U.K. Stocks Slip, Led by Shell, BP; Merrill Cuts Oil Forecasts

By Adam Haigh

Nov. 26 (Bloomberg) -- U.K. stocks dropped for the first time in three days, led by energy producers on concern the global economic slowdown will damp demand for commodities and crimp profits.

Royal Dutch Shell Plc and BP Plc, Europe’s two largest oil producers, fell more than 3 percent as Merrill Lynch & Co. slashed its 2009 oil price forecast to reflect the “very weak” economic outlook.

The benchmark FTSE 100 Index lost 74.62, or 1.8 percent, to 4,096.63 at 12:18 p.m. in London. The FTSE All-Share Index dropped 1.5 percent, and Ireland’s ISEQ Index gained 0.7 percent.

U.K. consumer spending dropped the most since 1995 and investment fell in the third quarter as the economy slid into a recession, crippled by the financial crisis.

“It’s best to remain defensive,” said Christian Gattiker, Zurich-based head of equity strategy at Bank Julius Baer & Co. which manages about $307.6 billion globally. “We are underweight equities and hold an overweight position in cash. Given all the macro news flow and the distortion in credit markets, it’s still too early to become risk hungry,” he told Bloomberg Television.

U.K. gross domestic product dropped 0.5 percent from the second quarter, the first decline in 16 years, the Office for National Statistics said today in London. The result matched a previous estimate and the median prediction of 32 economists in a Bloomberg News survey. Consumer spending fell 0.2 percent and fixed investment dropped by 2.4 percent.

The benchmark FTSE 100 index has lost 36 percent in 2008, headed for its worst year since at least 1984, as global credit losses and writedowns approached $1 trillion.

Shell Declines

Shell, Europe’s biggest oil producer, lost 4.3 percent to 1,639 pence and BP, the second largest, dropped 4 percent to 499.5 pence.

Merrill cut its 2009 oil price estimate to $50 a barrel from $90, citing falling global demand. The bank’s 2010 forecast was lowered to $70 a barrel from $100. The brokerage said earlier this month that global demand will contract by 400,000 barrels a day next year.

The following stocks also rose or fell in the U.K. market. Stock symbols are in parentheses:

U.K. companies:

United Utilities Group Plc (UU/ LN) slid 28 pence, or 4.4 percent, to 616. The U.K.’s largest publicly traded water company said that while it can meet financing needs into 2010, it’s “facing increasing cost pressures” in power and bad debts.

Xaar Plc (XAR LN) slid 11 pence, or 19 percent, to 47 pence. The U.K. maker of ink-jet printer parts said it sees no improvement in the fourth-quarter so far.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net