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(Alliance News) - Stock prices in London fell strongly at midday on Friday, as the UK economy registered no growth in the third quarter, although faring better than expectations of a contraction.
The FTSE 100 index was down 102.37 points, 1.4%, at 7,353.30. The FTSE 250, widely considered to be the "domestic barometer" in the UK, was down 285.47 points, 1.6%, at 17,752.38, and the AIM All-Share was down 3.89 points, 0.6%, at 700.37.
The Cboe UK 100 was down 1.4% at 733.96, the Cboe UK 250 was down 1.7% at 15,376.08, and the Cboe Small Companies was marginally down at 12,830.08.
In European equities, the CAC 40 in Paris was down 1.1%, while the DAX 40 in Frankfurt was down 0.8%.
The UK economy fared better than expected in the third quarter, avoiding a contraction, but made no progress either, according to figures from the Office for National Statistics.
In the third quarter, the ONS estimates that UK gross domestic product registered no growth on a quarterly basis and was flat on the second quarter. The estimate was better than the FXStreet-cited market consensus of a 0.1% contraction. In the second quarter, GDP grew 0.2% from the first quarter.
Services sector output fell 0.1% over the third quarter, which entirely offset a 0.1% increase in construction output. Production sector output was broadly flat, the ONS explained.
"This was still the worst quarterly performance of the UK economy in a year," said interactive investor analyst Victoria Scholar.
"While the latest quarterly UK GDP figures came in slightly better than expected, it was a lacklustre performance highlighting the sluggish macro picture. As elevated inflation and higher interest rates take their toll, there's a growing risk of a shallow recession in the UK next year as the lagged impact of prior interest rate hikes begin to make their way through the economy.
"Bringing down inflation remains the government and the Bank of England's key priority, even as it comes at the expense of economic growth."
The UK's total trade in goods and services deficit narrowed in the third quarter, according to ONS figures.
The total trade in goods and services deficit for the third quarter narrowed to GBP6.0 billion compared to GBP13.1 billion in the second quarter.
The goods trade deficit narrowed by GBP7.0 billion to GBP44.2 billion in the third quarter, as goods imports fell at a faster pace than exports. The third-quarter services surplus widened by GBP100 million to GBP38.3 billion, as exports increased at a slightly faster pace than imports.
Investors in London were also taking their cues from the downbeat mood elsewhere following hawkish rhetoric from the US central bank chief.
The Fed is prepared, if needed, to hike interest rates further in order to bring inflation down to its long-term 2% target, Fed Chair Jerome Powell said. "We know that ongoing progress toward our two percent goal is not assured: Inflation has given us a few head fakes," Powell told a conference in Washington.
"If it becomes appropriate to tighten policy further, we will not hesitate to do so," he added, in remarks that were briefly disrupted by climate protesters.
Powell's comments come just over a week after the US central bank voted to hold interest rates steady at a 22-year high for a second consecutive meeting, fuelling expectations that it was done with rate hikes.
"As pushbacks go this was more of a mild shove than a body slam, but it was enough to temper some of the recent exuberance among investors," said AJ Bell analyst Russ Mould.
Stocks in New York were called largely muted. The Dow Jones Industrial Average was called up 0.1%, the S&P 500 index marginally down, and the Nasdaq Composite down 0.2%.
Sterling was quoted at USD1.2204 at midday on Friday, dropping from USD1.2275 at the London equities close on Thursday. The euro traded at USD1.0676, lower than USD1.0709. Against the yen, the dollar was quoted at JPY151.46, up versus JPY151.00.
In the FTSE 100, Diageo led losses, plunging 14%.
The alcoholic beverage company known for Baileys and Smirnoff downgraded its outlook for the year ending June 30, 2024, amid a weak performance outlook in the Latin America & Caribbean market.
It had been expecting to see a gradual improvement in organic net sales growth over its first half.
However, while momentum continues in four of its five regions, Diageo warned that growth in the first half of financial 2024 will be slower than the second half of financial 2023. Sales in the LAC market are nearly 11% of its net sales value, and are expected to fall by 20% year-on-year on an organic basis over the first half.
Oil majors Shell and BP were among the few winners on the FTSE 100, rising 1.3% and 1.0% respectively. This tracked Brent oil trading higher at USD80.75 a barrel on Friday midday from USD80.69 on Thursday.
In the FTSE 250, Redrow lost 5.4%.
Ahead of its annual general meeting, the housebuilder warned that the housing market has remained "subdued" in August. It said net private reservation values dropped 25% year-on-year to GBP384 million.
Redrow now guides for annual profit before tax to be at the lower end of its GBP180 million to GBP200 million range, with revenue also to come in at the lower end of the GBP1.65 to GBP1.7 billion range.
It expects the annual average number of outlets to be around 113, which is behind its September guidance of 117.
"We know the housing market is in a bad place so Redrow's disappointing trading update can be seen in that context," said AJ Bell's Mould.
"Despite a slowly improving picture on borrowing costs, mortgages are still expensive and there are other pressures on people’s spending power, and all of this is having an impact on demand."
Wizz Air fell a further 5.2%, after its share shed 10% in trading on Thursday, as the budget airline downgraded its bottom line guidance due to difficult operating conditions.
Among London's small-caps, Galliford Try rose 0.6%.
The construction firm said it has "increased confidence" in its annual outlook ahead of its annual general meeting on Friday. It said operations were performing well, with trading coming in line with its revised expectations.
In late September, Galliford Try shared an improved outlook, noting a "high quality" GBP3.7 billion order book compared to GBP3.4 billion a year earlier. It had said it expects pretax profit for its financial 2024 to be at the upper end of the range of analyst estimates at the time.
Gold was quoted at USD1,948.49 an ounce at midday on Friday, lower than USD1,961.11 on Thursday.
By Greg Rosenvinge, Alliance News senior reporter
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