London pre-open: Stocks seen weaker as investors mull GDP

London stocks were set to fall again on Wednesday following the selloff in the previous session, as investors mull the latest UK GDP reading.

The FTSE 100 was called to open 40 points lower at 6,908, having slumped 2.5% on Tuesday amid fears over rising inflation.

CMC Markets analyst Michael Hewson said: "European stock markets took quite a shellacking yesterday, with the Stoxx600 posting its biggest one day fall this year as broad-based weakness saw investors take profits in the wake of last week’s record highs.

"Asia markets have continued that theme this morning with more big declines and this weakness looks set to translate into the prospect of another negative start here in Europe later this morning. The FTSE100 was the biggest faller yesterday and could well open below last week’s lows if the current weakness is sustained.

"A number of reasons have been given for yesterday’s broad-based weakness, the main being concern that the recent sustained rise in commodities prices, could prompt a sharper permanent state of rising inflation, in the weeks and months ahead."

Figures released earlier by the Office for National Statistics showed the economy contracted 1.5% in the first quarter, which was a touch less than consensus expectations of 1.6%. Compared with where it was before the pandemic hit, the level of GDP is now 8.7% lower.

ONS director of Economic statistics Darren Morgan said: "The strong recovery seen in March, led by retail and the return of schools, was not enough to prevent the UK economy contracting over the first quarter as a whole, with the lockdown affecting much of the services sector.

"However, construction grew strongly over the quarter, and in March, was above its pre-pandemic level. Manufacturing also recovered from an initial fall, increasing strongly in February and March, as businesses continued to adapt and make themselves Covid-19 secure.

"Exports of goods to the EU continued to increase in March and are now almost back to their December level. However, imports from Europe remain sluggish in the first three months of the year, being outstripped by non-EU imports for the first time on record."

In corporate news, Diageo has restarted its £4.5bn plan to return capital to shareholders. The drinks maker said it had continued to recover well across all regions in the second half and it expected organic operating growth of at least 14% in the current financial year.

Diageo bought back £1.25bn of shares in the first phase of its capital return plan but suspended the programme in April 2020. It will return £1bn to shareholders by the end of the next financial year and aims to complete the plan by June 2024.

Compass said it was repaying government furlough cash despite reporting plunging half-year profits and revenues due to the coronavirus pandemic.

The catering giant said revenue fell by 32.4% to £8.4bn and operating profit decreased by 78.3% to £168m due to the adverse impact of Covid and related actions to resize the business and adjust costs.

It did not specify how much it received in under the job retention scheme, but did report £119m in furlough payments and tax deferrals.