UK’s Surprising GDP Figures Push Positive Economic Momentum

According to today’s reports, UK GDP grew by 0.4% in the third quarter of the year, relatively better than expected, and up from 0.3% growth from the second quarter. The UK’s manufacturing sector also returned to positive growth, with output rising by 1% during the quarter. Below are some comments Finance Monthly had heard on the matter.

Rebecca O’Keeffe, Interactive Investor’s Head of Investment, had this to say: “With expectations still rife that the Bank of England will raise interest rates next month, today’s GDP figures will be closely scrutinised to see whether they give any excuse for policymakers to hold fire or if they support their hawkish intent. Uncertainty about Brexit, the relatively fragile state of the British economy and fears over personal debt and household incomes could all be making Mr Carney think twice about whether now is the right time to start the process of raising rates. However, the prospect of delaying could lead to accusations of the MPC crying wolf again and severely dent sterling. Rocks and hard places abound, and the Governor will be keeping his fingers crossed that today’s figure gives him a valid excuse either way.

“Lloyds bank, which has more private shareholders than any other UK company, has become a stalwart income play for investors, with a dividend yield of close to 5% and optimism that this yield could increase. Although there was no new comment on dividends, Lloyds confirmation today that they expect to ‘deliver a progressive and sustainable ordinary dividend for the full year and the Board will give due consideration at the year end to the distribution of surplus capital through the use of special dividends or share buy backs’ is music to the ears of income investors.”

Emmanuel Lumineau, CEO at BrickVest, said: “Today’s announcement is good news for the economy and will bolster the case for higher interest rates for the first time in more than a decade. For the commercial real estate industry, higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. There has certainly been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.

“We continue to see the highest level of volatility from the office sector as many international firms currently headquartered in the UK put decisions on hold over their long-term office space requirements. If the UK no longer gives businesses access to the European market, they may need to spread their staff across multiple locations to more efficiently access both the UK and European market. Indeed our recent research showed that 34% of institutional investors believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.”

Mihir Kapadia, CEO and Founder of Sun Global Investments, has said: “While the 0.4% is still below the UK’s long term growth rate, it certainly contributes to a positive momentum, and means that the economy has not yet rolled into a recession that was largely predicted over Britain’s decision to leave the EU. The UK’s annualised growth is now sitting at 1.5%, a subpar score against a formidable looking EU economy.         

“Sterling has risen on the back of today’s growth report, up 0.25% against the US dollar to $1.317. The City is getting into a more hawkish tone, expecting that the pick-up in growth raises the chances of a UK interest rate rise next month. The third quarter has been particularly difficult for the UK economy, with inflation ringing 3% while wage growth has been subdued. Consumers are facing an increased squeeze in living standards while the city has been brought to its knees by the increased uncertainty over Brexit proceedings.”