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FTSE 100 tumbles as UK economic growth slows

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FTSE 100
The FTSE 100 fell as Britain’s economy growth was dented by a slump in manufacturing. Photo: Rob Pinney/Getty

European stocks closed mixed on Monday as concerns over the Ukraine war, a global economic contraction, inflation, and the election in France clouded markets.

The FTSE 100 (^FTSE) slid 0.7%, having capped off its fifth weekly gain in a row on Friday.

London's bluechip index was dragged down as a slump in manufacturing dented Britain’s economy growth. The lower-than-expected expansion saw the economy grow just 0.1% in February, compared to a 0.8% gain in January. Economists had forecast a 0.2% growth.

"It’s little wonder the economy overall is showing signs of stalling from its remarkable pandemic recovery, given the sense of foreboding which arose from mid-February as troops amassed on the Ukraine border and then the commodity shock unleashed by the invasion hit sentiment," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Elsewhere in Europe, France’s CAC (^FCHI) closed flat, retreating from a 0.7% rise and the DAX (^GDAXI) declined 0.7% in Frankfurt.

The French benchmark rose as president Emmanuel Macron staved off a far-right win, beating Marine Le Pen in the first round in the presidential election race.

"Election jitters in France saw the CAC 40 index initially fall 0.4% before rebounding to trade 0.7% ahead. It looks like a close fight between Emmanuel Macron and Marine Le Pen, and investors are starting to wonder what would happen if the latter was victorious given her protectionist policies," said Danni Hewson, financial analyst at AJ Bell.

Crude prices wiped out most of its gains since Russia's invasion of Ukraine as the market continues to be gripped by volatility. Prices slid on Monday as fears over China and global economic growth hit. China, the world’s biggest oil importer, has been battling an Omicron wave, which has seen major financial hub Shanghai locked down for nearly three weeks amid a zero-COVID policy.

Brent crude (BZ=F) fell 4.1% to $98.59 a barrel. US light crude (CL=F) was 4.1% lower to $94.27 in electronic trading on the New York Mercantile Exchange at the time of writing.

Brent crude fell 4.1% to $98.59 a barrel in afternoon trade on Monday in London. Chart: Yahoo Finance UK
Brent crude fell 4.1% to $98.59 a barrel in afternoon trade on Monday in London. Chart: Yahoo Finance UK

Streeter said: "The oil price has dipped back a little, with Brent crude falling 2% to around $100 a barrel, as Moscow regroups its forces, and ongoing lockdowns in the sprawling technological and manufacturing hub of Shanghai continue.

"Traders are also assessing the impact on global supply of the emergency release of 60 million barrels from strategic reserves by big oil consuming nations, in addition to the 180 million set to be drip fed into use by the US."

It comes as the World Bank warned that the invasion of Ukraine could slash the eastern European country's economy by 45% this year. It estimated that over half of Ukraine's businesses were shut, while others were operating below capacity. The bank said the closure of Black Sea shipping has cut off 90% of its grain exports and half its total exports. Russia's GDP is expected to decline by 11.2% in 2022.

Read more: UK pay growth still below pre-COVID levels despite rise

Across the Atlantic, US benchmarks slumped on Monday amid uncertainty about Federal Reserve policy and the war in Ukraine.

The tech-heavy Nasdaq (^IXIC) led the declines, falling 1.8%. Wall Street’s S&P 500 (^GSPC) lost 55.82 points, or 1.2%, to 4432.46, snapping a three-week winning streak that had sent it toward its best performance since November 2020. The Dow Jones (^DJI) drifted 0.7% lower at London's close.

The yield on the benchmark 10-year Treasury note jumped to its highest level since March 2019 as bond prices tumbled. Yields and bond prices move in opposite directions.

Overseas markets dipped overnight, while the euro briefly recovered in Asian trading as the far right did not win the first round of the French presidential elections.

The Nikkei (^N225) retreated 0.6% in Japan, while the Hang Seng (^HSI) tumbled 2.8% in Hong Kong and the Shanghai Composite (000001.SS) closed 2.5% lower.

Watch: How does inflation affect interest rates?

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