FTSE climbs higher despite UK economic recovery slowing to 1.3%

·3-min read
FTSE climbs higher despite UK economic recovery slowing to 1.3%
The biggest drivers were from hospitality, arts and recreation, and health following the further easing of restrictions and reopening of the economy. Photo: Tolga Akmen/AFP via Getty

London’s benchmark index advanced on Thursday despite UK GDP falling short of expectations for the third quarter.

The FTSE 100 (^FTSE) rose 0.4% in afternoon trade, helped by a weaker pound, while the CAC (^FCHI) lost 0.1% in Paris, and the German DAX (^GDAXI) was trading flat.

The UK economy grew 1.3% in the three months to the end of September, trailing behind forecasts of 1.5% and marking a slowdown from the second quarter, when GDP rose 5.5%.

Goods and labour shortages were the biggest drag on growth amid the struggle to keep up with the sharp rebound in demand. However, the biggest drivers were from hospitality, arts and recreation, and health following the further easing of restrictions and reopening of the economy.

Dean Turner at UBS Global Wealth Management said: “As we move towards the end of the year, the key focus of markets will be the timing of the Bank of England’s interest rate hike.

“Today’s GDP release, although slightly below the Bank’s recent forecasts, is unlikely to be a deciding factor on the timing of its next move. The two labour market reports that will be released before they next meet will be of more importance."

Read more: UK economy grows in September but recovery slows

Meanwhile, the pound hit its lowest level of 2021 against the dollar (GBPUSD=X) after the UK economy grew at a slower pace than expected in the last quarter.

Sterling fell to as low as $1.3364, trading below a key $1.34 support level. It marked its weakest point since December last year, when fears of a no-deal Brexit flooded the market.

Across the pond, the S&P 500 (^GSPC) rose 0.2% after opening and the tech-heavy Nasdaq (^IXIC) rose 0.7%. The Dow Jones (^DJI) edged 0.2% lower.

It came after data on Wednesday showed US consumer prices surged at the fastest pace since 1990 in October, boosting the case for faster policy tightening from the Federal Reserve.

Consumer prices soared 6.2% last month compared to last year, accelerating from September's 5.4% year-over-year rate. This was a bigger jump than the 5.9% rise anticipated, based on Bloomberg consensus data.

Watch: What is inflation and why is it important?

Nominal US Treasury yields shot higher, with that on the benchmark 10-year note leaping by the most since February, while real yields, which take inflation into account, dipped to record lows.

Gold (GC=F) also jumped to a five-month high and bitcoin (BTC-USD) hit a record as investors sought inflation hedges.

Elsewhere, oil (BZ=F) pulled back sharply from near seven-year highs after US president Joe Biden said his administration was looking for ways to reduce energy costs.

Asian stocks shrugged off inflation fears overnight as the Hang Seng (^HSI) rose more than 1% on the day in Hong Kong, and the Shanghai Composite (000001.SS) climbed 1.2%.

The Nikkei (^N225) also ended 0.6% higher in Japan, supported by the yen's weakness against a resurgent dollar.

Watch: US inflation hits highest level since 1990 at 6.2% as food and fuel prices surge

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