FTSE 100 close: London lower on disappointing GDP data
London’s FTSE 100 ended Wednesday down on worrying news of the UK economy having shrunk, as the pound had a bad morning falling to a three-month low.
The capital’s premier index was sluggish throughout the day, finishing down at 7,525.99 points, in the red by 0.02 per cent. Earlier in the day it was hovering between being flat and about 0.5 per cent up.
This comes after news that the UK economy shrank by more than expected in July, with all sectors starting to come under pressure following Bank of England (BoE) interest rate hikes.
London stocks dipped on the data as investors also looked to the latest US inflation reading, which revealed at 1.30pm that price rises had accelerated at their fasted rate in over a year on surging gas prices.
“In July, industrial action by healthcare workers and teachers negatively impacted services and it was a weaker month for construction and retail due to the poor weather,” said ONS director of economic statistics Darren Morgan.
“Manufacturing also fell back following its rebound from the effect of May’s extra Bank Holiday. A busy schedule of sporting events and increased theme park visits provided a slight boost.”
Meanwhile, Paul Dales, chief UK economist at Capital Economics, said the fall “could possibly mean that the mild recession we have been expecting has begun”.
“Even so, with wage growth still uncomfortably strong, we suspect the Bank of England will still raise interest rates one final time next week, from 5.25 per cent to 5.50 per cent,” he added.
Aviva was the FTSE 100’s biggest riser, with the insurer closing up almost five per cent following reports it will offload its Singlife stake for £800m.
BP shares remained broadly flat at the open, before declining by about 2.79 per cent by by the close, following the shock and immediate resignation of its chief executive Bernard Looney, over previous relationships.
Russ Mould, investment director at AJ Bell, said the news had “drawn a relatively relaxed market reaction”.
“This will hardly do much for his ego given the sudden departure of a company’s boss often destabilises a share price,” he said.
“Investors may be reassured by the swiftness of the company’s actions after Looney failed to disclose previous personal relationships with colleagues.
“Assuming this is largely the end of the matter, even if an investigation by legal counsel remains ongoing, and chief financial officer Murray Auchincloss can lead the company through the transition to a new leader, then little harm may be done to the business.
“The nagging worry is that this is the tip of an iceberg and is reflective of wider problems with BP’s workplace culture. Given this uncertainty, it may be a few weeks before shareholders are sitting comfortably again.”
London’s FTSE 250, which is more aligned with the UK domestic market, finished just in the green, up 0.1 per cent by the close.
Housebuilder Redrow was one of the main risers, following its warning this morning of a “standstill” in the market as mortgage rates continue to bite, following repeated Bank of England rate rises. It was up more than six per cent.
This morning, sterling was down 0.3 per cent against the dollar at 1.2459, with Fiona Cincotta, senior financial markets analyst at City Index, calling it a three-month low.
Sterling becoming weaker against the dollar makes it more expensive to import goods from around the world, further increasing the rate of price increases Brits, who import more than they export.
She said this morning’s GDP data “adds to mounting evidence that the UK economy is losing momentum as the BoE’s interest rate hikes take effect and comes after figures yesterday showed that UK unemployment rose to the highest level since 2001.”
“The markets are pricing in a 25 basis point rate hike in September. However, last week, BoE governor Andrew Bailey signalled that the central bank’s interest rate hiking cycle is almost complete.”
“Meanwhile, the US dollar is pushing higher as investors await inflation data which is expected to show that headline CPI rose to 3.6 per cent YoY, up from 3.2 per cent YoY in July. Meanwhile, core inflation is expected to cool to 4.3 per cent.”
“The market is pricing in a 93 per cent probability that the Federal Reserve will keep interest rates on hold in September. However, an uptick in inflation may raise questions over whether it can keep interest rates on hold again in November. “
“Hotter than expected inflation could raise the prospect of a November rate hike, from the current probability of 40 per cent boosting the US dollar,” she added.