The pace of economic growth in the UK for the three months to September came in at the fastest rate in nearly two years, but the gloss was taken off this pleasing development with another fall in business investment, which is becoming an increasingly worrisome trend. According to the ONS GDP grew by 0.6% in Q3 as was widely expected, with the warm weather and feel-good factor created by Gareth Southgate’s side exceeding all expectations in Russia providing a sizable boost to consumer spending.
Having said that, business investment continued to suffer as the uncertainty surrounding Brexit provided, and continues to provide, a persistent headwind. A drop of 1.1% to £46.9B is hardly catastrophic in itself, but it does mark the first time since the global financial crisis in 2008-2009 that this metric has declined for 3 quarters in a row.
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Looking back over the past week it appears to have been one of consolidation for sterling, with the pound little changed on the whole. On the economic front we’ve seen the latest inflation figures fall lower, a strong pick-up in retail sales and a Bank of England rate decision but all of these have been looked through by and large, in the markets as they remain fixated with the latest developments on the Brexit front. There has been little doing in this regard, with a date now set for the vote on Theresa May’s deal and the focus up to that point will be on the likelihood that the PM can get the requisite support to see it pass.
FTSE on course for worst December since 2002
There’s been more soft trade in the UK stock market today with the FTSE 100 continuing to languish around its lowest level in over 2 years. December has traditionally been a good month for the benchmark in recent years, with gains seen in 8 of the past 10 years, but it would take something pretty spectacular to see a monthly rise now. The size of the selling is not as dramatic as the drop seen across the Atlantic where US markets have swooned of late, but price is still down by around 4% on the month, meaning somewhere in the region of £60B has been wiped of the value of the UK’s leading companies.
You have to go back to 2002 to find a worse drop for the UK index in the month of December, while there’s very few who will remember the last time the Wall Street fell this hard in the final month of the year, with the current drop the largest since 1931 - when the Great Depression was taking a major toll.
The global rally in stocks seen in the past couple of years is now well and truly over but the question going forward is whether this is the start of a bear market or simply a pause and period of consolidation. Financial conditions around the world have certainly tightened, and look set to tighten further in 2019, as the easy money created by years of ultra loose monetary policy is finally coming to an end and this will take away one of the biggest contributors to stock market gains since the global financial crisis.
