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FTSE closes the week in the green but pound tumbles against dollar

·2-min read
The FTSE 100 rose in afternoon trade as Britain's economy shrank in the second quarter. Photo: Reuters/Dado Ruvic/Illustration
The FTSE 100 rose as Britain's economy shrank in the second quarter. Photo: Dado Ruvic/Reuters

European shares closed in the green on Friday despite the latest gauge on Britain's economic status highlighting a bleak outlook for the sixth largest economy in the world.

The FTSE 100 (^FTSE) rose 0.47% to close at 7,500 points, while the CAC (^FCHI) finished 0.25% higher in Paris and in Frankfurt the DAX (^GDAXI) shot up 0.79%.

"It’s always welcome to see green figures flashing on the screen rather than red ones, and that’s what we had on Friday with gains from the FTSE 100 in the UK, the DAX in Germany, the CAC 40," Danni Hewson, financial analyst at AJ Bell, said.

Figures from the Office for National Statistics (ONS) on Friday showed that UK gross domestic product (GDP) shrank by 0.1% in the second quarter. That compares to a 0.8% growth in the first three months of 2022.

Read more: UK economy shrinks in June as stagflation looms

On a monthly basis, GDP fell 0.6% in June, below a 0.4% — revised down from 0.5% — growth in May. The results mark the biggest bump so far in the recovery from the pandemic.

It comes as the Bank of England forecast that Britain will fall into recession towards the end of the year amid raging inflation, with the downturn expected to last for five quarters until 2024 and inflation forecast to top 13%.

Sterling (GBPUSD=X) stumbled against a stronger dollar despite GDP beating gloomier forecasts. The pound declined 0.7% against the greenback to $1.211.

Against the euro (GBPEUR=X) sterling was up 0.1% after a 0.5% gain on Thursday to €1.18.

Across the Atlantic, Wall Street indices rallied as the latest inflation data suggested that prices could be peaking.

The S&P 500 (^GSPC) advanced 0.88%, while the Dow Jones (^DJI) rose 0.61% as trading ceased across Europe on Friday. The tech-heavy Nasdaq (^IXIC), which entered a new bull market on Wednesday, gained 1.22%.

Read more: UK trade deficit hits record £28bn as business with Russia plummets

"Tech investors look to have taken some chips off the table and cash in on gains from the rally earlier in the week," Matt Britzman, equity analyst at Hargreaves Lansdown said.

"Supportive data fuels a case that inflation could well have peaked, but a recession is very much still on the horizon and many of the reasons for downward pressure on equities are still in play."

Asian stocks finished mixed overnight after the decline on Wall Street.

Japan's Nikkei (^N225) was up 2.6%, the Hang Seng (^HSI) edged 0.3% higher in Hong Kong and the Shanghai Composite (000001.SS) declined 0.2%.

Watch: How does inflation affect interest rates?