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UK Economy grew with 0.5 percent in Q3-2016

Sunday, October 30, 2016 13:06
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Dear PGM Capital Blog readers,

On Thursday, October 27, a preliminary GDP release from the UK Office for National Statistics (ONS), showed that the British economy grew with 0.5 percent on quarter in the three months to September of 2016, slowing from a 0.7 percent expansion in the previous period but above the consensus forecast of economists who saw growth increasing just 0.3 percent.

Below chart shows the 3-year chart of UK GDP Growth Quarter-on-Quarter.

It is the first GDP figure covering a full quarter following the EU referendum, suggesting growth continues to be broadly unaffected following the EU referendum with a strong performance in the services industries offsetting falls in manufacturing and construction as can be read in below breakdown of the figure.

Breakdown of UK Q3-2016 :

  • The services industries increased by 0.8 percent, contributing 0.64 percentage points to growth, compared with an increase of 0.6 percent in Q2.
  • Industrial production shrank 0.4 percent, contributing negatively to the expansion (-0.05 percent), following an increase of 2.1 percent in Q2.
  • The construction sector contracted 1.4 percent with a downward contribution to quarterly GDP growth of 0.09 percentage points. This follows a decrease of 0.1 percent in Q2 and marks the biggest downward movement in the construction industry since Q3 2012.
  • The agricultural sector also declined 0.7 percent, following a 1 percent contraction in Q2.

Year-on-year, the economy advanced 2.3 percent, higher than a 2.1 percent expansion in Q2 and better than market expectations of 2.1 percent. It is the fastest growth rate since Q2 2015.

Britain’s economy shrugged off the uncertainty surrounding June’s referendum vote to leave the European Union and maintain the best performance among the world’s leading economies with growth of 0.5% in the three months since the poll.

Below 5-year chart shows that Britain’s economy has been growing for 15 consecutive quarters. The relative resilience of the UK economy since the Brexit vote on 23 June has largely been attributed to a willingness among consumers to keep spending, as well as strength in the services sector.

As can be seen from above chart, the last time UK GDP shrunk over a quarter came in Q4 of 2012 when the economy readjusted to normality following a huge boost from the 2012 Olympic Games in London.

Below chart shows UK quarterly GDP over the last 13 years:

Below 5-year chart shows us also that the British Pound – as a consequence of Brexit -, currently is trading at its lowest level in 13 years.

As a consequence of this, UK multinationals such as; conglomerate Reckitt Benckiser Group (RB.L) and Diageo (DGE.L)  - world largest producer of spirits – are profiting from the cheap Pound Sterling to increase their market share globally.

Below charts show the 5-year chart of the shares of both companies.

Five-year performance of the stock of Reckitt Benckiser Group is 128 percent

Five-year performance of the stock of Diageo is 67 percent

Based on their business model, fundamentals, strong balance sheet and dividend yield we have a STRONG BUY rating on the stocks of both companies.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that markets can remain longer irrational than that you can remain solvent.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek


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