Weaker than expected data from the UK on Tuesday helped stoke fears of a recession, however, stock prices in London still ended largely higher thanks to a strong performance from UK-listed firms.
The FTSE 100 index closed down 27.31 points, or 0.4% at 7,757.36 on Tuesday. The FTSE 250 ended up 53.62 points, or 0.3%, at 19,855.31. The AIM All-Share closed up 4.39 points, or 0.5%, at 863.47.
The Cboe UK 100 ended down 0.3% at 776.51, the Cboe UK 250 closed up 0.4% at 17,351.20, and the Cboe Small Companies ended down 0.3% at 13,629.47.
According to the latest data released on Tuesday, the UK private sector saw its sharpest drop in business activity in two years in January.
The S&P Global CIPS UK flash composite purchasing managers’ index fell to a 24-month low of 47.8 points in January, from 49.0 in December.
Falling further beneath the 50.0 no-change mark, it shows the contraction in the UK’s private sector has worsened at the start of 2023.
Chris Williamson, chief business economist at S&P Global Market Intelligence said: ‘Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession. Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year.’
In addition, UK public sector borrowing - excluding public sector banks - in the final month of 2022 reached its highest December figure since monthly records began in 1993, according to the Office for National Statistics.
Borrowing hit £27.4 billion, which was £16.7 billion higher than the previous year, and £9.8 billion higher than the latest official forecast from the Office for Budget Responsibility.
Amid the dim economic picture for the UK economy, sterling slipped against the US dollar. The pound was quoted at $1.2320 at the London equities close on Tuesday, down from $1.2368 at the close on Monday.
In the FTSE 100, Rolls-Royce was the best blue-chip performer on Tuesday, closing 2.5% higher after Exane BNP raised the firm to ’neutral’.
Associated British Foods closed down 2.0% despite backing its annual guidance as it reported sales growth across the board in the early weeks of its current financial year.
AB Foods said its Primark high-street retail chain enjoyed a ‘very strong Christmas period’, bucking a consumer confidence malaise in the UK and beyond. However, it said things could sour as tough economic conditions may ‘weigh on consumer spending in the months ahead’.
In the 16 weeks to January 7, group revenue surged 20% to £6.70 billion, from £5.57 billion, as a strong dollar boosted dollar-denominated sales in pound terms. At constant currency, growth was slightly weaker at 16%.
At group level, AB Foods left guidance unchanged. It expects ‘significant’ annual sales growth but anticipates weaker adjusted operating profit and adjusted earnings per share outcomes.
In the FTSE 250, Senior jumped 7.5% as it said it expects annual profit to top consensus, helped by ‘outperformance’ in its Flexonics arm.
The components and systems manufacturer expects adjusted pretax profit to beat market consensus.
Senior said its company-compiled consensus range is £16.2 million to £18.0 million. In 2021, it had made a £1.9 million adjusted pretax loss, narrowing from £6.2 million in 2020.
‘Trading in the Flexonics division has been ahead of previous expectations, driven by strong customer demand in the land vehicle and power & energy markets. In particular, demand for heavy duty truck and the levels of maintenance and overhaul in power & energy have improved since the last trading update’ the company said.
Bridgepoint was up 3.0% after it launched a share buyback of up to £50 million as part of its ‘growth agenda’.
Elsewhere in London, Saga soared 10% as it said it expects to be back in the black for the year ending January 31.
Saga said it is on track for underlying pretax profit of £20 million to £30 million in the financial year, compared to a loss of £6.7 million the year before.
The anticipated profit would still be far below the £109.9 million that Saga booked for financial 2020, however, which ended before Covid restrictions were enacted in many countries.
Marston’s was up 6.1% as it reported strong sales during the festive period and backed its annual outlook.
The pub chain said like-for-like sales in the 16-week period to Saturday of last week were 13% ahead of the previous year, including the hit from Omicron back then.
‘Whilst we still have certain cost challenges to navigate in 2023, we are well-positioned to continue to progress our strategy and are encouraged by the level of consumer resilience experienced to date,’ said Chief Executive Officer Andrew Andrea.
Marston’s left earnings guidance unchanged.
In European equities on Tuesday, the CAC 40 in Paris ended up 0.3%, while the DAX 40 in Frankfurt ended down 0.1%.
The eurozone’s private sector edged back into growth territory in January, according to preliminary data.
The latest S&P Global flash composite purchasing managers’ index rose to a seven-month high of 50.2 points, from 49.3 in December. Climbing above the 50.0 no-change mark, it shows the sector registered growth during the period.
The reading came in higher than the FXStreet-cited consensus of 49.8 points.
‘A steadying of the eurozone economy at the start of the years adds to evidence that the region might escape recession,’ said S&P Global’s Williamson.
The euro stood at $1.0881 at the European equities close on Tuesday, higher against $1.0870 at the same time on Monday.
Against the yen, the dollar was trading at JP¥129.89 late Tuesday, lower compared to JP¥130.62 late Monday.
Stocks in New York were mixed at the London equities close, with the Dow Jones Industrial Average marginally higher, the S&P 500 index down 0.1%, and the Nasdaq Composite down 0.1%.
Brent oil was quoted at $86.55 a barrel at the London equities close on Tuesday, down from $88.82 late Monday. Gold was quoted at $1,930.76 an ounce, sharply higher against $1,922.40 at the close on Monday.
In Wednesday’s UK corporate calendar, there are trading statements from low-cost airline easyJet, pub chain JD Wetherspoon and FTSE 100 miner Fresnillo.
In the economic calendar, the UK will publish a PPI print at 0700 GMT before the Bank of Canada announces its latest interest rate decision at around 1500 GMT.
Chinese financial markets will remain shut on Wednesday to mark the Lunar New Year. The Hang Seng in Hong Kong will reopen on Thursday, while the Shanghai Composite will stay closed all week.
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