Footsie slips back on investor concerns over size of contraction in economy

FTSE:5,917.71 (–26.14) Mid-250:11,501.60 (–71.84) Small Cap:3,273.23 (–8.85)

THE FTSE 100 fell below 5,940 yesterday, after news of a surprise contraction in the size of the UK economy worried investors.

London’s benchmark equities index fell 26 points to a session low of 5,917.71 in closing trade after news that GDP fell 0.5 per cent in the fourth quarter of 2010 from the previous three months. Traders had been expecting growth of about 0.4 per cent.

“The GDP figure is quite simply a shock to the system and heightens fears that the coalition governments’ austerity plan may well curb growth too excessively and send the UK into a double-dip recession,” warned Joshua Raymond, market strategist at City Index.

“That said, let’s not get too far ahead of ourselves with this contraction in fourth-quarter GDP just yet.

“This is only a preliminary reading and is liable to change next month . . . while this may also tell more of a story about how the harsh weather over December affected business activity than of one about declining core strength in the UK economy,” he added.

With risk appetite already modest across global markets, heavily weighted mining and financials were keeping the FTSE 100 in check.

Kazakhmys was 3.7 per cent weaker at £15.00, leading the mining sector lower. Retailers were also under pressure as investors considered the implications of the data. Next fell the furthest in the sector, down 3.1 per cent at £20.75.

Banks also came under pressure after the GDP data raised fears of a double-dip recession. Lloyds Banking fell 2.9 per cent to 63.4p. Royal Bank of Scotland lost 1.8 per cent to 43.4p.

Pay-TV broadcaster BSkyB rose 0.2 per cent to 752p as the government gave itself more time to scrutinise News Corp’s bid to acquire the 60.9 per cent of the company it does not already own before referring it to regulators.

Diageo, the maker of premium brand drinks, appeared on the leaderboard as hopes of a recovery in its important US markets supported the stock, up 1.4 per cent at £12.38.

Defensive stocks made up much of the rest of the list of rising shares. BT, the fixed-line telecoms provider, rose 1.9 per cent to 176.4p. Inmarsat was 2.4 per cent higher at 636p. United Utilities rose 0.5 per cent to 555½p. – (Copyright The Financial Times Limited 2011)