Half term provides a much needed break for the children, yet creates work for the parents. The week is spent ensuring they have stimulating activities to keep them entertained; often resulting in lengthy museum queues, or a paint splattered kitchen. As the week comes to an end many parents will be breathing a sigh of relief, unfortunately that relief is not coming from the financial markets.
This week the UK statistical agency released its estimate on the UK’s gross domestic product. This showed that the UK economy had grown by 0.5% from July to September when compared to the previous three months. Whilst this did represent a slow-down of growth, this was not as severe as either the Bank of England or market economists had expected. This could work in favour of the value of sterling and makes the anticipated further cut in interest rates less likely next month. Whilst this sounds like good news, when you get down to the raw ingredients the story isn’t quite as positive. The growth was narrowly focussed in services; in fact, in agriculture, production and construction actually saw a decrease. Services is the main ingredient of the UK economy, making up 79% of the total. The biggest rise came from “motion picture, video and TV programme production”, which has left all but the Great British Bake Off fans scratching their heads. These numbers could be hiding a dreaded soggy bottom, investors everywhere should continue to monitor growth figures.
Bond yields are continuing to rise across the globe. This comes at the same time as inflation around the world is showing signs of creeping upwards. This is usually negative for bond portfolios and raises questions about where central banks around the world, most notably the US Federal Reserve, will go next. As growth is still relatively weak, an aggressive tightening of monetary policy seems unlikely. Unfortunately, this is a tough environment for investors and central bankers and is an area worth watching.
This week has also been an interesting one for the stock market due to the uncertainty surrounding Brexit. Some companies who were due to list on the stock market this year have changed their plans and are being cautious due to the uncertainty in the markets. This is mirrored in the property market; in both cases buyers are showing to be very price sensitive. Sellers have the choice of accommodating buyers and bringing prices down, or delaying the sale to a time when there is less uncertainty. This caution is likely to continue well into the closing months of the year, and transaction volumes and values are likely to be low.
If you have any questions on this week’s topics, or anything else you have seen in the financial news, please get in touch. This column only works if it helps you.
