UK shares edged down on Friday as a drop in retail sales and gloomy economic outlook from the World Bank and the International Monetary Fund fanned concerns over growth slowdown as central banks prepare for more aggressive rate hikes.
The blue-chip FTSE 100 edged 0.1% lower, tracking weakness in Asian shares and Europe’s STOXX 600, as investors braced for a hefty US rate hike next week.
Still, losses on the export-heavy FTSE 100 were capped by a sharp drop in the sterling that hit its lowest level since 1985 after weaker-than-expected figures of retail sales added to worries about the health of Britain’s economy.
The domestically-focussed mid-cap FTSE 250 shed 0.6%. Retailers slid 1.3%.
“This is August data so it may not be weighing too much into the FTSE today because back in August there was political uncertainty because we didn’t have a prime minister replacement and people were considering they’re going to have to pay hefty energy bills,” said Giles Coghlan, chief market analyst, HYCM.
“Some of it has changed with price caps.” On moving into Downing Street last week, Prime Minister Truss announced a cap on energy prices that will help cushion the impact of soaring bills for households, but will cost 100 billion pounds ($115 billion).
The cap means that inflation will peak lower than it would have otherwise done, but the injection of money into consumers pockets is likely to keep it high for longer.
Mining stocks dropped 2.5%, leading losses on the commodity-heavy FTSE 100.
UK shares dip as rate hike jitters overshadow cheer over fall in inflation
The Bank of England also looks set to hike borrowing costs by another 50 basis points next week, a Reuters poll found earlier this week. Shares of Royal Mail Plc tumbled 11.6% as JP Morgan cut the logistics company’s rating to “neutral”.
Adding to woes, European logistics peers fell after US’s FedEx Corp withdrew its financial forecast on Thursday and flagged a global demand slowdown.
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