Not since the long gone days of its halcyon imperialist era has the United Kingdom been the world’s economic growth leader. But still, the world’s sixth largest economy presently plays a key role in international trade and finance.In fact, lately some consider the island nation to be a pivotal sovereign force with the potential to help bail out the lumbering euro zone region. Because of its strategic geographic position and often progressive economic policies, investors continue to look to the UK for indications of a potential upturn in Europe and perhaps thereby the rest of the developed world.However, despite the country’s physical proximity and substantial trade relations with Europe, Britain’s economic engine is driven by a unique set of factors more akin to the American system rather than those of other countries within the European Union of which it remains a member.British citizens who lived through epic years of Margaret Thatcher’s prime ministry know that change is often necessary to bring about better times.Events unfolding over recent years have also proved that fiscal leadership can be as important as sovereign policy towards changing economic conditions.In this respect, change came about last month when the UK ushered in Mark Carney as Britain’s new central bank governor. Carney, former governor of the Bank of Canada, is now charged with running the Bank of England for the next five years.Perhaps because of his past successes, the central banker’s arrival was applauded by the financial markets with a rising Sterling currency value and higher UK stock prices. After all, Mr. Carney has been credited with shielding the Canadian economy from the worst impacts of the Great Recession.Immediately following his appointment in early July, Carney announced his commitment to keeping interest rates down at their all-time low of 0.5% on the benchmark lending rate, at least until U.K.’s unemployment falls back to 7%.Since late 2011, the UK unemployment rate has steadily declined from a high of 8.4% to its present level of 7.8%. However, Carney’s pledge is valid only as long as inflation remains contained and the banking system stays solid.The UK economy seems to be off to a good start since Carney took over.Over the past few months, the country has seen surprisingly strong retail sales, improving industrial production and a more positive manufacturing sector survey.Yet Britain still faces the challenge of a relatively high inflation rate and a persistent decline in real (inflation-adjusted) wages, which have fallen hard on the struggling middle class. The UK banking system also remains a work in progress and economists lament that banks in the region are still are too tight-fisted in their willingness to lend.Throughout the developed world, we have lately seen some encouraging signs that world economic conditions may be improving.On July 30, I wrote an article for this paper titled “Where Do We Go From Here?”, stating the US remains the ‘best house in a tough neighbourhood’ having the potential to once again lead the world out if its post-recession slump. Since then, despite some choppiness in the manufacturing sector, America’s recovery appears mostly on track.In recent months, the Fed has felt comfortable enough about overall business conditions to be strongly considering the possibility of tapering its monthly bond and mortgage purchases.Across the Atlantic, even the core countries of Europe have finally posted positive domestic growth figures suggesting they may have exited their long recession.In the UK, the Confederation of British Industry (CBI) recently raised its forecast of gross domestic product (GDP) growth from 1.0% to 1.2% and now predicts the services, construction and manufacturing sectors will continue to show signs of improvement. Moreover, the independent research organisation believes that in 2014, the British economy will gather pace, growing at a rate of 2.3% up from its earlier forecast of 2.0%.On a recent trip to London, I noticed locals spoke much more favourably about the real estate market with prices trending upwards — quite a change from just a few years ago.Official data also confirms an improvement in disposable income on the back of higher real estate prices as a key growth driver.In that respect, we believe Britain’s recovery is similar to America’s recent resurgence which is broadly credited to an improvement in property values and stock prices which have sparked an increase in consumer spending.Like America, the U.K.’s gross domestic product (GDP) is heavily weighted toward personal consumption.UK equities are worth a look at these levels. For one thing, the larger cap companies which dominate the FTSE 100 benchmark index are over-represented by defensive sectors including energy, pharmaceuticals and global banking.Adding to the defensive posture, the current dividend yield on the FTSE 100 is 3.8%, substantially higher than the 2.1% provided by the US-based S & P500 stock index.On a valuation basis the FTSE 100 trades at just 11.4X expected earnings for the year ahead versus 13.5X for the S & P500 according to Bloomberg data.Notably, many of the larger firms which dominate the FTSE are global operators. Companies including Astra Zeneca, Vodafone and BP derive a large portion of their revenues and earnings outside of the UK and therefore offer less direct exposure to progress within the country. On the other hand, the broader-based FTSE 250 is a good place to look for smaller companies offering more direct exposure.Year-to-date the FTSE 100 is up 22.8% and the FTSE 250 is up 13.0% in local currency as of the end of last week.In terms of the UK bond market, investors may also find some relative value.Longer-term UK bonds are a bit more interesting than just a few months ago now that they have increased in yield as they have in the other developed countries.As of this writing, UK government bonds offer almost identical yields as comparable US Treasuries.A point in favour of the UK bond market is Carney’s statement for rates to stay on hold through 2016 while the Fed has been discussing low rates “at least through 2015”.Moreover, the Fed has indicated a strong possibility of tapering bond purchases before year end which has had the effect of bumping rates higher.Rising interest rates are the enemy of fixed-rate bond prices and unlike the US, the UK has yet to suggest any tapering moves.Of course, currency risk may also be a consideration for some clients and we would caution US or Bermuda-based investors against plunging heavily into Sterling after the currency’s recent sharp rally of about 10% against the greenback since early July.Bryan Dooley, CFA is a senior portfolio manager at LOM Asset Management Ltd in Bermuda. Please contact LOM at 441-292-5000 for further information.This communication is for information purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service.Readers should consult with their Brokers if such information and or opinions would be in their best interest when making investment decisions. LOM is licensed to conduct investment business by the Bermuda Monetary Authority.