London’s FTSE 100 closed significantly lower on Friday, despite a better than expected GDP reading, as a stronger pound and concerns over the Chinese economy dampened sentiment.
The FTSE 100 index closed 1.26 per cent lower at 7,522.86 while the mid-cap FTSE 250 index fell 0.9 per cent to 18,822.50.
The disappointing performance came despite a stronger than expected performance from the UK economy in the second quarter.
Across the second quarter, the economy grew 0.2 per cent following a 0.1 per cent expansion in the first quarter, the Office for National Statistics (ONS) estimated. The Bank of England forecast a 0.1 per cent expansion in the second quarter.
In June, the UK economy grew 0.5 per cent, rebounding from a 0.1 per cent contraction in May. Markets had predicted a smaller 0.2 per cent expansion.
“These numbers push the chance of a recession further down the line, but the UK economy looks firmly stuck in a low growth cycle,” Matt Britzman, equity analyst at Hargreaves Lansdown said.
The pound gained against the dollar following the news, with it climbing around 0.20 per cent per cent to trade around $1.27. The pound climbed as markets are now almost certain that the Bank of England will hike rates again at its next meeting in September.
However, the stronger pound put pressure on some of the FTSE’s largest companies, many of whom make the majority of their profits overseas.
Oil giants BP and Shell were among the largest fallers, dropping 1.0 per cent and 0.7 per cent respectively.
Concerns over the Chinese economy also caused problems, with investors increasingly concerned by the growing storm in the Chinese real estate sector. One of the nation’s largest developers has reportedly missed payments on its bonds.
Miners also fared poorly, with Antofagasta dropping 4.6 per cent, Glencore 2.5 per cent and Rio Tinto 1.4 per cent.
The fate of the FTSE’s commodities giants are closely tied to China. AJ Bell’s investment director Russ Mould noted the Chinese economy has had “a tough week for China marked by deflation, falling producer prices and soft trade figures as well as a sorry showing for Chinese equities.”
“As the world’s most rapacious consumer of commodities, the fortunes of the Chinese economy are closely tied to these markets,” he continued.
The FTSE’s top performer was insurance company Beazley, which climbed 1.2 per cent.