Last week provided further evidence that the recovery in the UK is gaining momentum.
The growth in the economy to the end of September has been estimated at 0.8 per cent. This was the strongest period of growth since the second quarter of 2010 and it is likely to be the strongest growth recorded amongst the G7, the seven largest economies in the world.
Over the last few years we have seen many false dawns in these numbers, due to the Olympics and other one off factors, but this time it is slightly different.
The recovery is now spread across a greater number of sectors, with manufacturing and construction showing the greatest gains.
Before we all get to excited, the economy is still 2.5 per cent below where it was in 2007 and the fall in take-home pay after the effect of inflation, higher taxes and the very poor Eurozone economy are still dragging us down. These factors are unlikely to disappear very quickly and will constrain any grand economic recovery.
On the positive side, the number of people in work is growing, confidence returning and the probability of productivity picking up. Any collapse in the economic revival also seems unlikely.
Although the headline stock market in the UK, the FTSE 100, is up over 13 per cent since the beginning of the year, the less quoted FTSE 350 is up 15.4 per cent and the FTSE 250 is up over 25 per cent. This is because the top 100 shares have a very large international exposure compared to the next 250 companies in terms of size, where the UK tends to dominate profits.
It is not only in the UK that indices are reaching new highs. Across the water in the US the Dow Jones is recovering from the enforced Government shutdown and the broader S&P 500 achieved a new high during the week.
Even European bourses are trying their best to push forward to new highs. Japan and emerging markets continue to lag due mainly to dollar weakness, but I would reckon they will play catch up as the dollar recovers.
A quick dose of reality is called for. Markets always tend to get in front of themselves and here is another classic example. Profit taking would not be unsurprising in the short term, but there is little doubt the wind has changed direction.