London close: Stocks drop as third quarter UK GDP slows more than forecast

London stocks finished on the back foot on Tuesday after a worse-than-forecast slowdown in third quarter UK economic growth.

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UK gross domestic product rose 0.5% in the third quarter compared to 0.7% in the second quarter, well below estimates for a 0.6% increase, the Office for National Statistics (ONS) revealed. On a year-on-year comparison, GDP unexpectedly eased to 2.3% from 2.4%.

The ONS said a 0.7% increase in services activity was offset by 2.2% fall in construction growth and a 0.3% drop in manufacturing production amid a slowdown in China's economy.

“The lacklustre GDP figures revealed today should come as little surprise. A relatively strong pound, coupled with a wounded Chinese economy, has dampened demand for exports," said Dennis de Jong, managing director at UFX.com.

Howard Archer, chief UK and European economist at IHS Global Insight, said the easing in GDP "reinforces our belief" that the Bank of England will hold off on raising rates until the second quarter of 2016.

US data

US durable goods orders fell slightly less than expected last month. According to the Commerce Department, orders for long-lasting goods declined 1.2% in September compared with the 1.3% decline analysts had forecast but marking their second consecutive drop. August's reading was revised downward to show a 3% drop compared with the initial figure showing a 2.3% decline.

Separately, data showed US consumers were less confident than expected in October. The index monitoring consumer sentiment declined from a downwardly revised 102.6 to 97.6 in October, compared with expectations for a 102.9 reading.

The Markit 'flash' US services purchasing managers index fell to 54.4 in October from 55.1 in September, although it remained comfortably above the 50 threshold indicating growth. Analysts had been expecting a reading of 55.5.

The US S&P/Case-Shiller Composite-20 House Price Index rose to 5.09% year-on-year in August from 4.91% a month earlier, missing estimates of 5.10%.

“Major numbers from the US this afternoon did not live up to expectations, with durable goods and consumer confidence both falling short; most investors would be inclined to agree the environment does not yet seem right for an increase in US interest rates, an idea Janet Yellen seems in no hurry to dispel,” said Chris Beauchamp, senior market analyst at IG.

The Fed will announce its latest policy decision on Wednesday but many analysts expect the central bank to keep interest rates unchanged. The focus will be on the press release for any hints on the timing of the first rate hike in nearly a decade.

Companies

Mining stocks were under pressure, including BHP Billiton, Glencore, Antofagasta and Rio Tinto, as reports that a People's Bank of China adviser hinted at further monetary policy easing added to concerns about the health of the nation.

Also weighing on the sector was the prospect of continued declines in copper and iron ore prices as a result of rapid decline in China’s domestic steel use in conjunction with increasing production from Australia.

Analysts at Exane BNP Paribas said "the outlook for steel and steelmaking raw materials looks even more dreadful as there is no evidence of production cuts commensurate with the excess capacity".

BP snapped an earlier rally as the group announced further cuts in capital expenditure and costs after reporting a sharp fall in third quarter underlying replacement cost profit due to plunging oil prices. BP said it was preparing for $60 per barrel until 2017.

Evraz slid as it continued to challenge a rescue plan of its South African steel maker, Evraz Highveld Steel and Vanadium.

Nostrum Oil and Gas fell after lowering its full-year production guidance due to unexpected repair work on a pipeline overrunning and reported a fall in production during the first nine months of 2015 that also will see revenue almost halve.

Going the other way, Shire gained after Credit Suisse cut its price target and forecasts for 2016 earnings.

St. James Place jumped after posting a 17% rise in third-quarter net inflows to a record £1.48bn, taking funds under management to £54.5bn.

DS Smith was higher after saying trading for the half year ending 31 October has been in line with its expectations.

Chemring Group plunged after the defence contractor warned shareholders its profit outlook for the full-year could be dented by a potential revenue delay.

Pearson dipped after Credit Suisse downgraded the education company to ‘neutral’ from ‘outperform’ and cut the price target to 970p from 1,455p.

TalkTalk rose after the company said there was little chance customers' money could be taken after its computer systems were hacked. News that a 15 year-old boy has also been arrested in connection with the incident cheered investors.

Market Movers

FTSE 100 (UKX) 6,370.68 -0.72%
FTSE 250 (MCX) 17,053.74 -0.73%
techMARK (TASX) 3,096.31 -0.32%

FTSE 100 - Risers

Shire Plc (SHP) 4,927.00p 6.90%
Associated British Foods (ABF) 3,430.00p 1.03%
St James's Place (STJ) 939.00p 0.91%
Legal & General Group (LGEN) 259.00p 0.90%
International Consolidated Airlines Group SA (CDI) (IAG) 612.00p 0.66%
Carnival (CCL) 3,583.00p 0.45%
easyJet (EZJ) 1,782.00p 0.39%
London Stock Exchange Group (LSE) 2,539.00p 0.36%
Hikma Pharmaceuticals (HIK) 2,040.00p 0.29%
BT Group (BT.A) 452.85p 0.22%