FTSE slips as return to UK growth puts pressure on rates

The Bank of England is under renewed pressure to hike interest rates as the UK economy returned to growth, meaning the FTSE 100 opened lower this morning.

The FTSE 100 opened in the red as the UK economy returned to growth in August, strengthening the case for an imminent rate hike, with a surge in housebuilders, led by Barratt Developments (BDEV), failing to offset the losses.

The main market shed 0.4%, or 30 points, to trade at 7,099 this morning as UK GDP ticked 0.4% higher in August, following a 0.1% fall the previous month.

Darren Morgan, director of statistics for the Office for National Statistics, said: ‘The economy picked up in August as bars, restaurants, and festivals benefited from the first full month without Covid-19 restrictions in England.’

Although economic growth is good news, albeit behind expectations of 0.5% growth, it will put further pressure on the Bank of England, which is already facing the challenge of high inflation, to hike interest rates. It is poised to become the first major central bank to raise rates since the start of the coronavirus pandemic, with expectations that it will announce a 0.25% increase by the end of the year.

Susannah Streeter, an analyst at Hargreaves Lansdown, said: ‘It certainly won’t be an easy ride for Bank policymakers when they meet next to decide when to raise interest rates. Moving too sharply could see the economy go into reverse, but the Bank won’t want to risk losing credibility if prices keep accelerating.’

Publishing and events business Informa (INF) was the biggest faller, losing 3.7%, or 21p, to 551p, while miners also suffered. Rio Tinto (RIO) was down 3%, or 154p, at £48.51, followed by BHP (BHP), down 1.4% at £19.22, and Anglo American (AAL), which lost 1% to trade at £27.60.

The blue-chip losses were capped by a surge in housebuilders on the back of strong results from Barratt Developments. It climbed to the top of the index, adding 4.5% to 670p, after it reported it was seeing continued strong demand and had avoided supply chain disruption to its building programme.

It dragged its peers higher, with Persimmon (PSN) up 3.9% at £27.13, Taylor Wimpey (TW) adding 3.2% to 154p, and Berkeley (BKG) gaining 2.2% to £42.99.

The FTSE 250 index bucked the trend in large caps, adding 0.5%, or 131 points, to hit 22,600.

The mid-caps were led higher by investment manager Man Group (EMG), up 6.6%, or 13p, at 216p after reporting assets under management hit a record high of $139.5bn (£120.8bn) in the third quarter following strong inflows and solid performance.

Baltic Classifieds (BCG), a platform for hosting online classified ads in Baltic countries, gained 4.8% to trade at 218p and cinema chain Cineworld (CINE) added 4.2% to 67p.

In investment trust news, Hipgnosis Song (SONG ) added 0.8% to 127.2p after yesterday’s 5% spike on news of a $1bn partnership with Blackstone with analysts divided on the impact for the alternative income fund. 

Fidelity Asian Values (FAS ) firmed 0.9% to 483.5p after reporting a  39.5% total investment return for Nitin Bajaj’s small-cap value portfolio in the year to 31 July.

JPMorgan UK Smaller Companies (JMI ) added 0.7% to 384p after annual results showed an impressive 68.1% leap in net asset value in the 12 months to the end of July. 

 

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