UK GDP Shrinks 0.5%, Pound Falls

123jump.com Staff
26 Nov, 2008
New York City

GDP in the third quarter in UK shrank 0.5% on falling consumer spending and tight credit environment. The British pound fell immediately against dollar and euro. The UK government has lowered taxes and the BoE has lowered interest rate but nearly 1 million people are claiming jobless benefits.

[R]1:00PM New York, 6:00PM London – The UK GDP shrinks 0.5% in the third quarter. Pound fell against the dollar and euro.[/R]

U.K stocks ended marginally higher after a rally in commodity stocks was fueled by China’s aggressive rate cut and failed bid for Rio Tinto managed to offset declining financial stocks.

Pound declined against euro and dollar on weak third quarter economic performance.

In London trading FTSE 100 index rose 0.03% or 1.32 to 4,172.57.

Of the FTSE 100 index stocks 47 increased, 53 declined, and 2 were unchanged. Johnson Matthey led gainers in the index shares with a rise of 15.2% on rising metal prices.

U.K. Gross Domestic Product Shrinks to 0.5% in Q3

Office of National Statistics reported today that U.K.’s gross domestic product fell 0.5% in the third quarter of 2008 compared to a flat growth in the previous quarter.

Industrial production increased 1.1% as manufacturing eased 1.3% in the review period. Also output of services slid 0.4% buoyed by increase in the distribution and business services.

Household expenditure dropped 0.2% driven by a sharp fall in sales of motor vehicles. Unemployment has risen sharply and the number of people receiving unemployment benefits increased 36,500 to nearly 1 million, a seven-year high.

The ONS also noted that government’s final consumption increased by 1% and is now 2.7% more than in the third quarter of last year.

Gross fixed capital formation fell 2.4% and declined 5.4% from the third quarter of 2007 on declines in investment on new dwellings and spending related to house purchase.

Growth in exports of goods and services fell 0.3% and imports increased 0.1%. GDP deflator rose by 2.7% compared with the third quarter of 2007.

Compensation of employees, measured at current prices, rose 0.8% and is now 3.3% above the third quarter of 2007. Gross operating surplus of corporations rose 0.4% and is also 5.1% above the third quarter of 2007.

U.S. New Home Sales Plunge 40%

New homes sales in the U.S. dropped 40% to 433,000 in October from the same period a year ago, while seasonally adjusted new home sales fell 5.3% from the previous month.

The Commerce Department also reported that new orders for durable goods fell the most since 2006 by 6.2%. Orders dropped 4.4%, excluding transportation and declined 4.6% excluding defense.

Gainers & Losers

Johnson Matthey led advancers in the FTSE 100 index shares with a rise of 15.2% followed by increases in BHP Billiton of 9.9%, in Compass Group of 9.3%, in Vedanta Resources of 8.6%, and Kazakhmys of 8.2%.

Commodity stocks rose after metal prices increased on hopes that a surprise and aggressive rate cut by China will help stimulate demand. Gold prices increased $6.1 to $820 per ounce, crude oil prices soared $1.20 to $52 per barrel.

Antofagasta and Anglo America rose 7% and 5.2%.

Wolseley led decliners in the FTSE 100 index shares with a drop of 6.8% followed by losses in HBOS Plc of 6.7%, in Standard Chartered of 6.6%, in Tullow Oil of 5.8%, and Centrica Plc of 5.6%.

Financial stocks shed as new orders and new home sales fell in October. Barclays lost 4.2%.

Europe Markets Review

In London FTSE 100 Index closed lower 18.56 or 0.44% to 4,152.69, in Paris CAC 40 Index decreased 39.71 or 1.24% to close at 3,169.85 and in Frankfurt DAX index higher 0.08 or 0.00% to close at 4,560.50. In Zurich trading SMI increased 20.17 or 0.37% to close at 5,498.56.