The FTSE 100 shook off the news no one wanted to hear on Thursday; the UK has entered recession after retail sales crumbled in the key festive trading period.
The long-feared UK recession was confirmed on Thursday as GDP declined 0.3% in the fourth quarter after a 0.1% in the prior quarter. Two consecutive quarters of contraction are considered a technical recession.
However, UK stocks barely blinked with the FTSE 100 gaining 0.1% in Thursday afternoon trade, even as heavyweight dividend payers dragged on the index as they traded ex-dividend.
“Confirmation that the UK is in recession has done nothing to knock UK stocks off course. An economy pushing through mud is not new news and if anything, it might encourage the Bank of England to think harder about cutting interest rates to avoid further economic deterioration. That’s certainly how the market views the situation as UK equities ploughed ahead,” said Russ Mould, investment director at AJ Bell.
“There were only six fallers on the FTSE 100 and three of those were down to trading without the rights to their next dividend, being BP, Shell and Imperial Brands.”
GDP is a lagging indicator and is only a measure of what happened in the past having little impact on the future company earnings – the metric equity investors are most concerned with.
There will be concerns about the composition of the GDP contraction as far as it was centred around retail spending – which is a leading indicator for the economy.
“Today’s GDP data is a reminder of the headwinds the UK economy faces, with retail sales a particular area of weakness across a broad-based decline in economic activity,” said Adam Vettese, Market Analyst at eToro.
In addition to the big dividend payers losing ground today, retailers Marks & Spencer and Tesco were among the losers after news of poor retail spending.
Notably, Kingfisher was the top riser after being upgraded to ‘buy’ by Citigroup analysts.
