London close: Stocks weaker after surprise UK GDP contraction

(Sharecast News) - London's stock markets closed lower on Friday as investors reacted to an unexpected contraction in the UK economy during October, while the pound lost ground against major currencies. The FTSE 100 index fell 0.14% to end the session at 8,300.33 points, while the FTSE 250 declined 0.29% to 20,889.15 points.

In currency markets, sterling was last down 0.39% on the dollar to trade at $1.2624, as it dropped 0.65% against the euro, changing hands at €1.2028.

"Earlier gains have drifted away as US Treasury yields strengthen," said IG chief market analyst Chris Beauchamp.

"Yields rose to their highest levels in over two weeks as markets brace for the Federal Reserve's final meeting of the year.

"The 10-year yield climbed to 4.36%, while the two-year yield increased to 4.21%, reflecting concerns over sticky inflation."

Beauchamp noted that stocks opened higher on Wall Street, driven by strong AI-driven optimism, but then began to lose ground.

"Broadcom surged over 16% following positive quarterly results and a confident outlook on AI opportunities.

"The CAC 40, the poor performer of the past six months, continues to show signs of topping out.

"Macron may have found someone willing to take on the dubious honour of being prime minister, but few in the dealing rooms of the world think that the newly-appointed Bayrou has much chance of succeeding where Barnier failed, signalling more uncertainty ahead."

UK economy unexpectedly contracts, but consumer confidence edged higher

On the data front, the UK economy unexpectedly contracted in October, shrinking by 0.1% for the second consecutive month, according to the Office for National Statistics.

Analysts had anticipated slight growth of 0.1%.

The decline was driven by a 0.6% drop in production output, largely due to weaker manufacturing and mining activity, while construction output fell 0.4%.

Services showed no growth during the month.

"The economy contracted slightly in October, with services showing no growth overall and production and construction both falling," said Liz McKeown, director of economic statistics at the ONS.

"Oil and gas extraction, pubs and restaurants and retail all had weak months, partially offset by growth in telecoms, logistics, and legal firms.

"However, the economy still grew a little over the last three months as a whole."

Meanwhile, UK consumer confidence edged higher in December, according to GfK's latest survey.

The consumer confidence index rose one point to -17, continuing a slow upward trend but remaining significantly below positive territory.

Expectations for the broader economy over the next year were unchanged, while sentiment about personal finances improved slightly, reaching a positive reading of 1 for the first time in months.

The major purchase index remained flat, highlighting continued caution among consumers.

"Consumers are still thinking twice about big ticket purchases, and whether they will bring Christmas cheer," said Neil Bellamy, consumer insights director at GfK.

"In December, consumers adopted the holding pattern we've seen for much of 2024, with the one point increase to -17 very close to the 2024 average of -18.

"Consumer confidence is still far from strong, but there is some room for optimism."

On the continent, eurozone industrial production was stagnant in October, after a 1.5% decline in September, according to Eurostat.

Across the European Union, output rose slightly by 0.3% month-on-month.

On an annual basis, industrial production fell 1.2% in the euro area and 0.8% across the EU, reflecting persistent headwinds for manufacturers.

German trade data also highlighted ongoing pressures, as exports fell by 2.8% in October, exceeding forecasts of a 2% decline, while imports dipped 0.1%.

The trade surplus narrowed to €13.4bn, down from €16.9bn in September.

Bundesbank president Joachim Nagel warned of a shrinking German economy, projecting a 0.2% contraction and only slight growth of 0.2% in 2025, with risks from geopolitical tensions further dampening prospects.

Across the Atlantic, import prices in the US rose 0.1% in November, driven by a rebound in fuel costs.

Nonfuel import prices were flat, while export prices also showed no change, hindered by a 0.4% decline in agricultural export prices.

Rentokil rises, miners in the red on weak copper prices

On London's equity markets, Rentokil Initial rose 3.66% after Trian Fund Management acquired 7.5 million shares in the pest control company for £31m earlier in the week.

The shares were purchased at 413.4p each.

