UK Weakest Growth Since 2012 Boosts FTSE 100

Published / Last Updated on 26/04/2018

The Office for National Statistics (ONS) has this morning released UK gross domestic product (GDP) figures for the first 3 months of 2018.

Figures show that the UK economy only grew by 0.1% January to March 2018.  These are the lowest UK economy growth figures since the last quarter of 2012 when the Economy shrank i.e. GDP was -0.1%.

In simple terms, this means the economy has dramatically slowed down when compared to the last three months of 2017 (October, November, December 2017) when GDP growth for the quarter was 0.4% and before that 0.5% for July, August and September 2017.

The ONS has blamed slow growth due to the weather and a slowdown in construction.  We would add:

  • Reduced consumer spending, i.e. people stayed in the warm rather than being out shopping
  • Construction:  weather was poor so building slowed anyway
  • A strong pound: meaning British goods and services became more expensive overseas, so manufacturing slowed down too.

Impact on Interest Rates

With the economy slowing down, this may mean the Bank of England will not be inclined to increase interest rates next month, resulting in:

  • A weaker pound
  • FTSE 100 stocks will rise as the larger UK companies earn their profits mainly overseas and when dollar/euro profits are converted back to sterling at a weaker rate, profits are much higher in sterling terms.

What has happened to markets?

FTSE 100 has strengthened meaning it is 5% higher since the correction in February.  This is when we reinvested back into UK equities.  That said, next month sees the unveiling of US trade tariffs which will hurt China.  As a result, US and Chinese stock markets remain subdued.

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