UK100/GBP

The UK 100 or the FTSE 100 remained highly volatile through the third quarter. In mid-July the index sank on concerns around rising covid-19 cases derailing the economic recovery. However, investor fears proved short-lived, and the UK 100 staged a steep climb from mid-July to mid-August, breaching the 7,200 resistance level on August 11. September proved rough, and the blue-chip index was dragged down to near 6.900, weighed by rising inflation fears. The FTSE 100 showed its resilience once again and remained above the 7,000 resistance level for the back half of September. Analysts on average believe the UK 100 is looking to breach the 7,200 level again soon and seems on course to reaching 7,300 by yearend.

The growth in the UK slowed down in July, with the gross domestic product expanding by 7.5% year-over-year in July following a 15.2% growth recorded in the prior month. Analysts expect a further slowdown in growth rate, with GDP likely to grow 5.9% annually in August.

The UK unemployment rate dropped to 4.6% in the three months to July, notching the lowest level since the quarter ending August 2020, showing signs of a rebound in the labor market. However, the jobless rate still remained 0.6% points higher than the pre-pandemic level. Analysts expect unemployment rate to remain unchanged for August.

The IHS Markit/CIPS manufacturing PMI fell to 56.3 in September, compared to 60.3 in the previous month, according to preliminary estimates. It was the slowest growth in the country’s factory activity since February driven by material shortages. The final reading for September is expected to confirm the decline in manufacturing index, while remaining in expansion zone.

The Bank of England held its benchmark interest rate at a record low level of 0.1% during its September meeting, also leaving its bond-buying program unchanged. Analysts expect the country’s central bank to keep rates unchanged during its upcoming meeting.

Rising inflation has remained one of the major concerns for investors recently as the annual inflation rate in the UK climbed to 3.2% in August, recording the highest rate since March 2012, in comparison to the 2% rate recorded in July. For September, analysts are expecting the annual rate to remain unchanged.

UK’s industrial production rose 1.2% on a monthly basis in July recovering from a 0.7% decline in June and also well above analysts’ estimates of a 0.4% growth. However, analysts expect some slowdown in growth rate, with industrial output likely to increase 0.8% in August.

M&A (merger and acquisition) activity could keep the UK 100 buoyant through the final quarter of the year. So far, the British economy has been bolstered by the reopening of only a few sectors. A more broad-based reopening in the fourth quarter could propel the economy and UK equities.