Unexpected fall in UK economic indicators

7 December, 2016

This morning saw a substantial drop in both the manufacturing production and industrial production in the UK for the month of October which comes as a timely reminder that the economy remains vulnerable. The pound ended its recent rise against the US dollar yesterday after hitting a 2-month high, and is falling across the board this morning since the data was released. The FTSE 100 is having no such problems though and has smashed back through the 6800 level to trade higher by more than 80 points on the day.

Industrial production falls by the most in 4 years

The latest month on month change in the UK’s industrial production shows the biggest contraction since November 2012 and in marking a third successive negative print the indicator is becoming an increasingly worrying warning sign on the health of the economy. At the same time the manufacturing production figure was also poor and whilst the drop of 0.9% is smaller in size than the industrial production equivalent (which was -1.3%) it reinforces the point that the economy isn’t performing well. The data on the whole since the EU referendum has been fairly positive but whilst surveys of purchasing managers are more widely viewed than the production figures, they perhaps represent a fairer reflection of economic output.

FTSE rallies towards November high

Despite these concerns surrounding the strength of the UK economy the FTSE 100 has rallied strongly this morning, in a good example of how the benchmark is a poor reflection of the nation’s real economy and instead is more driven by movements in the pound and external forces - such as the strong rally in European equities seen since Monday’s weak open. Leading the charge higher are mining stocks which operate overseas but report in London and banks that are receiving a continued boost from the absence of a catastrophe in their Italian equivalents for the time being. Rio Tinto is the best performer on the index and higher by more than 4% after the reiteration of a buy recommendation from Jefferies International, with Antofagasta Holdings and Anglo American enjoying a ride higher on its coattails. Standard Chartered, RBS and HSBC are also firmly in the green as market chatter that Monte dei Paschi is on the verge of being bailed out by the government has been warmly received.

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