The FTSE 100 suffered significant losses in early trading on Friday due to heavy declines in US stocks, particularly in the banking sector.
At 8:20 am, London’s primary index was down 119.53 points or 1.5%, at 7,760.45, while the FTSE 250 fell to 19,349.70, down 343.20 or 1.74%.
Investors wiped off US$52.4bn from the four largest US banks by assets on Thursday as investors sold off financial stocks, fueled by concerns about the value of lenders’ bond portfolios, triggered by problems at Silicon Valley Bank.
In London, banking and insurance stocks also took a hit. Lloyds Banking Group PLC (LSE:LLOY), HSBC Holdings PLC (LSE:HSBA), Barclays PLC (LSE:BARC), and NatWest Group PLC (LSE:NWG) fell by 4.7%, 4.3%, 5.4%, and 4.3%, respectively, while Legal & General and Prudential dropped by 4.3% and 3.3%.
The Office for National Statistics reported better news, showing that the UK economy grew by 0.3% in January, higher than the expected 0.1%. However, economists predict that the economy remains sluggish and a shallow recession is still a possibility. Shares of FirstGroup PLC (LSE:FGP) remained largely unchanged despite raising profit guidance for the year.
Meanwhile, housebuilder Berkeley Group PLC reported trading in line with its December figures, reaffirming its targets of £600mln in pretax profit and at least US$1.05bn in the aggregate to follow over the next two years.
Samuel Tombs, the chief economist for the UK at Pantheon Macroeconomics, remarked that the increase in GDP during January was not surprising, given that he had predicted a 0.4% month-to-month increase due to the depressed activity in December caused by several one-off factors.
However, he still believes that a shallow recession is the most probable outcome, and the economy remains sluggish, even though labour availability is improving, and the rate of price increases is slowing. He also stated that the recent jump in market expectations appears disconnected from both economic data and Governor Bailey’s recent comments.
According to ING Economics, the increase was faster than expected, but the underlying volatility in the data means that GDP is effectively flatlining. They also suggested that lower gas prices could mean that any potential recession would be very modest and could technically be avoided altogether.
Overall, today’s figures increase the likelihood that UK growth could be flat or only slightly negative in the first quarter.
In other news, FirstGroup PLC (LSE:FGP) raised its profit guidance for the current financial year, citing the £2 fare cap introduced by the government and an improvement in the supply of bus drivers as reasons for increased bus volumes.
However, the company’s shares remained unchanged in early trading. Meanwhile, housebuilder Berkeley Group PLC reaffirmed its targets of £600 million in pretax profit and at least US$1.05 billion in aggregate over the next two years, stating that trading was in line with the levels outlined back in December. They expect cash due on exchanged forward sales to be above £2.0bn at year-end, down slightly from £2.17bn a year before, and shares dropped by 0.4%.
