UK Economy Slips Further, Weak Pound

Darlington Musarurwa
23 Jan, 2009
New York City

U.K. economy lost more steam in the fourth quarter. The economy shrank 1.5% in the fourth quarter after dropping 0.6% in the third quarter of lastyear. Manufacturing led the decline with a fall of 4.6%. The pound weakened further against all major currencies. Tata Motors and UK are in bailout talks.

[R]1:00AM New York, 6:00PM- U.K. reported further decline in economic activity. The economy shrank 1.5% in the fourth quarter after dropping 0.6% in the third quarter of last year. Tata Motors and UK are in bailout talks.[/R]

U.K. market averages rose despite a government report showed that the country has slipped into a recession. Economy in the three months to December shrank 1.5% after losing 0.6% in the third quarter.

Resource stocks however supported gains as metal prices advanced. In London trading FTSE 100 index rose 0.01% or 0.24 to 4,052.47.

Of the FTSE index stocks 44 gained, 57 declined, and one was unchanged. Randgold resources led gainers in the index shares with a rise of 6.9% after gold prices rallied $40 to $894 per ounce.

U.K. GDP Falls 1.5% in Q4

Office of National Statistics reported today that the country’s real gross domestic product fell by 1.5% in the fourth quarter compared with a drop of 0.6% in the previous quarter, technically slipping into a recession.

Total production plunged 3.9% in the fourth quarter to December from a marginal decline of 1.4% in the previous quarter as growth in manufacturing slowed.

Manufacturing output declined 4.6% in the fourth quarter to December from a drop 1.6% in the previous quarter.

Mining and quarrying output fell 1.6% in the period. The energy supply industries (gas, electricity and water) are projected to have fallen by 0.2%.

The report also noted that the construction industry is forecasted to have shed 1.1% in the fourth quarter from a tumble of 0.2% a quarter earlier driven by new housing construction and private other new work (excluding infrastructure).

The ONS said out output is forecasted to have risen 0.1% in the agriculture, forestry and fishing industries in the review period.

Growth of the service sector is projected to have declined by 1% in the three months to December from 0.5% in the third quarter weighed down by distribution, hotels and restaurants, government and other services and transport, storage and communication.

Output from distribution, hotels and restaurants is forecasted to have declined by 2.4% in the quarter to December from a plunge of 2.1% in the previous quarter.

In addition, output from transport, storage and communication is estimated to lose 2% in the quarter and output from business services and finance is estimated to have declined by 0.5% in the fourth quarter to December.

Tata Motors, U.K. Government in Bailout Talks

Bloomberg News reported today that U.K. Business Secretary Peter Mandelson said Tata Motors, which recently acquired U.K. brands Jaguar and Land Rover, and the U.K. government are in talks as the former seeks to cushion the units from slowing demand.

News reports yesterday said Jaguar Land Rover will meet with U.K. officials next week to discuss increased lending to the British car industry.

The report notes that Jaguar Land Rover are also in discussions with union leaders about a cost restructuring exercise.

Mandelson said, “The British government will see how we can help Jaguar Land Rover bring about the financial restructuring it’s seeking.”

Gainers & Losers

Randgold led gainers in the FTSE 100 index shares with a rise of 6.9% followed by increases in Man Group of 4.2%, in AstraZeneca of 3.6%, in Scottish & South of 3.3%, and Cable & Wireless of 3.2%.

Randgold and other commodity stocks soared as metal prices gained. Kazakhmys advanced 3% and Eurasian Natural climbed 3%.

Old Mutual led decliners in the FTSE 100 index shares with a fall of 13.6% followed by losses in Barclays of 13.5%, in Liberty International of 12.4%, in Amlin Plc of 7.6%, and Aviva Plc of 6.7%.

Realty stocks also fell. Hammerson shed 5.9%, Land Securities plunged 5.9% and British Land Co. tumbled 5.4%.