GDP slows, response +ve; BP; Aberdeen

Bob DudleyStock markets were subdued as investors took profits from recent buoyant trading and figures showed UK growth slowed in the last quarter from 0.7% to 0.5%.

Attention also focused on a Federal Reserve policy meeting for signs of a rise in interest rates which may come in December.

Chris Towner, chief economist at HiFX, said sterling had remained resilient despite the GDP figure missing expectations for 0.6% growth.

“There’s a certain Jekyll and Hyde lurking in the background,” he said. “If you break down the figures, they show how disjointed the economy is, with some areas booming, and others collapsing. So far sterling volatility has been kept at bay; with investors not knowing whether to focus on the positives or the negatives, they have chosen to instead sit on their hands.

“The all-important service sector reported impressive growth at 0.7%, after notching solid growth in the previous quarter of 0.6%. This is the heavyweight sector accounting for more than 75% of the economy and seems to be the component that is helping support sterling.

“The horror part of the data comes from the construction sector, which staged its biggest fall since 2012.”

James Sproule, chief economist at the Institute of Directors, said: “Although today’s figures undershot expectations, the news is still broadly positive. The challenge now for the UK is to achieve sustainable growth which is based on improving productivity.”

The CBI Director of Economics, Rain Newton-Smith, said:These GDP figures show momentum continuing in the UK economy.

“Consumer spending, improving productivity and wages continue to bolster UK growth. But the weaker global outlook, combined with the strength of sterling will keep the pressure on UK manufacturers, as our recent surveys show.

“As we approach the Spending Review and Autumn Statement, it is vital that the government protects areas of spending which will support the ratcheting up of UK productivity, helping to underpin sustainable public finances.”

Calum Bennie, savings expert at Scottish Friendly, said: “While the growth in the UK economy is lower than expected, it is nonetheless positive news for the economy.

“Welcome as this is, it doesn’t mean that Christmas has come early. People should heed Mark Carney’s advice to prepare for tighter monetary policy now and start to put away money for their future.”

Russ Mould, investment director at AJ Bell, said:  “The figures show that Chancellor George Osborne has a way to go yet if he is to rebalance the UK economy away from consumption.

“From an investment perspective, the GDP figure is unlikely to move markets significantly for three reasons.

“First, the numbers are no great surprise, given the trend in monthly purchasing managers’ indices and other surveys. Second, the numbers are prone to substantial revision. Third, GDP figures are by their very nature backward-looking, whereas stock markets are forward-looking discounting mechanisms and investors are already analysing earnings forecasts for 2016 and beyond rather than looking at something that happened a couple of months ago.”

In corporate news, Nicolas Ziegelasch, head of equity research, Killik & Co said “BP had a good set of Q3 results, with underlying replacement cost (RC) profit slightly beating market expectations at $1.8bn.

“However, there still remains some lingering doubts on the levels of investment going into the company’s upstream portfolio. A key question for management will be how can BP balance cost reductions whilst continuing to develop its production base following the Gulf of Mexico settlement.”

Martin Gilbert AberdeenAberdeen Asset Management shares dipped after rising yesterday on speculation the company was up for sale. Ziegelasch is not convinced by the company’s denials.

“There have been rumours over the weekend, which the company has denied, that Martin Gilbert has been sounding out ‘formal or informal’ approaches to sell the business.

“The wording doesn’t deny that there have been any approaches by potential buyers however, and it is quite feasible that given its relative undervaluation to peers, it has popped up on competitors’ radars. Given that it has been hit by the negative sentiment around EM/Asian assets, we would hang in there on the story, given the potential upside even from an unsolicited bid which could be significant.”

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