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LONDON (Alliance News) - Stocks in the UK were lower midday Thursday, as the effect of US Federal Reserve Chair Janet Yellen's dovish comments on Tuesday faded, while the pound received a boost when UK GDP was revised higher for the fourth quarter of 2015.

Data from the Office for National Statistics showed that UK gross domestic product climbed 0.6% in the fourth quarter from the third quarter, revised up from the 0.5% estimated on February 25. Likewise, annual growth was revised to 2.1% from 1.9% in the fourth quarter. This meant that GDP in 2015 grew by 2.3% instead of 2.2% estimated previously.

Kallum Pickering, senior UK economist at German bank Berenberg, said that, despite the upward revision, the data points to an increasingly unbalanced economy.

"With global headwinds blowing hard, the UK continues to rely on domestic demand and borrowing to drive growth. But just how sustainable is it?" Pickering questioned.

Alongside the GDP data, the ONS said the UK current account deficit widened to GBP32.7 billion in the fourth quarter from revised GBP20.1 billion in the third quarter. The bigger current account deficit was due to a widening in the deficits on primary income, total trade and secondary income.

Total business investment declined by 2.0% in the fourth quarter from the third quarter, in-line with forecasts, while the Bank of England said growth in net consumer credit was GBP1.3 billion in February, also in-line with economists' expectations.

"These growth patterns suggest that the UK recovery is being increasingly built on sand. Low savings make it hard for households and businesses to ride out volatility. Deficits to drive growth today come at the expense of growth tomorrow," Pickering said.

"Given the Bank of England’s ultra accommodative monetary stance the UK will probably be able to continue this trend for the some time. But it will eventually come at a cost," he added.

While the Berenberg economist is sceptical about the UK economy, traders appeared more optimistic, sending the pound higher. At midday in London, the pound was quoted USD1.4413 against the dollar from USD1.4345 just prior the GDP data and USD1.4403 late Wednesday.

The FTSE 100 was largely unmoved though and was down 0.5%, or 28.44 points, at 6,174.73. The mid-cap FTSE 250 index was down 0.3% at 16,925.13 and the AIM All-Share was flat at 709.68.

In Europe, the French CAC 40 was down 1.4% and the German DAX 30 was down 0.8%.

The euro gained ground against the other major currencies after other economic data showed inflation in the euro area improved modestly in March, albeit remaining negative due to sharp falls in the energy prices.

Flash data from Eurostat showed that consumer prices fell 0.1% in March from a year ago following a 0.2% drop in February. The annual decline matched economists' expectations. Headline inflation has been below the European Central Bank's target of 'below, but close to 2%' since early 2013.

The core harmonised index of consumer prices, which excludes fresh food and energy prices, accelerated by more than expected to 1.0% from 0.8% a month ago. Prices were expected to gain 0.9% in March.

At midday the euro traded the dollar at USD1.1382, higher than the USD1.1335 seen at the London stock market close on Wednesday.

Ahead of the open on Wall Street, futures pointed the Dow 30, S&P 500 and Nasdaq 100 all down 0.2%.

London equities were weighed down Thursday by a number of stocks going ex-dividend, meaning new buyers no longer qualify for dividend payouts. In the FTSE 100, Anglo-South African financial services company Old Mutual was down 2.4%, multi-commodity miner BHP Billiton was down 1.6% and building materials group Wolseley was down 1.4%, all amongst the worst performers.

In the FTSE 250, ex-dividend stocks included support services and construction company Interserve, down 3.9%, comparison website Moneysupermarket.com, down 3.3%, and insurance company Jardine Lloyd Thompson, down 1.6%.

TUI Group was the best blue-chip performer, up 5.0%, after the travel operator said it will deliver growth in underlying earnings before interest, tax and amortisation in its financial year to the end of March, as it makes progress with its summer 2016 programme.

TUI said winter 2015/16 is closing as expected, with 95% of the source market programme sold and increased revenue of 3% driven by higher average selling prices across most major source markets.

Summer 2016 trading also is doing well, with both revenue and bookings ahead of last year, TUI said. 47% of the programme is sold so far, with revenue up 3% and bookings up 2%. It said bookings for Turkey were subdued but this was being compensated for by bookings elsewhere.

Randgold Resources was up 1.1% after Chief Executive Mark Bristow said the gold miner is well placed to continue generating robust cash flows even at a lower gold price.

Writing in the miner's annual report, Bristow said the mining industry needs to make new discoveries. A significant rise in the gold price and an injection of new capital into the industry would allow debt to be cleared, but will not provide much scope to add any value or reverse production declines.

The precious metal was trading at USD1,234.06 an ounce Thursday.

AO World was top of the FTSE 250 gainers list, up 5.0%. The online domestic appliances retailer said its UK business performed ahead of expectations in the fourth quarter of its financial year, while the European segment also performed well.

AO World said UK revenue and earnings before interest, tax, depreciation and amortisation in the fourth quarter ended March 31 grew ahead of expectations, and that it now expects full-year UK revenue to be up by 19% and UK adjusted Ebitda to reach GBP17 million. Expectations for the UK business in the next financial year remain unchanged.

Quantum dot and other nanomaterials manufacturer Nanoco Group said it has agreed a modification of its licence agreement with US chemicals company Dow Chemical Co covering Nanoco's cadmium-free quantum dot technology.

Under the new agreement, Dow will have non-exclusive rights for the sale, marketing and manufacture of Nanoco's quantum dot technology for use in display applications.

Nanoco, meanwhile, will be free to pursue a range of other routes to market for its technology, giving it greater control of commercialising its intellectual property, it said.

As a result of the change to a non-exclusive agreement, Nanoco will get a lower royalty rate from Dow on Dow sales of cadmium-free dot products and will not get any earn-out income from Dow. This sent shares in the company down 11%, making it the worst performer in the FTSE All-Share.

Still ahead in the economic calendar, the European Central Bank's monetary policy accounts are released at 1230 BST. In the US, initial and continuing jobless claims are at 1330 BST, while the US Chicago Purchasing Manager's Index is at 1445 BST.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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