Investment Managers React To UK GDP Climb

Amanda Cheesley Deputy Editor 15 January 2024

Investment Managers React To UK GDP Climb

After UK gross domestic product rose by more than expected in November, following a drop in October, investment managers discuss the impact.

UK GDP rose by 0.3 per cent in November month-on-month, following a 0.3 per cent fall in October. This resulted in a 0.2 per cent decline over the three months to the end of November, according to figures released on Friday from the Office for National Statistics.

The rise reflects strong growth in services, particularly in information and communication which grew 1.5 per cent thanks to growth in the computer games industry and telecommunications. Consumer services grew 0.4 per cent month-on-month whilst construction output fell 0.2 per cent month-on-month. Production grew 0.3 per cent month-on-month – GDP had been expected to grow 0.2 per cent month-on-month.

Finance minister Jeremy Hunt said inflation was still weighing on growth but the tax cuts for businesses and workers announced in November would boost Britain’s longer-term prospects.

Here are some views from investment managers on the increase. 

Nicholas Hyett, investment analyst at Wealth Club
“With weakness in travel and hospitality, there is evidence that the cost-of-living crisis continues to squeeze consumers. But high-tech service industries seem to be picking up the slack, and even manufacturing is showing some signs of life, with its first positive growth since June 2023. It's an economic muddle, albeit with some promising signs.

“The lack of a clear economic narrative will make things challenging for the Bank of England (BoE), which has the unenviable job of bringing inflation under control while, ideally, not crushing the economy under the burden of interest rates that are too high. While we think it's unlikely that there are strong reasons to hike rates from here, rate cuts look unlikely as the UK moves away from recession, at least in the short term."

Tim San Wong, global capital markets associate at Validus Risk Management 
“Overall, today’s numbers are evidence of an economy in better shape than anticipated. Whilst evidently good news it calls into question markets’ pricing of 120 basis points of cuts from the Bank of England during 2024. With core inflation still lingering well above target at 5.1 per cent, housing markets continuing to be robust, and economic data is coming out above expectations, it is hard to imagine the BoE beginning an aggressive cutting cycle. Without a downturn in the data, we could well see short-term rate expectations move higher, which in turn should support sterling against the US dollar, perhaps moving it back towards its 2023 highs of over 1.30 [bps].”

James McManus, chief investment officer at Nutmeg, a digital wealth manager 
“Today’s GDP reinforces the position that we have held for some time: economic growth will be limited in the UK, and other developed markets, for some time, as economies continue to see the impact of above target inflation, higher interest rates and lower levels of consumer spending playing out in their data.

“While concerns and speculation over the UK’s weak economic growth and potential to slip into recession have been circulating since the start of 2023, thus far the economy has avoided tipping into a technical recession. Revised GDP figures released at the end of December, showed that the UK economy shrank -0.1 per cent between July and September last year – increasing the risk that recession may be on the horizon. So today’s positive GDP figure shows green shoots that the final quarter of the year may deliver some much needed growth.”

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