UK shares fell on Friday as the growing prospect of aggressive monetary policy tightening coupled with a sharp drop in retail sales in the country prompted concerns about economic growth.
The blue-chip FTSE 100 index closed 1.4% lower and the domestically focused mid-cap FTSE 250 index declined 1.3%.
Retailers tumbled 2.5% as data showed British retail sales volumes fell more than expected in March from February, while consumer confidence approached all-time lows in April, hit by surging inflation.
“It’s increasingly difficult to see consumer spending avoiding a downturn this summer, even if only modest by some historic standards,” James Smith, developed markets economist at ING, wrote in a note.
Banks, life insurers and miners fell between 2.2% and 3.0%, and weighed on the blue-chip index. The FTSE 100 recorded a weekly dip of more than 1%.
“Whether the UK heads into a recession is still an open question… Despite repeated upside inflation surprises, we think the Bank of England (BoE) is likely to tread more carefully on rate rises than markets expect,” Smith added.
BoE Governor Andrew Bailey said on Thursday the central bank was walking a tight line between tackling inflation and avoiding recession with the strength of the labour market a key question.
Overnight sentiment was weighed down by U.S. Federal Reserve chair Jerome Powell saying a half-point interest rate increase will be “on the table” at the next Fed meeting.
Among local stocks, B&M dropped 6.1% after the discount retailer said its chief executive, Simon Arora, plans to retire next year after more than 17 years leading the business.
Berkeley Group rose 0.4% after Jefferies upgraded the homebuilder’s stock to “buy” from “hold”.
HomeServe Plc jumped 14.9% after it said it was in talks with Canada’s Brookfield Asset Management for a possible offer for the home repair services firm.
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