Improved UK GDP stokes interest rate expectations and weighs on FTSE

London’s top markets slid in value on Friday as better-than-expected UK economic growth in June and the second quarter of 2023 as a whole fuelled speculation of continued interest rate hikes by the Bank of England. The Office for National Statistics (ONS) recorded a 0.5% increase in gross domestic product (GDP) in June, surpassing analyst expectations of 0.2%. The continued improvement in economic activity has led to concerns inflation may remain more persistent than hoped and force the central bank towards stronger moves on interest rates. The FTSE 100 moved 1.24%, or 94.44 points, lower to finish at 7,524.16. Elsewhere in Europe , the main markets were also in the red as concerns about the Bank of England compounded worries overnight after suggestions better-than-expected US inflation data on Thursday would not necessarily mean a pause in rate hikes. Germany’s Dax index was 1.03% lower for the day and the Cac 40 closed down 1.28%. Michael Hewson, chief market analyst at CMC Markets UK, said: ‘After two days of solid gains, European markets have gone into full reverse today, falling sharply after US markets sold off into the close last night after San Francisco Fed president Mary Daly commented that the US central bank had more work to do when it comes to further rate hikes. ‘Better than expected UK Q2 GDP numbers appear to have also prompted market weakness due to concern that the strength of today’s data might prompt the Bank of England to overplay their hand when it comes to tightening monetary policy further. ‘This makes next week’s inflation and wages data even more important in the context of what actions the Bank of England takes next month when it comes to further rate hikes.’ Stateside, US stocks were shaky as they took their direction from weak sentiment in Europe. Meanwhile, sterling got a lift due to the rise in UK GDP over the latest quarter, although there was still significant apprehension ahead of next week’s inflation and labour market data. The pound was up 0.14% to 1.269 US dollars and was 0.41% higher at 1.158 euros at market close in London. In company news, Capita shares closed higher after the outsourcing firm saw its stock upgraded by brokers at Shore Capital. Shares climbed 0.6p to 20.9p after analysts said the company was set to ‘deliver better results’ as it looks to complete its restructuring later this year. Sainsbury’s shares edged lower after the retail group agreed a £464 million deal to sell its mortgage portfolio to the Co-operative Bank. Shares fell by 2.1p to 266.4p on Friday. The price of oil swung slightly higher to put the commodity on track for seven consecutive weeks of gains. A barrel of Brent crude oil rose by 0.57% to 86.89 US dollars at the time markets were closing in London. The biggest risers in the FTSE 100 were Beazley, up 6p at 537.5p, Haleon, up 1.25p at 337.4p, Coca-Cola HBC, up 7p at 2,287p, Bunzl, up 6p at 2,808p, and Natwest, up 0.5p at 236p. The biggest faller in the index were Entain, down 67.5p at 1,312.5p, Antofagasta , down 66.5p at 1,516p, Abrdn, down 6.55p at 187p, Scottish Mortgage Investment Trust, down 22.4p at 666p, and Prudential, down 30p at 1,008.5p.