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FTSE shrugs off UK economic growth falling short of forecasts

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European markets slump as UK economic growth falls short of forecasts
In London, the FTSE 100 fell 0.4% after opening, dragged lower by miners and news of missed forecasts. Photo: Thomas Krych/SOPA Images/LightRocket via Getty

European stock markets started lower on Wednesday but managed to eke out gains by market close despite UK economic growth missing expectations.

In London, the FTSE 100 (^FTSE) closed 0.2% higher after spending most of the day in the red. It recovered from a deeper fall but was held back by pharmaceuticals, consumer goods and miners during the session. Meanwhile, France's CAC (^FCHI) was up 0.8% and the DAX (^GDAXI) likewise pushed 0.8% ahead in Germany.

It came as new figures from the Office for National Statistics (ONS) showed that the UK economy grew by 0.4% in August, less than the 0.5% pencilled in by economists despite the easing of COVID restrictions.

The ONS also issued a series of revisions showing an unexpected drop in output in July. The figures mean the British economy is now 0.8% smaller than its pre-pandemic level in February 2020.

The services sector grew just 0.3% during the month, while output in consumer-facing services increased by 1.2%. All other services rose by 0.1%.

Read more: UK economy picks up in August following drop, but uncertainty looms

Elsewhere, production output rose 0.8%, boosted by the reopening of oil rigs that had been closed for maintenance. However, construction output contracted 0.2%, and is now 1.5% below its pre-pandemic level due to the ongoing supply chain disruptions.

“It’s likely that the 0.4% growth in economic output overall in August was partly put due to the mini bounce back from the pingdemic which pushed a million people into self isolation in July,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.

“It certainly won’t be an easy ride for Bank of England policy makers when they meet next to decide when to raise interest rates. Moving too sharply could see the economy go into reverse, but the Bank won’t want to risk losing credibility if prices keep accelerating.”

Watch: UK economy: Business calls on Boris Johnson to put flesh on bones of post-Brexit vision

Across the pond, the S&P 500 (^GSPC) dipped 0.3% and the tech-heavy Nasdaq (^IXIC) rose 0.1% at the time of the European close. The Dow Jones (^DJI) fell 0.5%.

It came as US inflation rose to 5.4% in September, up from from 5.3% in August. Economists had expected another 5.3% reading.

Figures from the US Bureau of Labour Statistics showed that inflation was driven by higher food prices, which climbed 4.6%, and a 24.8% surge in energy prices. New vehicles also went up in price, by 8.7%, while used cars and truck prices jumped 24.4%.

Traders are also awaiting the minutes of the US Federal Reserve’s last meeting.

“Tonight’s Fed minutes should give us an insight into the FOMC’s thinking from the nature of its statement, which was neutral, and the contrast to Powell’s press conference, post decision, which was anything but,” Michael Hewson of CMC Markets said.

In its statement the Fed stated that “if progress continues broadly as expected, the Committee judges a moderation in the pace of asset purchases may soon be warranted”.

“Equity markets look to have stabilised after a patchy showing earlier this week, however it does feel as though investors remain slightly nervous," Russ Mould, investment director at AJ Bell, said.

Read more: Global supply chains and net zero to dominate G7 talks

Asian markets were mixed on Wednesday with the Nikkei (^N225) in Japan falling 0.3%, the Hang Seng (^HSI) down 1.4%, and the Shanghai Composite (000001.SS) rising 0.4%.

It came as export growth unexpectedly picked up in China last month. New data showed a rise in September despite power shortages, supply bottlenecks and a resurgence of COVID-19 cases.

Outbound shipments jumped 28.1% from a year earlier, up from 25.6% growth in August, while economists had expected an easing to 21%.

Watch: What is inflation and why is it important?

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