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LONDON MARKET CLOSE: Sterling slides after weak UK GDP print

12th May 2023 16:53

(Alliance News) - Stocks in London ended the week broadly higher on Friday, with strong performances from blue-chips Beazley and GSK helping to offset weak economic growth data for the UK economy.

The FTSE 100 index closed up 24.04 points, or 0.3% at 7,754.62 on Friday and closed the week 0.7% higher.

The FTSE 250 ended down 77.93 points, or 0.4%, at 19,188.37 - finishing the week down 0.3%.

The AIM All-Share closed up 1.73 points, or 0.2%, at 816.96, but ended the week 1.3% lower.

The Cboe UK 100 ended down 0.3% at 774.96, the Cboe UK 250 closed down 0.3% at 16,795.53, and the Cboe Small Companies ended up 0.2% at 13,554.30.

The Office for National Statistics said UK gross domestic product grew 0.1% in the first three months of 2023, compared to the final quarter of last year.

Growth was in line with FXStreet-cited market consensus. GDP also had grown 0.1% in the fourth quarter of 2022 from the third.

Analysts at Brown Brothers Harriman commented that although a contraction was once again avoided, the UK growth outlook nonetheless remains "quite weak".

"Indeed," BBH continued, "the 0.3% month-on-month drop in March GDP suggests the economy is going into [the second quarter] with a loss of momentum. And much of the [Bank of England] tightening hasn't had full impact yet."

In March alone, UK GDP shrank by 0.3% on a monthly basis. It had been expected to remain flat, as it had in February. In January, the economy had expanded by 0.5%, upwardly revised from 0.4% growth.

Sterling slumped amid the disappointing figures. The pound was quoted at USD1.2465 at the London equities close on Friday, down from USD1.2514 at the close on Thursday.

Looking forward, Capital Economics Economist Jonas Goltermann said sterling will probably continue its decline against the dollar this year, as a downturn for the UK economy in the second half of the year remains "likely."

"If that forecast proves correct, general risk sentiment would probably deteriorate again, putting downward pressure on sterling and other riskier currencies and favouring the dollar and other safe haven currencies," Goltermann said.

In London, Beazley was amongst the top blue-chip performers at the close on Friday, finishing 3.0% higher.

The insurer reported gross written premiums were 12% higher at USD1.37 billion in the first quarter of 2023 from USD1.23 billion a year earlier. Net written premiums increased by 24% to USD1.07 billion from USD859 million.

Beazley Chief Executive Adrian Cox said the headline growth seen in the quarter was in line with expectations, underpinned by growth in property insurance and reinsurance, where the company is "taking advantage of the excellent and continuing market conditions."

Looking forward, AJ Bell Investment Director Russ Mould noted that improved investment returns, helped by higher yields on government bonds and no change in catastrophe claims expectations, means that the firm also continues to expect a "healthy" increase in profits this year.

Beazley said it remains confident in its growth guidance of mid-teens gross premium written and mid-20s net premium written for the full-year.

GSK climbed 1.8% as it welcomed a legal ruling in Canada that threw out a proposed class action made on behalf of users of a heartburn drug.

The pharmaceutical company noted that the British Columbia Supreme Court said there was little evidence that ranitidine, or zantac, leads to an increased risk of developing any type of cancer.

AJ Bell's Mould said that while the legal fight is not over, the latest news gives investors a new reason to "reaapraise" GSK after its shares have been "in the doldrums" since the market began to fret that the company could be forced to payout billions in compensation.

Diageo shares closed near the bottom of the FTSE 100, with the stock finishing 2.4% lower after Jefferies cut the brewer and distiller to 'hold' from 'buy'.

Jefferies also lowered the Guinness beer and Smirnoff vodka maker's price target to 3,800 pence from 4,000p. The stock closed at 3,534.50p.

In the FTSE 250, International Distributions Services said that Royal Mail Chief Executive Officer Simon Thompson has notified the company that he will step down from his role at the end of October.

The official announcement confirms a Sky News report from Tuesday, which stated that Thompson was due to resign after lawmakers criticised the former state-monopoly's performance, which has been hit by mass strikes.

The stock closed down 1.7%.

Elsewhere in London, THG plunged 16% after the e-commerce platform said takeover talks with Apollo Global Management Inc had been terminated.

Back in April, THG had said it received buyout interest from the US private equity firm. THG at the time noted that it was "a highly preliminary and non-binding indicative proposal" but did not disclose the terms of the proposal.

On Friday, THG said it was clear that "there is no longer any merit in continuing to engage with Apollo".

Victoria Scholar, head of investment at interactive investor, said that investors were "clearly" disappointed by Apollo's decision to walk away.

"[Investors] were hoping that a [private equity] acquisition would put an end to [THG's] disastrous chapter, which has seen THG's share price slide more than 90% since January 2021," she said.

Scholar explained that the company behind brands like LookFantastic and MyProtein has struggled recently with high raw material costs, particularly for whey protein, which has squeezed its margins.

"It was also caught up in the broader 'tech-wreck' last year as the e-commerce pandemic-era boom faded and the punchbowl of cheap money was removed as central banks rushed to extinguish spiralling inflation," Scholar added.

In European equities on Friday, the CAC 40 in Paris and the DAX 40 in Frankfurt both ended 0.5% higher.

The euro stood at USD1.0857 at the European equities close on Friday, lower against USD1.0917 at the same time on Thursday. Against the yen, the dollar was trading at JPY135.39, higher compared to JPY134.33 late Thursday.

Stocks in New York were lower at the London equities close, with the Dow Jones Industrial Average down 0.3%, the S&P 500 index down 0.3%, and the Nasdaq Composite down 0.4%.

The Congressional Budget Office warned that the US could default on its debts by June 15 if lawmakers fail to agree a deal to raise current limits on government spending.

The updated forecast brings forward the so-called "X-date" – when the US will run out of money to pay for existing financial obligations – from July to June, adding pressure on Democrat and Republican leaders to find common ground on raising the US spending cap to avert a damaging default.

Lawmakers remain sharply divided over the debt ceiling, with Republicans in Congress insisting that Biden agree to significant budget cuts in exchange for support to lift the limit before the country runs out of money to pay its existing bills.

Crunch talks between US President Joe Biden and senior Republicans, which had been scheduled for Friday, have been postponed until early next week to allow staff to continue working.

Brent oil was quoted at USD74.87 a barrel at the London equities close on Friday, down from USD75.61 late Thursday. Gold was quoted at USD2,010.46 an ounce, lower against USD2,019.26 at the close on Thursday.

In Monday's UK corporate calendar, there are half-year results from Diploma and Cerillion, as well as a trading statement from Currys.

In the economic calendar next week, there is EU GDP data on Tuesday, followed by an EU inflation print on Wednesday. Thursday has the US weekly unemployment claims report.

By Heather Rydings, Alliance News senior economics reporter

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