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(Alliance News) - Stocks in London closed lower on Friday as weak economic data and the prospect of global interests staying higher for longer put investors in a firmly risk-off mood.
"Up until last week, markets had been operating under the premise that rate hikes were coming to an end, however [US Federal Reserve Chair Jerome] Powell's press conference, along with a more hawkish narrative from the European Central Bank last week, and this week's bigger than expected rate hikes from the Bank of England and Norges Bank suggests higher rates are likely to be with us for a long time," said Michael Hewson, chief market analyst at CMC Markets.
"Consequently, markets are now repricing for just such a scenario, where growth is likely to slow considerably as recession risks increase."
The FTSE 100 index closed down 40.16 points, or 0.5% at 7,461.87 on Friday, ending the week 2.4% lower.
The FTSE 250 ended down 265.64 points, or 1.5%, at 18,062.33 and finished the past five days down 5.1%. The AIM All-Share closed down 6.37 points, or 0.8%, at 767.07 - finishing the week down 3.2%.
The Cboe UK 100 ended down 0.5% at 744.19, the Cboe UK 250 closed down 1.6% at 15,814.50, and the Cboe Small Companies ended down 0.6% at 12990.78.
Growth in the UK's private sector was slower than expected in June, according to preliminary survey data, as the gulf between manufacturing and services continued to widen.
The latest S&P Global/CIPS UK flash composite PMI fell to 52.8 points in June, from 54.0 in May. The market had been expecting only a slight decline to 53.6, according to FXStreet-cited consensus.
The flash services PMI fell to 53.7 from 55.2, lower compared to market forecasts of 54.8. Meanwhile, the contraction in manufacturing worsened, with the PMI slipping to 46.2 from 47.1, which was also below forecasts of 46.8.
The sluggish private sector growth has put the risk of an economic downturn in the UK at the forefront of investors' minds. Swissquote senior analyst Ipek Ozkardeskaya was more pessimistic: "At this point, it would be a miracle for Britain to avoid recession."
On Thursday, the Bank of England surprised with a chunkier-than-expected 50 basis point interest rate hike. It took bank rate to 5.00% from 4.50%.
The pound was quoted at USD1.2709 at the London equities close Friday, down from USD1.2741 at the close on Thursday.
Prior to the BoE's hike on Thursday, sterling had traded at USD1.2781 and had spiked as high as USD1.2830 in the immediate wake of the decision. Sterling has since lost all these gains.
In London, GSK was the top blue-chip performer at the close on Friday, finishing 5.0% higher.
The pharmaceutical company said it has reached a confidential settlement with James Goetz, a claimant in Zantac litigation. The case he filed in the California state court, which was set to begin in July, will now be dismissed.
Zantac is the subject of numerous lawsuits, which allegedly link the heartburn drug with cancer.
GSK said the settlement reflects its desire to avoid a protracted legal fight. It added that it does not admit any liability and will continue to "vigorously defend itself" in Zantac cases.
"News pharmaceutical giant GSK has settled a case in California alleging its Zantac heartburn medication caused cancer, while crucially admitting no liability, is not a full stop on the saga but is the latest punctuation point in what shareholders will hope is its final stanza," said AJ Bell's Hewson.
"Once the world's best-selling drug, there have been a series of lawsuits brought in the US implying a link between Zantac and cancer but, so far, GSK has been able to navigate its way through these choppy waters."
Haleon, which also has exposure to Zantac litigation, finished 0.6% higher.
Ocado ended as the FTSE 100's worst-performing stock on Friday. It finished 6.0% lower, slipping back from its 32% gain on Thursday which was driven by chatter that the online retailer and warehouse technology provider is the object of takeover interest.
In the FTSE 250, Volution was the index's best performer, finishing 2.90% higher after it announced it had completed its acquisition of designer, manufacturer and supplier of residential ventilation systems, I-Vent.
"We are delighted to have completed this earnings accretive transaction, and look forward to welcoming our new colleagues in I-Vent to the group. The acquisition gives the group access to fast-growing new markets in Slovenia and Croatia," said Chief Executive Ronnie George.
Elsewhere in London, EnQuest lost 6.4%.
The London-based oil and gas producer with assets in the UK and Malaysia's stock was under pressure as the price of a barrel of Brent oil fell to USD73.71 at the London equities close on Friday, from USD74.22 late Thursday.
"Pressure on oil prices in recent weeks has been largely supply-driven. Now, oil markets are struggling against an even more hawkish monetary policy backdrop than anticipated, which could hurt demand," explains SPI Asset Management's Stephen Innes.
On AIM, Hotel Chocolat plunged 17% after the high-street chocolatier warned it expects to swing to an underlying marginal pretax loss in its financial year ending July 2, defying market expectations of GBP300,000 in underlying pretax profit.
In financial 2024, it expects sales and underlying profit before tax to be lower than market expectations, due to weak consumer sentiment and continuing inflationary pressures.
In European equities on Friday, the CAC 40 in Paris ended down 0.6%, while the DAX 40 in Frankfurt ended down 1.0%.
Stocks in New York were lower at the London equities close, with the Dow Jones Industrial Average down 0.5%, the S&P 500 index down 0.7%, and the Nasdaq Composite down 1.0%.
The euro stood at USD1.0888 at the European equities close on Friday, sharply lower against USD1.0953 at the same time on Thursday. Against the yen, the dollar was trading at JPY143.73, higher compared to JPY142.86 late Thursday.
"The words from the chairman of the Fed, alongside the BoE's assertiveness, show that central banks aren't yet done with monetary tightening, in a dynamic that highlights the risks of an economic contraction. Against this background, there may be scope for further US dollar gains," said Ricardo Evangelista, senior analyst at ActivTrades.
Gold was quoted at USD1,922.24 an ounce, higher against USD1,913.60 at the close on Thursday.
In Monday's UK corporate calendar, there are half-year results from Rio Tinto and Carnival, as well as a trading statement from Associated British Foods.
The economic calendar next week has US house price data on Tuesday, US GDP figures on Thursday, and a flash inflation reading for the EU on Friday.
By Heather Rydings, Alliance News senior economics reporter
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