Britain’s third-quarter GDP figures “disappointed – plain and simple”, says Sanjay Raja of Deutsche Bank. The economy grew by 1.3% between July and September, a sharp deceleration from the 5.5% rise in the second quarter and worse than forecast.
Supply chain problems and weak business investment played a role, while the July and August “pingdemic [held] the economy flat” before a bounce in September, Sarah Hewin of Standard Chartered told the BBC.
GDP is still 2.1% below pre-pandemic levels, worse than most other advanced economies, says Raja. The recovery is still “ticking along”, says Ruth Gregory of Capital Economics. But with headwinds from rising taxes and energy costs, “a period of sluggish growth until the middle of 2022” is in prospect.
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British blue-chip stocks poised to catch up
Things are looking brighter for the FTSE 100, says Tom Howard in The Times. JPMorgan’s analysts have been bearish on Britain in recent years but recently shifted their guidance, telling clients to buy “near-record cheap” British shares.
The FTSE 100 could do with a break. London stocks have underperformed the global average every year since 2015. The index has gained 11.5% so far this year, compared with a 27% rally on Wall Street or the 28% gain of France’s CAC 40 (see below). Few global investors are excited by London’s stodgy banks and oil companies. Brexit uncertainty and last year’s dividend cuts haven’t helped.
After such a poor run the MSCI UK index trades on a forward price/earnings (p/e) ratio of just 12, substantially cheaper than a rating of 16 in the eurozone or 22 in America, says Emma Powell in the same paper. Overheated global equity markets will run out of steam at some point. When they do there is much less potential downside for British shares than for those elsewhere.
JPMorgan, Barclays and Credit Suisse are more negative on the more domestically-focused FTSE 250 and small caps, says Elliot Smith for CNBC. The investment banks like British blue chips more than the British economy. About 80% of FTSE 100 revenues come from overseas, while a weakening pound (see column, left) also flatters overseas earnings in sterling terms.
Dividend payouts have rebounded after last year’s disappointments, says Jeff Prestridge for FTAdviser. “Juicy company dividends… are one of the defining characteristics of the UK stockmarket”. UK plc is poised to offer “an income of some 3.5% over the next 12 months”. Try getting that from a savings account.
International investors may finally be deciding that the FTSE’s weaknesses are in the price, says Cormac Mullen on Bloomberg. “Equity bulls looking for a cheap stocking filler” for Christmas are “betting on Britain”.
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