FTSE 100 gains as UK GDP beats expectations, Severn Trent jumps

The FTSE 100 rose on Thursday after UK GDP beat expectations and the FCA announced new listings rules which combined to help improve sentiment around UK stocks.

UK GDP grew faster than expected in May as the construction industry surprised the naysayers with a boost in activity. The UK’s obsession with the weather has much broader implications than the subject of small talk and was a key factor in May’s strong GDP reading.

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“May’s warmer weather meant the sun shone on the construction industry in May. The sector grew by 1.9% in volume terms in May 2024, following a 1.1% fall in April with increases in new work and repairs and maintenance keeping builders busy,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

London’s leading index was 0.25% higher at the time of writing, although the housebuilders didn’t join a rally largely driven by utilities.

“As England football fans nurse some headaches, UK markets have opened higher after GDP figures came in better than expected and Wall Street continued on its record run,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“GDP grew by 0.4% in May, compared to a consensus of 0.2%. The consumer-led recovery is taking shape, buoyed by the return of real income growth and improved housing activity. The double-edged sword for markets is that if GDP runs too hot, it’ll likely make the Bank of England’s rate-cutting decision a little tougher.”

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Questions about the possibility of a Bank of England rate cut were reflected in a stronger pound, which kept a lid on gains in overseas earners.

FTSE 100 gainers

The London Stock Exchange Group rose after the FCA announced a revision to its listing rules to help promote London as a listing destination.

“These changes should be welcomed, as they will with other recent changes (e.g. British ISA) increase the attractiveness of the UK equity market,” said James Lowen, Senior Fund Manager of the JOHCM UK Equity Income Fund.

“However, the changes to date have been incremental, and more will need to be done e.g. mandated domestic allocations for pensions funds, removal of stamp duty, to fully restore the UK market competitiveness on the World stage and remove the material valuation discount the UK trades on, that itself, puts off new companies listing on the market.”

Severn Trent was the top riser after releasing a positive trading update in which the group said performance was in line with expectations and outlined plans for investment in infrastructure.

Severn Trent has reported another strong start to the year and remains on track to meet guidance forecasts. However, there are some potential problems for the company bubbling beneath the surface,” said Mark Crouch, analyst at investment platform eToro.

“A distinct lack of investment in the country’s water infrastructure has almost become a throwaway line in recent years, with water companies accused of prioritising profits over safety and quality while running something of a monopoly, given the lack of competition.”

Severn Trent shares were 4% higher at the time of writing.

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