On Thursday, amidst the disheartening revelation that the UK economy slipped into a recession in the latter half of 2023, London's financial markets, including the FTSE, and the pound demonstrated unexpected resilience by making notable gains.
UK GDP Decline Spurs Speculation on Stimulus Measures
The UK's Gross Domestic Product (GDP) experienced a decline of 0.3% in the last quarter of the year, as estimated by the Office for National Statistics (ONS).
This contraction follows a 0.1% decline in the preceding three months, officially meeting the criteria for a technical recession—characterized by two consecutive quarters of economic contraction. Interestingly, this gloomy announcement paradoxically heightened optimism among traders and analysts.
Many speculate that the confirmation of negative economic growth might prompt interest rate cuts as a measure to stimulate increased economic activity.
FTSE 100 Resilience Sparks Interest Rate Cut Speculations
Despite news of economic contraction, the FTSE 100 showed resilience, climbing 0.38% or 29.13 points to close at 7,597.53. The pound experienced a mixed performance, rising 0.1% against the US dollar but dipping 0.16% against the euro at the London market's close.
Laith Khalaf, Head of Investment Analysis at AJ Bell, noted that the positive reaction from the FTSE 100 suggests that UK investors remain relatively unfazed by the spectre of recession.
“Actually, the market is probably more focused right now on when the first interest rate cut will come, and a recession makes that more likely to be sooner rather than later.”
European markets mirrored the upward trend, reacting positively to the news of Japan entering a recession, seen as a potential signal for global interest rate reductions. The German Dax index closed 0.6% higher, and the Cac 40 saw an increase of 0.86%. Across the Atlantic, the situation was more nuanced, with the Dow Jones and S&P 500 experiencing gains, while weakness in technology stocks weighed on the NASDAQ.
Market Update: Retail and Travel Surge, Finance Faces Challenges
In company updates, Centrica, the parent company of British Gas, witnessed a surge in shares as it reported a remarkable profit increase in its retail arm.
The division, primarily composed of British Gas, experienced a profit surge from £94 million in 2022 to £799 million last year.
However, the group's overall adjusted profit before tax declined to £2.8 billion, compared to £3.2 billion the previous year. Centrica's shares closed 1.8p higher at 136.2p.
Jet2 took flight in the market as it revealed a spike in demand for package holidays, driven by Britons seeking an escape from the rainy island. The holiday firm anticipates a higher-than-expected profit for the year, propelling its shares 34p higher to 1,360p at the close.
On the flip side, Close Brothers saw a decline of 89.6p to 308.4p by the end of trading. The merchant bank's decision to suspend its dividend, prompted by a potential impact from a regulatory probe into motor finance, contributed to the downward trend.
Market Moves: Oil Surge and FTSE 100 Trends
Oil prices surged once again due to ongoing concerns about the impact of Middle East volatility on energy supply. As the London markets closed, a barrel of Brent Crude Oil rose by 1.83% to 83.09 US dollars.
Notable gainers on the FTSE 100 included Croda, up 159p to 5,024p, Kingfisher, up 6.6p to 225.1p, Fresnillo, up 12.4p to 478.9p, NatWest Group, up 5.3p to 214.3p, and Rolls-Royce, up 7.8p to 320p.
Conversely, the biggest fallers on the FTSE 100 were Imperial Brands, down 61.5p to 1,830.5p, Pershing Square, down 66p to 3,828p, BP, down 7.75p to 468.75p, Marks & Spencer, down 3.2p to 231.7p, and Shell, down 33.5p to 2,464p.