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FTSE 100 close: London markets falls after poor services PMI data raises risk of recession

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Over the course of the week it has gained 2.7 per cent, its strongest performance all year.
Over the course of the week it has gained 2.7 per cent, its strongest performance all year.

London’s markets ended in the red as investors grew concerned about the state of the UK economy following poor data from the all important services sector.

The FTSE 100 ended 0.21 per cent lower at 7,437.11 while the midcap FTSE 250 fell 0.16 per cent to 18,494.85.

Investors were concerned after the Purchasing Manager’s Index (PMI) for Britain’s services sector showed a reading of 49.5 in August, down from 51.5 in July.

It is the first time the index showed a negative reading since January, with any score below 50 indicating that the sector has shrunk, heightening the risk that UK could head into a recession later this year.

“Service providers saw customer spending reverse course during August as higher borrowing costs, subdued business confidence, and stretched household finances all acted to curtail sales opportunities,” Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey, said.

The pound hit a 12-week low against the dollar, falling to $1.25, as investors bet interest rates won’t rise as high as previously thought.

Markets were also concerned due to fresh concerns from China, where the PMI for services in August fell to 51.8 from 54.1 in July – well below consensus expectations of 53.0.

“Nagging worries about the Chinese economy are a big contributing factor to the change in mood – the latest PMI reading from the services sector painting a shocking picture,” AJ Bell’s investment director Russ Mould said.

“Undoubtedly expectations for a Chinese economic recovery following the removal of zero-Covid measures got way ahead of themselves, but the manner in which things have panned out is probably worse than even most of the sceptics would have predicted.”

Centrica and BP rose to the top of the index, rising 1.9 per cent and 2.0 per cent respectively.

The biggest faller in the FTSE 100 was B&M, which was down around 3.4 per cent, while Ashtead fell 2.9 per cent after the industrial equipment rentals firm cut its UK revenue growth forecast.