No Stoptober for UK economy…or elsewhere?

The latest Markit surveys suggest that the UK economy is still ‘smoking’.

One survey showed that the UK’s dominant service sector picked up speed in October, and this should help keep the recovery on course to strengthen in the final three months of 2015.

The Markit/CIPS services PMI rose to 54.9 in October, from 53.3 in September. Anything above 50 indicates growth. The figure was higher than expected by most economists.

This helped to see the pound move higher against the dollar and euro. It also suggests that the service sector, which powers over 75% of UK growth, will continue to drive the recovery in the final three months of this year.

This data follows on from the Markit/CIPS survey of the UK’s manufacturing and construction sectors. This showed that the manufacturing PMI rose to 55.5 in October, from 51.8 in September. This 3.7 point rise in the PMI level was one of the steepest seen since the survey was introduced 24 years ago.

Both sets of data help to qualify somewhat the GDP figures issued by the Office for National Statistics (ONS) for the third quarter of this year, which slowed a slowing of growth to 0.5%. Most economists now see this as a blip rather than a trend.

This news came on the same day that shares on the Shanghai Composite Index surged by 4.31%, as details of China's next five-year plan raised hopes for reforms. Late on Tuesday, China's ruling Communist party issued guidelines for its 2016-2020 development plan, including a call for liberalisation in its capital markets.

All this follows on from the mini-tech boom in the US towards the end of last month which saw Google (Alphabet) shares surge, along with those of Microsoft and Amazon, by more than 7%. The US experience at the moment is suggesting that retail-facing companies are picking up steam, despite the bad news that seems to dominate the media. And what happens across the pond tends to happen here a little later.

As reported in the Sunday Times, the JP Morgan Chase Institute says that consumer spending in the US has been boosted significantly by lower oil prices, which have seen petrol costs cut by 45%.

Closer to home, the ONS has reported that retail sales have similarly surged by 6.5% in the year to September and by 1.9% in just one month.

So despite much negativity in the media - bad news always sells – and whilst times are tough for oil and commodity based companies, and emerging market economies, investors should bear in mind that almost any trend creates winners as well as losers. Currently in the US these seem to be retail facing companies and the trend could well repeat itself in the UK if it is not already.

For help or advice with your investment planning, contact Kellands.


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