UK shares slipped on Tuesday, as official data showed that Britain’s economy unexpectedly shrank in the fourth quarter, stoking fears of a return to recession.
By 10:10am the FTSE 100 index of blue-chip shares was 0.63% lower to 5,906. The Mid-250 index fell 0.82% to 11,478.
The Office for National Statistics (ONS) said earlier that the UK economy contracted by 0.5% in the last quarter of 2010. Economists had forecast the figures on UK gross domestic product – the broadest measure of economic activity – to come in at 0.5%, according to Reuters.
In the wake of the data, sterling was down 1% against the dollar, at $1.58, and down 0.9% against the euro, at €1.16.
According to the statistics bureau, business services and finance, construction and distribution, hotels and restaurants were the largest contributors to the negative growth this quarter.
ONS said output fell 3.3% in the construction sector and 0.5% in the service industries; however, output rose 0.9% in production industries.
'It's clearly a shocking outurn and the ONS stated that the weather counts for most of the decline in output,' said Amit Kara, analyst at bank UBS.
'From a monetary policy perspective though, we feel that the committee will find it very difficult to embark on an early rate hiking cycle with data such as this, and as such we are comfortable with out Q3 rate hike view.'
The analyst was referring to the Bank of England's key rate-setting panel, which has kept interest rates at historic lows to prop up the UK economy. The Bank has come under pressure recently amid mounting concern over inflation. Mervyn King, the central bank's governor, will have a chance to answer his critics in a key speech on Tuesday night.
Financial and resources stocks were the biggest losers on the FTSE 100. Copper miner Kazakhmys fell 46p to £15.12 and banking group Lloyds slid 2p to 63p.
Source: http://www.citywire.co.uk
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