FTSE 100 falls on fears of long recession

UK’s export-oriented FTSE 100 index edged lower on Friday on data that showed a contraction in Britain’s economy and limited gains in commodity-linked stocks after China’s decision to ease some of its COVID-19 curbs.

Even though Britain’s economy shrank by a less-than-feared 0.2% in the third quarter, the data indicated the start of what is likely to be a lengthy recession.

“With pressures from the cost-of-living crisis, the war in Ukraine and rising interest rates, the UK economy appears to be on track to fall into what could be the longest period of economic contraction in at least a century,” said Victoria Scholar, head of investment at Interactive investor.

The blue-chip FTSE 100 was down 0.3% by 0956 GMT, reversing early gains and lagging behind the pan-European STOXX 600 index, which added 0.3%.

Still, miners and energy shares climbed 2.1% and 0.6%, respectively, as raw material prices jumped on hopes of demand recovery after the world’s largest consumer eased some COVID-19 measures. [O/R] [MET/L]

UK’s indices are set for four straight weeks of gains, with investors now bracing for an October inflation reading, followed by a mini budget next week.

The FTSE 100 is down 0.4% so far this year, faring much better than a more than 11% fall in the STOXX 600 and the S&P 500 index’s almost 17% tumble during the same period.

“I would credit it to the value of the sterling that has declined throughout the year compared to the dollar, which is a positive factor for companies listed on the FTSE (100) that earn in dollars,” said Stefan Koopman, senior market economist, Rabobank.

The mid-cap FTSE 250 jumped 1.6%, with analysts pointing to the sterling edging up offering some support. [GBP/]

“The FTSE 250 is most domestically oriented, so businesses there are earning money in sterling ahead and paying dividends in sterling,” said Koopman.