November UK economic numbers provide a boost for UK stocks

London stocks have regained a bit of spring in their step after data showed that UK GDP increased by 0.3% in November. Granted, not a major move. But given the weak economic data in the three months to October and the corresponding gloom in the UK stock market, this notch higher in the GDP looks like the prelude to positive changes.

For one, the Bank of England may end up changing its rate strategy sooner than expected. Instead of waiting until June or July to start cutting rates the Bank could bring that date forward to maybe March or April on the grounds that inflation has stopped rising.

The FTSE 100 is up 0.65% and FTSE 250 up 0.49% this morning with banks, property and car trading platforms doing particularly well out of this set of data.

Banks, property and car trading companies are likely to do well

The November GDP data came in slightly above analysts’ expectations and showed that the service sector improved more than industrial and production. Retail, car leasing and computer games companies led the increase in GDP growth.

The data covers the period just before the biggest shopping rush in the UK ahead of Christmas when sales increased by another 1.3%. While most retailers would have preferred this number to be much higher, it indicates that the trend has changed from penny pinching to a slow recovery in spending.

This is good news for investors. To start with, the erosion of the FTSE 100, FTSE 250 and FTSE 350 over the last twelve months means that there is a comfortably low entry point.

Goldman Sachs analysts said the UK economy has shown surprising resilience last year and expect it to outperform the consensus forecasts of economists surveyed by Bloomberg. They noted that inflation adjusted disposable income is set to get a significant boost of around 2.5% in 2024 as headline inflation falls and wage growth remains elevated. The growth drag from the Bank of England’s rate hikes is now peaking and poised to fade steadily through the year.

Housing market seeing renewed interest

One of the sectors that is expected to see the most marked changes compared with 2023 is the housing market. Brought to a screeching halt last year, it is beginning to see renewed interest from buyers in January.

Property developers, sellers and related companies such as real estate platform Rightmove LON:RMV will benefit even from a promise that interest rates will start to decline. Similarly, mortgage providers and banks will also see the positive impact of an economic recovery.

Those banks that are moving more towards digital service provision and away from bricks and mortar will position themselves best to reap the benefits of increased spending. Looking at the market this morning Barclays and Natwest are already trading up 1.8% and 1.7%, respectively. Lower interest rates will also help revive trading on platforms like Autotrader LON:AUTO.

High street retailers and grocery stores will likely need more time (and lower food prices) before they can see an improvement in their share price but oil producers will likely see a tick higher, also helped by tensions in the Middle East.

In all, for investors who have been cautious about UK stocks over the last 12 months, this January could be marking the turning point.

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