Schroders edged up 0.13%, as reports emerged that the asset manager was considering selling its Indonesian business.

The potential divestment was part of new chief executive Richard Oldfield's efforts to streamline operations by exiting underperforming markets.

St James's Place gained 2.4%, buoyed by an upgrade to 'buy' from Deutsche Bank.

Greggs also saw a 1.65% rise after RBC Capital Markets initiated coverage with an 'outperform' rating, recommending investors "buy the dip."

Diageo climbed 1.86%, benefiting from a bullish note by UBS.

The broker upgraded the drinks giant to 'buy' from "sell" and raised the price target to 2,920p, citing potential upside in the company's US operations.

"Our analysis shows its sell-out trends are running +3.6%, significantly outperforming a still weak spirits industry, and the strong growth momentum behind key brands Don Julio and Crown Royal can be sustained," UBS said.

"Following -31% earnings per share downgrades over the past two years, we think investors can gain comfort that the business is towards the end of its earnings downgrade cycle."

Meanwhile, Moonpig Group added 1.14%, recovering some ground after recent losses tied to weaker performance in its experiences segment.

On the downside, miners were among the hardest hit as copper prices fell.

Anglo American, Rio Tinto, and Glencore dropped 1.86%, 2%, and 1.81%.

In the energy sector, Tullow Oil plunged 9.15%, reversing Thursday's gains when it was revealed the company is in early takeover discussions with US-based Kosmos Energy, which itself declined 2.49%.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 8,300.33 -0.14% FTSE 250 (MCX) 20,889.15 -0.29% techMARK (TASX) 4,665.25 -0.38%

FTSE 100 - Risers

Rentokil Initial (RTO) 413.00p 3.51% Beazley (BEZ) 837.00p 2.94% Diageo (DGE) 2,618.50p 2.35% Hiscox Limited (DI) (HSX) 1,144.00p 2.04% Marks & Spencer Group (MKS) 397.70p 1.92% Pershing Square Holdings Ltd NPV (PSH) 3,964.00p 1.85% Smith (DS) (SMDS) 547.00p 1.48% Next (NXT) 9,902.00p 1.37% Aviva (AV.) 476.20p 1.10% Smurfit Westrock (DI) (SWR) 4,250.00p 1.09%

FTSE 100 - Fallers

Spirax Group (SPX) 7,195.00p -2.51% Anglo American (AAL) 2,460.00p -2.46% Melrose Industries (MRO) 545.80p -2.22% Fresnillo (FRES) 665.50p -2.06% Rio Tinto (RIO) 4,900.00p -2.00% Prudential (PRU) 649.60p -1.99% Vistry Group (VTY) 657.50p -1.94% Berkeley Group Holdings (The) (BKG) 3,990.00p -1.92% JD Sports Fashion (JD.) 100.05p -1.91% Glencore (GLEN) 371.05p -1.81%

FTSE 250 - Risers

Wood Group (John) (WG.) 69.55p 2.89% Mitie Group (MTO) 110.60p 2.40% Alpha Group International (ALPH) 2,320.00p 2.20% St James's Place (STJ) 914.00p 2.01% SThree (STEM) 270.00p 1.89% Greggs (GRG) 2,834.00p 1.87% Currys (CURY) 94.20p 1.67% Hammerson (HMSO) 288.00p 1.48% Babcock International Group (BAB) 504.50p 1.39% Domino's Pizza Group (DOM) 308.20p 1.38%

FTSE 250 - Fallers

Aston Martin Lagonda Global Holdings (AML) 104.50p -5.86% Hochschild Mining (HOC) 216.50p -5.75% Wizz Air Holdings (WIZZ) 1,463.00p -5.73% CMC Markets (CMCX) 262.50p -3.31% 4Imprint Group (FOUR) 4,865.00p -3.09% Endeavour Mining (EDV) 1,505.00p -2.97% PureTech Health (PRTC) 162.20p -2.86% Close Brothers Group (CBG) 236.00p -2.66% Future (FUTR) 965.50p -2.47% AJ Bell (AJB) 474.00p -2.27%