London open: FTSE nudges lower as GDP data raises risk of recession

London stocks nudged lower in early trade on Wednesday as the latest GDP data raised fears of a recession, with housebuilders under the cosh after Barratt Developments warned of a "less certain" outlook.

At 0835 BST, the FTSE 100 was down 0.1% at 6,879.28.

Meanwhile, sterling was 0.1% lower against the dollar at 1.0963, giving up earlier gains, while gilt yields rose again as investors mulled mixed messages about the Bank of England’s bond market support.

BoE governor Andrew Bailey insisted on Tuesday that the Bank would not extend emergency support for the bond market and that pension funds had until Friday to shore up their portfolios against further shocks.

However, a Financial Times report suggested the Bank has indicated privately to bankers that it could extend the bond-buying programme past Friday’s deadline.

Oanda market analyst Craig Erlam said: "While Governor Bailey's warnings to pension funds this week gave the impression there's no turning back, it would appear that isn't entirely true,” he said.

"And that shouldn't be as surprising as it seemingly is. While the hope within the central bank will be that its emergency measures have allowed pension funds to recalibrate and address the vulnerability in the bond market, if that doesn't prove to be the case it would be ridiculous to pull the rug from under it rather than extend the measures until the end of the month when we get the full budget.

"Still, at a time when investors are living in fear of what's around the corner, perhaps the mindset of ‘prepare for the worst and hope for the best’ is behind it. It does go to show how huge the Chancellor's budget is in three weeks and the carnage that another misstep could cause. The BoE can buy the government time for now but it isn't a permanent solution."

Investors were also digesting the latest data from the Office for National Statistics, which showed the economy unexpectedly contracted in August for the first time in two months, raising the risk of a recession.

GDP fell 0.3% following 0.1% growth in July, and versus expectations of flat reading. July’s growth was revised down from an initial estimate of 0.2%.

The data showed that the UK economy is now 0.5% above its pre-coronavirus level in the fourth quarter of 2019.

Manufacturing production fell 1.6%, while output in the services sector dipped 0.1% and is now 0.2% below pre-Covid levels.

ONS chief economist Grant Fitzner said: "The economy shrank in August with both production and services falling back, and with a small downward revision to July's growth the economy contracted in the last three months as a whole."

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: "The nation appears to have officially leapt from stagnation to contraction once again, in the latest instalment of the monthly GDP rollercoaster, with economic activity ebbing and flowing erratically for the last nine months.

"This latest data set unfortunately gels with the IMF’s recent warning that 2023 will feel like a recession for many people, and that the worst of the global growth slowdown is yet to come. Investors are waiting for signs that the recession has arrived, and while on traditional metrics, the UK isn’t there yet, today’s announcement takes us one heavy step closer to that reality."

In equity markets, housebuilder Barratt Developments was the worst performer on the FTSE 100 after saying it expected annual results to be in line with expectations, but warning that private reservations had slipped as customers reacted to rising interest rates and reduced mortgage availability.

"The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market," Barratt said. Peers Taylor Wimpey, Persimmon and Berkeley also fell.

Synthomer tumbled after the chemicals company said it had suspended dividend payments until the end of 2023, including the payment that is due this November.

Tullow Oil gushed lower after a downgrade to ‘hold’ at Jefferies.

Elsewhere, energy firms were in focus and holding up well after the government announced late on Tuesday that it will in fact be going ahead with a windfall tax for low carbon generators.

Market Movers

FTSE 100 (UKX) 6,879.28 -0.09%
FTSE 250 (MCX) 16,776.18 -0.76%
techMARK (TASX) 4,108.02 0.07%

FTSE 100 - Risers

Pershing Square Holdings Ltd NPV (PSH) 2,675.00p 1.52%
Burberry Group (BRBY) 1,891.50p 1.39%
Centrica (CNA) 70.32p 1.38%
AstraZeneca (AZN) 9,957.00p 1.34%
GSK (GSK) 1,371.20p 1.03%
Relx plc (REL) 2,250.00p 0.99%
Croda International (CRDA) 6,578.00p 0.95%
Pearson (PSON) 914.60p 0.75%
Diageo (DGE) 3,687.50p 0.71%
F&C Investment Trust (FCIT) 878.00p 0.69%

FTSE 100 - Fallers

Barratt Developments (BDEV) 325.30p -5.16%
Persimmon (PSN) 1,171.50p -3.46%
B&M European Value Retail S.A. (DI) (BME) 303.90p -2.94%
Taylor Wimpey (TW.) 86.76p -2.87%
Barclays (BARC) 136.32p -2.74%
Smiths Group (SMIN) 1,503.50p -2.62%
Lloyds Banking Group (LLOY) 40.41p -2.61%
Ocado Group (OCDO) 404.20p -2.48%
Legal & General Group (LGEN) 207.30p -2.36%
JD Sports Fashion (JD.) 97.24p -2.23%

FTSE 250 - Risers

Vietnam Enterprise Investments (DI) (VEIL) 584.00p 3.73%
Allianz Technology Trust (ATT) 221.00p 2.79%
Carnival (CCL) 521.80p 2.56%
Aston Martin Lagonda Global Holdings (AML) 96.00p 1.76%
Schroder Asia Pacific Fund (SDP) 488.50p 1.66%
Law Debenture Corp. (LWDB) 678.00p 1.50%
Impax Environmental Markets (IEM) 398.50p 1.27%
Murray International Trust (MYI) 1,182.00p 1.20%
Ferrexpo (FXPO) 123.20p 1.07%
VinaCapital Vietnam Opportunity Fund Ltd. (VOF) 445.00p 0.91%

FTSE 250 - Fallers

Synthomer (SYNT) 86.85p -9.91%
Mitchells & Butlers (MAB) 102.80p -6.03%
Tullow Oil (TLW) 39.24p -4.53%
Future (FUTR) 1,207.00p -3.36%
Liontrust Asset Management (LIO) 731.00p -3.18%
Sequoia Economic Infrastructure Income Fund Limited (SEQI) 78.80p -3.08%
Capital & Counties Properties (CAPC) 95.90p -2.84%
Jupiter Fund Management (JUP) 85.75p -2.56%
Close Brothers Group (CBG) 917.00p -2.50%
OSB Group (OSB) 397.20p -2.46%