FTSE 100 at highest close in a year as UK recession enters ‘rearview mirror’ – as it happened

The pound has weakened to its lowest level against the US dollar so far this year.

Sterling has lost over half a cent this morning, sending it down to $1.249 against the dollar this morning. That’s the lowest since late November last year.

It appears to be mainly due to dollar strength, with the US currency benefitting from forecasts that the Federal Reserve will cut interest rates more slowly than expected.

The euro is also down against the dollar, after the European Central Bank signalled yesterday it could start cutting interest rates in June.

Neil Wilson, chief market analyst at Markets.com, says:

The UK economy grew tepidly in February, with GDP expanding by 0.1%. Sterling remains under the cosh.

The euro sank to its weakest since mid-November on anticipation of policy divergence.

Tina McKenzie, policy chair of the Federation of Small Businesses (FSB), points out that smaller UK businesses, especially in the retail and hospitality sector, are still struggling, even though the economy has been growing this year:

“Positive economic growth in February is certainly welcome, building on January’s momentum and giving a measure of optimism to small firms, who have been battling against strong headwinds for some time now.

There are signs of cautious recovery among the small business community – but it is important to emphasise that this is not evenly distributed between sectors. It will take more than flashes of growth to raise spirits in the hospitality and retail sectors, for example, whose confidence scores were way below the headline figure for all businesses at the end of last year, according to our Small Business Index.

Today’s ONS data shows that these sectors continue to struggle.

The outlook for the UK economy is “undoubtedly improving”, argues ING’s developed markets economist James Smith:

“The UK’s monthly GDP numbers have been on a wild ride over the past few months.

But fresh data shows that the economy grew by 0.1% in February as widely expected. And that followed a decent rebound in activity in January after December was dragged down by a strangely weak Christmas trading period for retailers. Assuming we get another slight pick up in activity during March, we think the UK economy is poised to grow by 0.3% for the first quarter as a whole.

That would mark the end of a very modest technical recession, albeit one where the aggregate figures masked steeper falls in per capita output.

Share prices in London are rallying (see previous post) on relief that the UK economy continued to grow in February, reports Russ Mould, investment director at AJ Bell.

With the FTSE 100 index rising through the 8,000 point mark this morning, he says:

“The second monthly GDP increase in a row for the UK has triggered a ticker tape parade from investors as they become more hopeful the country will come out of recession.

“Both the FTSE 100 and the more domestic-focused FTSE 250 index jumped 0.8% at the market open, indicating investors are happy that the economy is moving forward, albeit at a snail’s pace. Some growth is better than no growth at all.

“Housebuilders and supermarkets were in demand as investors took the view that a stronger economy will give a boost to consumer confidence and provide a better backdrop for spending.

“Miners also helped to give the FTSE 100 a lift as copper prices continued to climb thanks to the twin engines of supply fears and brighter demand prospects.

Britain’s FTSE 100 share index has climbed back to 8,000 points, less than 50 points from its alltime high.

The blue-chip index has now gained 78 points, or almost 1%, today, to trade at 8,004 points. That puts it nearer its alltime peack of 8,047 points.

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Markets are recovering after a choppy week, as investors weigh up Wednesday’s high-than-expected US inflation reading which has undermined hopes of early interest rate cuts in America.

Precious metals producer Fresnillo is the top riser, up 5%, after the gold price hit a new record high today.

UK housbuilders Taylor Wimpey (+4.4%) and Persimmon (+3.5%) are close behind.

And BP is still in the top risers (+2.5%), following last night’s reports that the UAE’s state oil company has explored a multibillion pound takeover.

Labour’s shadow chancellor, Rachel Reeves, has responded to today’s GDP data, saying:

“After 14 years of Conservative economic failure, Britain is worse off with low growth and high taxes. The Conservatives cannot fix the economy because they are the reason it is broken.

Hailey Low, associate economist at NIESR, agrees that the UK economy seems to be at a turning point…. but also points out that it has effectively flatlined since 2022:

Monthly GDP grew by 0.1% in February 2024, with contributions from all major sectors except construction following a revised 0.3% growth in January. In the three months to February, GDP growth was 0.2%, higher than what we forecasted last month.

On the back of exiting a shallow recession in 2023, this seems to be a turning point, but in a broader perspective, the UK economy has flatlined since 2022.

Increasing productivity will be a constant challenge that requires structural changes and long-term spending commitments to public investment and infrastructure.”

Shares have opened higher in London, as City traders digest the news that Britain is escaping recession.

The FTSE 100 index of blue-chip shares has gained almost 0.9% or 68 points, to trade at 7992 points.

Nearly every share on the Footsie is up, helping to move it closer to its alltime high of 8,047 points, hit in February 2023.

BP is among the top risers, up 2.6%, after Reuters reported last night that the United Arab Emirates’ state-owned oil company had considered launching a takeover bid for the UK oil giant!

Those deliberations “did not progress beyond preliminary discussions”, though.

Although the economy expanded a little in February, it was actually smaller than a year ago!

The ONS estimates that GDP fell 0.2% in February compared with the same month last year.

Over the longer term, GDP is estimated to have fallen by 0.1% in the three months to February 2024 compared with the three months to February 2023.

These chart shows the broader picture – UK growth has been lacklustre for months.

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The Institute of Directors don’t share Jeremy Hunt’s cheery take on today’s GDP report.

Dr. Roger Barker, Director of Policy at the Institute of Directors, points out that the economy barely grew in February, by expanding just 0.1%.

This suggests that the economy is still in a fragile state, Barker warns, adding:

After a strong start to the year, the consumer-facing parts of the economy – particularly accommodation and food services – took a backward step. Construction was also surprisingly weak, although there were encouraging signs of revival in production and manufacturing output.

“It appears that the UK’s ascent out of the mild technical recession of last year is a relatively shallow one. Although the latest figures suggest that the UK is likely to generate positive economic growth in the first quarter, there are few signs of a strong economic rebound.

The assertion that the UK economy has decisively turned the corner, as recently asserted by the Prime Minister, is still yet to find confirmation in the data.