FTSE 100: London markets rise as UK recession and poor retail sales bolster hope for interest rate cuts

London’s FTSE 100 rose on Thursday as investors expected rate cuts to arrive faster after the UK fell into a recession and US retail sales slumped.

The capital’s blue-chip index closed 0.38 per cent higher at 7,597.53, while the mid-cap FTSE 250, which is more aligned with the health of the UK economy, rose 0.50 per cent to 19,099.62.

The positive performance from the stock market came as fresh figures showed that the economy slipped into a recession at the end of last year.

The UK economy shrunk 0.1 per cent in December meaning it contracted 0.3 per cent over the fourth quarter of last year, a worse performance than economists had expected.

Chancellor of the Exchequer Jeremy Hunt said that low growth was “not a surprise…while interest rates are high”, giving rise to more speculation about when rates might start to come down.

Laith Khalaf, head of investment analysis at AJ Bell, said the news of a recession was “water off a duck’s back for UK investors”.

“The stock market is a forward-looking weighing machine, and so a 2023 recession doesn’t materially change the prospects for companies in the future,” he said.

“Actually the market is probably more focused right now on when the first interest rate cut will come, and a recession makes that more likely to be sooner rather than later,” he continued.

Markets were also given a boost after disappointing retail sales spurred bets that the Fed might start cutting rates in the first half of the year. Retail sales dropped by 0.8 per cent in January, below expectations of a 0.2 per cent drop.

“The upshot is that Fed officials may not need to worry much longer about the possibility of continued economic resilience reigniting inflation,” Andrew Hunter, deputy chief US economist said.

Centrica issued a “strong 2023 financial result” this morning as the company’s retail division saw a sharp jump in profits for the year.

It revealed operating profit for 2023 came in at £2.8bn, down on 2022’s figure of £3.3bn.

British Gas Energy saw profits skyrocket from £72m to £751m, slightly exceeding analyst expectations of £747m.

This offset a decline in profit from the group’s other businesses, namely Centrica Energy, which deals in energy trading and asset management, where profits almost halved from £1.4bn in 2022 to £774m.

Following the open, its shares rose sharply, being around 4.2 per cent in the green after 9am.

Close Brothers’ shares collapsed after the FTSE 250 bank announced it will not pay any dividends on its ordinary shares for the current financial year as it prepares for an FCA probe into historic motor finance commission arrangements.

The second-biggest faller on FTSE 250 was Genus, an animal genetics firm, which warned that full-year profits would be below expectations.

Ithaca Energy, which is listed on the FTSE 250, saw its shares rise after it said today that its full-year earnings would be in line with its guidance, as the firm grapples with a sinking stock price.

The North Sea oil and gas producer said 2023 production had been 70.2 thousand barrels of oil equivalent per day, matching expectations of 78-74.