Better-than-expected UK gross domestic product growth hurt market sentiment in London on Friday at midday, amid fears it would fuel the Bank of England’s appetite to keep interest rates higher for longer.
The FTSE 100 index was down 81.30 points, or 1.1%, at 7,537.30. The FTSE 250 was down 137.15 points, or 0.7%, at 18,856.66. The AIM All-Share was down just 0.21 of a point at 757.18.
The Cboe UK 100 was down 1.0% at 752.06, the Cboe UK 250 was down 0.6% at 16,577.83, and the Cboe Small Companies was down 1.0% at 13,179.28.
According to the Office for National Statistics, the UK economy grew 0.2% quarter-on-quarter in the three months to June, following a 0.1% climb in the first-quarter. It topped the FXStreet-cited consensus, which had forecast the UK economy to flatline.
In June alone, there was chunky GDP growth beat. The economy rose 0.5%, after an unrevised 0.1% decline in May and a 0.2% rise in April. An expansion of 0.2% was expected for June, according to FXStreet.
Joshua Mahoney, chief market analyst at Scope Markets, said the data helped build on the idea that the UK could be on track for a soft-landing ‘akin to that currently being seen in the US’.
However, Mahoney warned that this soft-landing narrative also brings with it the potential for a more protracted period of tightening, with the Bank of England now under no pressure to ease off on its current path of higher interest rates.
‘As such, in the absence of any notable deterioration in the UK economy, we are likely to see rates higher for longer in a bid to drive down inflation,’ he said.
The data supported the pound initially, with sterling rising to $1.2709 after the readings, from $1.2683 beforehand. The pound was quoted at $1.2713 midday on Friday in London, compared to $1.2728 at the close on Thursday, however.
In the FTSE 100, stocks were weighed down by a resilient pound, as well as a week’s worth of disappointing news from China, which kept a lid on appetite for blue-chip commodity stocks.
Segro, abrdn, and Entain were among the index’s worst performers at midday, with the stocks trading 2.9%, 2.8%, and 2.7% lower, respectively.
On Thursday, Entain set aside £585 million for a possible settlement of an ongoing UK probe concerning its legacy business in Turkey.
Back in May, the Ladbrokes Coral owner said it was in talks with the UK Crown Prosecution Service regarding an ongoing investigation by HM Revenue & Customs into a potential breach of the bribery act at its former Turkey-facing business, which was sold in 2017.
‘The [deferred prosecution agreement] negotiations have now progressed to the point where the company believes that it is likely to be able to agree on a resolution of the HMRC investigation insofar as it relates to the company and the group,’ Entain explained on Thursday.
The full terms of the agreement are yet to be confirmed and are subject to judicial approval.
Fresnillo, Endeavour Mining, and Coca-Cola HBC were top performers in the FTSE 100, meanwhile, trading 0.9%, 0.6%, and 0.6%, higher at midday.
The commercial property sector struggled as fears built over what more Bank of England rate hikes could mean for the market. FTSE 100-listed Land Securities fell 2.1%, while FTSE 250 constituent British Land lost 5.0%.
Elsewhere in London, GCP Asset Backed Income Fund added 5.2%.
The company agreed terms for a tie-up with GCP Infrastructure Investments, which traded 1.6% lower at midday.
The combination will be conducted through a contractual scheme of reconstruction, resulting in a solvent winding-up of the latter. The companies expect to merge before the end of 2023.
GCP Infrastructure expects that the plans ‘will bring benefits to both the existing and any new shareholders in the company’. It added that following the completion, there will be an increased return of capital to shareholders with GCP Infrastructure reducing its leverage.
On AIM, Emis surged 25% after UnitedHealth’s buy of the firm was provisionally cleared by the UK’s competition watchdog.
The UK Competition & Markets Authority said it found no competition concerns regarding UnitedHealth’s subsidiary Optum UK buying Emis, with a final decision due early October.
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The CMA said: ‘While the merging businesses do not supply competing services, Optum and its competitors use the data that Emis holds and integrate their own software with Emis’s electronic patient record system to compete in other markets, including the supply of population health management services and medicines optimisation software.’
The CMA will report a final decision on October 5.
In European equities on Friday, the CAC 40 in Paris was down 0.6%, while the DAX 40 in Frankfurt was down 0.3%.
Stocks in New York were called largely lower as hawkish words from San Francisco Federal Reserve Bank President Mary Daly weighed on market mood, despite better-than-expected inflation figures on Thursday.
The Dow Jones Industrial Average was called up 0.1%, while the S&P 500 index and the Nasdaq Composite were down 0.1% and 0.2% lower, respectively.
According to the Bureau of Labor Statistics, the US yearly inflation rate accelerated to 3.2% in July, from 3.0% in June, snapping a streak of 12 successive slowdowns. The latest figure was shy of consensus, however, which had chalked in an acceleration to 3.3%, according to FXStreet.
Speaking to Yahoo Finance on Thursday, Daly said while the inflation data is good news, ‘it is not a data point that says victory is ours’.
‘There’s still more work to do,’ she insisted.
The dollar was stronger around midday in London on Friday, regaining ground after initially selling-off in response to July’s inflation print.
The euro stood at $1.0993 around midday in London on Friday, down from $1.1014 at the London equities close on Thursday. Against the yen, the dollar was trading at JP¥144.58, higher compared to JP¥144.46.
Francesco Pesole at ING argued that the dollar was benefitting from a lack of ‘attractive alternatives’ given ‘warning growth signals’ in other parts of the world, such as the eurozone and China.
Brent oil was quoted at $86.63 a barrel midday in London on Friday, down from $87.02 late Thursday. Gold was quoted at $1,917.74 an ounce, higher against $1,916.01.
Still to come in Friday’s economic calendar, there is US producer price inflation data at 1330 BST.
AJ Bell’s Russ Mould noted that the PPI data could lift market sentiment, should it show inflationary pressures easing, as the dataset is ‘something of a crystal ball’ for consumer price inflation.
‘When producers charge more for goods the higher costs are usually passed on to households,’ Mould explained.
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