(Sharecast News) - London stocks were still weaker by midday on Thursday as investors digested the latest UK GDP data and a slew of corporate releases amid ongoing tensions in the Middle East, while sterling rallied on reports that Shabana Mahmood may become chancellor.
The FTSE 100 was down 0.3% at 10,489.80, while Brent crude was off 0.2% at $84.75 a barrel and West Texas Intermediate was flat at $79.58..
Dan Coatsworth, head of markets at AJ Bell, said: "The FTSE 100 took its cue from weak trading in Asia and fell back amid a lower open for most other European markets.
"Brent crude oil prices remain near one-month highs as tensions continue to mount in the Middle East.
"Fragile sentiment is leading to a continued pullback in memory chip stocks after their gravity-defying run as investors fret about elevated valuations."
Figures from the Office for National Statistics showed the economy grew by 0.1% in May, in line with expectations.
The dominant services sector drove the growth, rising 0.3% and helping to reverse April's 0.1% dip. It also offset weakness elsewhere in the economy, with production easing 0.5% and construction 0.8%.
Over the three months to May, GDP widened by 0.7%. That was ahead of expectations for a 0.5% improvement, although the pace of growth did slow slightly compared to the upwardly-revised 0.8% print recorded in the previous quarter.
Once again the services sector drove growth, jumping 0.7%, with computer programming and advertising faring particularly well. The ONS noted that the "often-volatile" pharmaceutical industry also showed solid growth. The construction sector also rebounded, rising 1.6%.
Liz McKeown, director of economic statistics at the ONS, said: "The economy recorded robust growth in the three months to May, though the pace eased slightly as the latest two months showed a weaker picture."
Aaron Bright, investment analyst at investing and trading platform IG, said "the numbers are far from spectacular".
"The broader picture remains one of a UK economy struggling to generate meaningful momentum, with growth sitting against a particularly challenging macro backdrop," he said.
Investors were also mulling reports that incoming prime minister Andy Burnham has decided to make home secretary Shabana Mahmood chancellor. A spokesperson for Burnham declined to comment on "speculation", and said cabinet positions would be announced on Monday when the former Greater Manchester mayor is due to move into Downing Street.
But according to the Financial Times, citing three unnamed sources briefed on Burnham's thinking, Mahmood will be moving to Number 11. "Shabana is nailed down as chancellor," one source told the newspaper. "That's definitely happening."
There has been considerable speculation about who will replace Rachel Reeves as chancellor under Burnham. Energy secretary and former Treasury advisor Ed Miliband had been seen as a leading contender. But his focus on net zero has alienated some corporate leaders and unions, on fears that it will damage the economy, making him a risker choice for many in Burnham's team.
Sterling hit a two-month high versus the dollar and a 13-month high against the euro on the news, while gilt yields eased.
Kathleen Brooks, research director at XTB, said: "Politics play an integral part in UK asset prices, especially the pound and gilt yields, due to our rising debt burden, huge borrowing and unstainable welfare bill, this is why the market is experiencing a relief rally on the back of Mahmood's appointment.
"It tells us two things about Andy Burnham's government: firstly, the market trusts Mahmood to take a sensible approach to economic policy, and to tackle the hard questions of welfare spending, secondly, Burnham is willing to have those to the right of the Labour party in his cabinet in key economic roles, which is why gilts also rallied on Wednesday and yields are down slightly on Thursday."
In equity markets, Ocado tumbled as the online grocery and warehouse tech group's full-year results failed to impress, while Experian and Trustpilot also fell sharply after trading updates.
Frasers Group lost ground as the Sports Direct owner reported annual adjusted pre-tax profit of £538m, down 4% on the previous year, despite retail trading profit surging 22% to £912.5m.
The company also declined to provide guidance for the current fiscal year due to its takeover bids for Hugo Boss and Accent group, but cautioned that it continued to feel the impact of tough trading conditions, subdued consumer confidence and industry-wide excess inventory levels through the second half of 2025/26 and into the start of FY27.
On the upside, Diploma surged to the top of the FTSE 100 as it upgraded its full-year guidance.
Engineering firm Rotork rocketed after it agreed to be bought by Swiss engineering company ABB in a £4.1bn deal. Weir, Spirax, IMI and Smiths Group all gained.
Dunelm also rose after the homeware retailer said full-year profit was set to be in line with its guidance and consensus, as it reported an increase in fourth-quarter sales.
Market Movers
FTSE 100 (UKX) 10,489.80 -0.25%
FTSE 250 (MCX) 23,543.35 0.35%
techMARK (TASX) 5,872.71 -0.28%
FTSE 100 - Risers
Diploma (DPLM) 7,135.00p 5.47%
Weir Group (WEIR) 2,508.00p 3.90%
Spirax Group (SPX) 6,875.00p 3.38%
Metlen Energy & Metals (MTLN) 42.60p 2.87%
IMI (IMI) 2,954.00p 2.71%
Kingfisher (KGF) 290.30p 2.11%
Smiths Group (SMIN) 2,560.00p 1.79%
Halma (HLMA) 3,688.00p 1.49%
Bunzl (BNZL) 2,746.00p 1.03%
Investec (INVP) 620.50p 0.89%
FTSE 100 - Fallers
St James's Place (STJ) 1,139.50p -5.48%
Flutter Entertainment (DI) (FLTR) 8,132.00p -3.42%
Centrica (CNA) 171.20p -2.50%
Experian (EXPN) 2,650.00p -2.40%
SSE (SSE) 2,419.00p -1.82%
Compass Group 11 (CPG) 31.01p -1.74%
Admiral Group (ADM) 3,534.00p -1.67%
National Grid (NG.) 1,212.50p -1.58%
Hiscox Limited (DI) (HSX) 1,851.00p -1.39%
Smith & Nephew (SN.) 1,137.00p -1.30%
FTSE 250 - Risers
Rotork (ROR) 485.20p 66.85%
Dunelm Group (DNLM) 851.50p 4.16%
B&M European Value Retail (BME) 199.70p 3.47%
Pantheon Infrastructure (PINT) 119.80p 3.28%
XP Power Ltd. (DI) (XPP) 1,804.00p 3.09%
WPP (WPP) 285.70p 2.77%
Mondi (MNDI) 728.40p 2.62%
Discoverie Group (DSCV) 683.00p 2.55%
Wickes Group (WIX) 193.40p 2.55%
Hikma Pharmaceuticals (HIK) 1,531.00p 2.47%
FTSE 250 - Fallers
Ocado Group (OCDO) 144.80p -18.96%
Trustpilot Group (TRST) 256.00p -10.52%
Seraphim Space Investment Trust (SSIT) 163.00p -6.54%
Frasers Group (FRAS) 721.50p -5.44%
Ceres Power Holdings (CWR) 401.60p -5.42%
Playtech (PTEC) 373.80p -4.35%
The Schiehallion Fund Limited NPV (MNTN) 2.00p -3.97%
Neuberger Private Equity Partners Limited (NBPE) 1,428.00p -2.86%
Raspberry PI Holdings (RPI) 735.00p -2.81%
Pacific Horizon Inv Trust (PHI) 1,060.00p -2.75%