UK share prices fell during October as concerns over the economic outlook were compounded by geopolitical uncertainties following the outbreak of the Israel-Gaza war.
- Gilt yields continued to rise
- The IMF cut its forecast for UK economic growth
- Consumer confidence deteriorated
Geopolitics back in focus: UK share prices fell during October as concerns over the economic outlook were compounded by geopolitical uncertainties following the outbreak of the Israel-Gaza war. The FTSE 100 Index dropped by 3.8% over the month, while the FTSE 250 Index declined by 6.5%. Meanwhile, bond prices continued to fall: the yield on the benchmark ten-year gilt rose as high as 4.7% in October, reaching levels last seen during the Global Financial Crisis, and the 30-year gilt yield breached 5% during the month, climbing to its highest level since 1998 .
“The IMF expects the UK economy to grow more slowly than other advanced economies in 2024”
Consumer pessimism: UK consumer confidence fell deeper into negative territory during October, according to GfK , reaching its lowest level since July. The deterioration reflects consumers’ pessimism over their finances in the run-up to Christmas amid growing expectations that interest rates are likely to stay “higher for longer”.
Lacklustre outlook: the International Monetary Fund (IMF) expects the UK economy to grow more slowly than other advanced economies in 2024, citing the impact of persistent inflation that will require tighter monetary policy for some time. The UK economy expanded by 0.2% during August, having contracted by 0.6% in July. The IMF downgraded its forecast for UK economic growth next year from 1% to 0.6%. In comparison, the US and the eurozone are predicted to grow by 1.5% and 1.2% respectively.
Inflation holds steady: having fallen for three consecutive months, the UK’s rate of inflation remained unchanged at 6.7% year on year in September. Food price inflation declined from an annualised rate of 13.6% to 12.2%. The IMF expects average consumer price inflation of 7.7% this year in the UK, falling to 3.7% next year.
Dividends declined in Q3: UK dividend payouts fell at a headline rate of 8.3% during the third quarter, according to Computershare’s Dividend Monitor , undermined by lower payments from the mining sector and smaller special dividends. On an underlying basis, dividends rose by 2.4%. Dividends from the utilities, banking, energy, and media sectors grew strongly.
Credit conditions take a toll: EY-Parthenon reported a total of 76 profit warnings from UK-listed companies during the third quarter. Although this represented an annualised fall of 12%, it was still 18% above the third-quarter average. As pressures on costs and supply chains eased, companies cited the impact of deteriorating credit conditions as the primary cause of warnings.
To view the series of market updates through October, click here
