UK Debt Rating Revision, GDP Expanded at 0.8%

Arthi Gupta
26 Oct, 2010
New York City

The UK indexes edged lower after GDP expanded 0.8% in the third quarter and services index rose 2.7% in August. S&P raised the UK rating outlook to stable as government cut spending and reduce deficit in the next four years. Apollo and CVC Capital agreed to buy Brit Insurance for up to

[R]4:00 PM London – The UK indexes edged lower after GDP expanded 0.8% in the third quarter and services index rose 2.7% in August. S&P raised the UK rating outlook to stable as government cut spending and reduce deficit in the next four years. Apollo and CVC Capital agreed to buy Brit Insurance for up to £888 million.[/R]

UK reported faster economic growth from the previous quarter but the expectations for the coming several quarters overshadowed trading sentiment. Weak earnings outlook in Europe and sharp government cuts are likely to dampen economic recovery.

In London, FTSE 100 Index traded lower 50.94 or 0.89% to 5,701.04 and the pound edged higher to close at $1.5833.

The British economy expanded better than expected in the third quarter, according to preliminary figures released today.

Gross domestic product rose 0.8% sequentially, following the 1.2% growth in the second quarter, the Office for National Statistics said. Manufacturing made the largest contribution to the growth, where output rose 1% in the third quarter compared with an increase of 1.6% in the second quarter.

On an annual basis, GDP climbed 2.8% during the third quarter.

The Bank of England Governor Mervyn King said in a speech at the Butterwood Gathering in New York that the Basel III framework of financial reform is not enough on its own to prevent another financial crisis, and more needs to be done to improve the resilience of the banking sector.

King said other, more radical reforms, could include moving to capital requirements substantially higher than that stipulated by Basel III; ensuring there are large amounts of contingent capital in a bank''s liability structure; or having some form of functional separation.

Standard & Poor''s revised up its outlook on the United Kingdom to stable from negative and affirmed the country''s ''AAA/A-1+'' sovereign credit ratings.

The rating agency projects the UK''s general government gross and net debt burdens to peak in 2013 at about 84% and 80% of GDP, respectively, before gradually declining. It expects that the estimated general government deficit of 11.2% of GDP in 2009 could narrow to approximately 3% of GDP in 2014.

Further, it said economic growth in the UK would average 2% over the next five years, slightly weaker than the 2.4% forecast by the Office for Budget Responsibility.

The Office for National Statistics said the UK services index rose 2.7% in August, more than twice as fast as the 1.3% increase in July. The largest contribution to the increase was business services and finance, which rose 3.4% in August.

Irish factory gate prices increased at a slower pace in September. The producer price index rose 0.3% annually in September, but slower than a 0.5% growth in August, according to a report by the Central Statistics Office published today.

In building and construction, all material prices increased 4.1% annually in September, while the price of capital goods grew 1.3%.

Diageo Plc said its subsidiary East African Breweries Ltd. completed acquisition of 51% of the issued share capital of Serengeti Breweries Ltd. from its existing shareholders for a total consideration of around $60.4million.

SBL is a brewer and distributor of beverages in Tanzania. The combined EABL / SBL portfolio accounts for about 28% of the Tanzanian branded beer sector.

Brit Insurance Holdings N.V. agreed to sell itself to a consortium, including U.S. private equity firm Apollo Management VII, L.P. and CVC Capital Partners Ltd., for up to £888 million.

Under the terms of the proposal, which includes £10.45 cash offer and £0.30 dividend as well as an extra £0.25 per share depending on the insurer''s financial performance at the end of the year, each Brit shareholder is entitled to get up to £11 in cash. This would value the entire issued and to be issued share capital at around £888 million.

Gainers & Losers

ARM Holdings plc plunged 6.19% to 365.10 pence after the technology company reported third quarter revenues rose 34% to £100.35 million from £75.16 million a year ago. Pre-tax profit in the period surged 155% to £19.59 million, compared with £7.67 million in the previous year. IFRS profit in the period was £14.8 million or 1.1 pence per share, compared to £6.89 million or 0.5 pence per share last year.

Chamberlin plc gained 1.91% to 80.00 pence after the provider of specialized castings and safety/security products said its heavy casting subsidiary, Russell Ductile Castings secured orders worth a total of £1.4 million over the next 18 months for the supply of specialist castings to an engineering group, based in the UK, with operations globally.

Galliford Try plc fell 1.45% to 305.00 pence after the home builder said that it received £23.2 million of contracts within the health and education sectors.

Go-Ahead Group plc soared 4.08% to 1,350 pence after the public transport operator said its Chief Executive Keith Ludeman decided to retire on July 4, 2011. Separately the company said trading between July 4 and October 25 has been “robust” and that the company has not changed its expectations for full year ending July 2, 2011.

LiDCO Group plc slumped 4.11% to 17.50 pence after the manufacturer of hemodynamic monitoring equipment and disposables reported first-half total revenue increased 7% to £2.66 million from £2.49 million last year. Loss for the period narrowed 49% to £0.58 million or 0.35 pence per share from £1.14 million or 0.74 pence per share last year.

Xchanging plc dipped 0.61% to 130.00 pence after the outsourcing company for business processes appointed Patricia Taylor as Managing Director of Xchanging HR Services.