). The increase is primarily being driven by immigration and a lot of the rise is expected to be in the South-East of England.
This rise compares with many European countries where populations are either relatively static or falling as in Germany (which is why Germany might be more welcoming to migrants of all kinds). Many European countries have a major problem with ageing populations with active (e.g. employed workers) having to support many more non-active or retired people). But again the UK benefits to some extent because a lot of migrants are young and also they have a higher birth rate than the rest of the population. That means that although the “dependency ratio” will rise in the UK as the population ages and lives longer, it might not be as severe a problem as in other European countries. But it will still impose a significant strain on public finances in terms of healthcare costs, pension provision and other costs.
The positive aspect of this growth is that GDP will rise in the UK and it might grow more than other European countries – in other words, it may not be immediately obvious but there will be a boom for those who sell products or services to UK consumers. A simple example which is already being seen is the growth in demand for housing which far outstrips supply as land supply is relatively fixed, and the planning system thwarts new developments. So house prices go up and house-builders profits are booming (that is of course compounded by low interest rates which may not last and peculiar Government housing policies that reinforce the worst aspects of the boom).
So investors need to be looking at UK companies that sell to their home markets.
The negative aspect is that infrastructure and public facilities will come under pressure as the population rises faster than new infrastructure can be provided, medics trained, or hospitals and schools built. So if you think the traffic jams on our roads can’t get any worse then think again, and get used to standing on trains even more than now.
If the Government puts their minds to tackling these problems (albeit they are often late in doing so), then infrastructure will be the place to invest. Construction companies who can build new roads, railways, and public buildings such as hospitals and schools will benefit. Yes construction companies might come out of the doldrums that they have been in for years. And population age trends mean those like McCarthy & Stone who build retirement apartments will benefit, or those who provide medical products or services to the NHS will do so.
In essence these changes will be positive for investors wealth on the whole, but you will suffer the negative consequences of a growing populations with queues for lots of things. So you will be richer in some ways but poorer in others.