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FTSE rises despite UK's worst non-COVID slowdown since financial crisis

People by the Tower Bridge in London, UK. The FTSE was slightly up on Wednesday
The FTSE rose despite Britain heading for its steepest economic contraction since the height of the global financial crisis, according to the UK's purchasing manager's index. Photo: Henry Nicholls/Reuters

European stock markets managed to close in positive territory on Wednesday after climbing to a three-month high the session before.

In London, the FTSE 100 (^FTSE) outperformed against its continental peers throughout the day, rising 0.2% despite the UK suffering its worst non-COVID downturn since the financial crisis.

The CAC (^FCHI) rose almost 0.2% in Paris, after opening in the red, while the Frankfurt DAX (^GDAXI) was 0.1% higher.

It came as Britain is headed for its steepest economic contraction since the height of the global financial crisis, according to the UK's purchasing manager's index (PMI).

Read more: UK manufacturers suffer worst drop in new orders for two years

The latest survey, compiled by S&P Global, suggests that the economy is already in recession with the downturn expected to worsen into next year. The data said the UK economy is shrinking at a quarterly rate of 0.4%.

Meanwhile, Germany’s private sector activity continued to decline in November while business activity in France shrank for the first time since February 2021.

Across the pond on Wall Street, the S&P 500 (^GSPC) rose 0.6% by the time of the European close, and the tech-heavy Nasdaq (^IXIC) advanced 1.1%. The Dow Jones (^DJI) edged 0.4% up a day before the Thanksgiving holiday.

It also came as the downturn for American businesses deepened in November with a solid contraction in activity.

The headline flash US PMI composite output index from S&P Global fell to 46.3, down from 48.2 at the start of the fourth quarter. The rate of contraction was the sharpest since August and among the quickest since 2009.

Both the manufacturing and service sectors suffered lower output due to increasingly steep declines in demand.

The overall fall in activity was the second-fastest since May 2020 as inflation, rising borrowing costs and economic uncertainty weighed on demand.

Watch: What is a recession and how do we spot one?

On Tuesday, US stocks ended the session with gains as traders look ahead to a smaller interest rate rise from the Federal Reserve later on Wednesday.

At its last meeting, the central bank hiked interest rates as expected by 75 basis points. Traders are now placing their bets on a 50 basis-point increase at the next meeting in December.

The minutes will be revealed at 7pm UK time.

Michael Hewson of CMC Markets said: “Recent commentary from some Fed members has leant into the idea that rate hikes from hereon in are likely to be of a lesser magnitude, with this week’s publication of the Fed minutes likely to shed some light into how many FOMC members are becoming concerned about policy lags and the impacts of such lags on the US economy, although Bullard’s recent comments about a terminal rate of over 5% suggest there is some scope for divergence on this.

“With Fed chair Powell keen to impress on the market that he wants to limit the scale of advances in the equity market, it will be interesting to see how many other Fed officials share that view, and whether it is reflected in the minutes.”

Read more: UK public borrowing surges as energy bill support takes effect

Traders will also be looking at US weekly jobless claims a day early due to the Thanksgiving Day holiday on Thursday, which is expected to remain steady near 225,000.

The dollar also remained subdued against the pound (GBPUSD=X). Sterling was 1.5% higher at the time of writing, trading at $1.2063, its highest level since August.

Stocks in Asia saw positive gains on Wednesday despite rising COVID cases in mainland China spooking investors.

In Tokyo, the Nikkei (^N225) climbed 0.6% while the Hang Seng (^HSI) also rose 0.6% in Hong Kong, and the Shanghai Composite (000001.SS) ended 0.3% higher.

Australian shares also pushed higher on the day, with most gains coming from mining and resources companies as a result of higher oil prices.

Watch: How does inflation affect interest rates?