The UK economy grew faster than economists’ forecasts in the third quarter of the year, with an expansion of 0.5% exceeding the median forecast of a 0.3% rise. The news saw the pound rally to its highest level of the day against the US dollar whilst the FTSE dropped and pared its early gains.
Brexit effect yet to be felt
This morning’s data from the Office for National Statistics showing higher than expected growth in the first full quarter since the momentous EU referendum will go some way to allay fears that there has been a significant adverse reaction in the economy thus far to the decision to leave the EU. This release shouldn’t come as too much of a surprise as several other economic indicators have proved robust in recent months after an initial knee-jerk reaction, with panic following the vote dissipating fairly quickly once the new government was formed and the Bank of England eased monetary policy. It should be noted however that the data refers to the third quarter and is therefore lagging in nature. With Theresa May announcing shortly before the end of September that Article 50 would be triggered in the early parts of 2017 the sanguine view on the Brexit situation has given way to a more concerned outlook with the effects clearly visible in the pound. It is quite remarkable considering the inevitability of the separation of the UK from its continental peers that concerns surrounding the economy ebbed so low they were almost forgotten about, with the elephant in the room seemingly ignored as companies have apparently continued on with business as usual.
FTSE reverses into the red
After showing some early promise on the open this morning the FTSE 100 has seen sentiment sour as the gains have turned into losses and the market plunged into the red. Barratt Developments (LON:BDEV) is the worst performing stock on the benchmark with the UK’s biggest housebuilder seeing its stock tumble after the shares went ex-dividend. The passing of this date means that anyone buying Barratt shares between now and the end of the financial year will not receive a dividend, and whilst it’s not uncommon to see some downside once this key date for investors is passed, the scale of the selling with a decline on the day of almost 9% is extraordinary. As well as Barratt’s large drop, airlines and miners are also in the red after recent gains with International Consolidated Airlines, Antofagasta (LON:ANTO) and BHP Billiton (LON:BLT) losing value. The banking sector has been given a welcome dose of optimism with Barclays (LON:BARC) shares rising after the bank reported a 35% increase in pre-tax profits. Despite having to put aside an additional £600m for payment protection insurance (PPI) the results overall have been warmly received and contrast the negativity surrounding yesterday’s trading update from Lloyds Banking Group (LON:LLOY).