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FTSE pulls back as UK economy surges 4.8%

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File photo dated 3/6/2021 of Rishi Sunak. Allies of Rishi Sunak have insisted he is focused on the health of the economy in his job as Chancellor following reports the Prime Minister has considered demoting him. The Sunday Times reported that a furious Boris Johnson suggested the move after the leak of a letter from the Chancellor calling for the easing of travel restrictions ahead of the relaxations announced on Wednesday. Issue date: Saturday August 7, 2021.
Chancellor Rishi Sunak said he was confident in the strength of the UK economy. Photo: PA

The FTSE 100 (^FTSE) headed lower on Thursday afternoon in London, even as the latest GDP figures from the Office for National Statistics showed the economy had surged 4.8% in the quarter from April to June.

This growth reversed the declines of 1.6% during the lockdowns in the first quarter.

The index had climbed to an 18-month high at the close on Wednesday as investors took confidence in further steps to unlock the country, the $1tn infrastructure bill in the US and positive news on the vaccine rollout.

In June alone, the UK economy lifted by 1.0%, as the reopening of hospitality and leisure venues spurred growth.

The UK's GDP is now 4.4% below where it was pre-coronavirus at Quarter 4 (October to December) 2019.

The ONS said there have been increases in services, production and construction output over the quarter. The largest contributors to this increase were from wholesale and retail trade, accommodation and food service activities, and education – sectors that had seen a particular hit during lockdowns.

UK GDP since 2008. Chart: ONS
UK GDP since 2008. Chart: ONS

“I know there are still challenges to overcome, but I feel confident in the strength of the UK economy and the resilience of the British people," said chancellor Rishi Sunak.

“With the fastest quarterly growth rate among the G7 economies we have exceeded expectations, and I’m pleased to see the UK bouncing back.”

By the closing bell, the FTSE was 0.4% lower.

Elsewhere in Europe, Germany's DAX (^GDAXI) and the CAC (^FCHI) were higher by 0.7% and 0.4% respectively.

US stocks made mixed moves. The S&P 500 (^GSPC) was flat. The Dow (^DJI) was down 0.3%. The Nasdaq (^IXIC) moved 0.2%, following earlier losses.

New data showed that new weekly jobless claims took another step lower last week, with the labour market's recovery still making headway despite the lingering threat of the Delta variant.

There have been jitters about runaway inflation in the US in recent weeks as the economy opens up. However, some are now turning their attention to liquidity.

Read more: Demand for new UK homes cools but price hike shows 'few signs of wavering'

"The debate regarding inflation is the wrong one as it is all within Fed expectations. Yes, wage pressure is a permanent one but that is the point. Yes, the old economy will take it partly poorly but they are taken as a casualty," said Sebastien Galy, senior macro strategist at Nordea.

"What matters is what happens once liquidity starts to shrink for a while under tapering and that is both frightening and an opportunity. Our narrative on long-term growth particularly in the growth style is not a sustainable in the long term."

Overnight in Asia indexes headed broadly lower, after days of gains. The Hang Seng (^HSI) was down 0.7%, the SSE Composite (000001.SS) fell 0.2% and Japan's Nikkei (^N225) declined 0.2%.

Investors are still digesting how regulatory changes will affect markets in the long run.

Watch: What is inflation and why is it important?

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