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UK shares end October sharply down but US shares in the green

Brexit uncertainties continue to overshadow the economy, according to various reports released this week.

Consumer credit growth has slowed to its weakest pace in three years, according to data from the Bank of England. It said growth in loans and credit card debt rose by 7.7% on an annualised basis in September, down from a peak of 10.9% in November 2016. At below a growth rate of 8%, consumer credit is expanding at below its average pace for the past 20 years – the first time that has happened since 2015. However, total consumer debts still stand at a record £215.2bn. Banks have clamped down on some credit card lending, increasing minimum repayments and cutting limits on borrowing. In addition, with concerns about household finances kicking in and Brexit uncertainties, demand for credit is also said to be slowing. Mortgage lending was also weaker. The number of approvals for purchases down by 1.2% during the month, while remortgages were down by 5.5%.

More bad news from the high street in October. The Confederation of British Industry (CBI) Distributive Trades Survey showed that 26% of companies had reported an increase in sales compared to last year, but 21% reported a decline. This resulted in a net balance of +5%, way short of the forecast for +20%. It was also sharply down on September’s figure of +23%. Analysts said it was further evidence of the consumer tightening their belts after splashing out in the hot summer. Echoing the fall, consumer confidence reportedly fell in October amid Brexit-related worries. The closely-monitored GfK consumer confidence index fell to -10 in the month. Major purchases were down, as were expectations for peoples’ personal financial circumstances and for the overall economic outlook.

The UK manufacturing sector had another poor month in October. The IHT Markit manufacturing purchasing managers’ index produced the sharpest slowdown in two years. The reading of 51.1 was down from 53.6 in September and below forecasts for a reading of 53. IHS Markit said the performance was down to trade war worries and Brexit uncertainties.

Illustrating the risks to global growth, a survey of Chinese manufacturing activity this week showed that it had fallen to its lowest level in two years, and new orders had fallen for five months in a row. The disappointing data from China’s manufacturing PMI showed a reading of 50.2 in October, from 50.8 in September. New orders fell sharply, and economists now expect the Chinese government to ramp up stimulus to prevent the economy deteriorating further. The next day, the unofficial Caixin/Markit manufacturing PMI came in better than expected, with a reading of 50.1 compared to predictions of a reading below 50, which would have shown the sector to be contracting. The news helped lift Asian markets.

Back in the UK, the housing market is showing continued signs of weakness. Nationwide Building Society’s October index showed that the rate of growth had fallen to its lowest since 2013, with average prices up by just 1.6% year on year – down from 2% in September.

Nationwide’s chief economist Robert Gardner said that the uncertain economic outlook and squeezed household finances had dampened demand. He forecast house prices to rise by just 1% on average over 2018 as a whole.

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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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