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FTSE slips into the red as UK economy expands in second quarter

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London
UK GDP was 3.3% below its pre-pandemic level, after its near-20% plunge when lockdown first hit in March 2020. Photo: Getty Images

The FTSE 100 (^FTSE) started the day higher on Thursday but slipped into the red in late afternoon trade, despite news of Britain's economy expanding 5.5% between April and June on a quarterly basis.

London’s benchmark index lost 0.1%, while the French CAC (^FCHI) was 0.4% lower, and the DAX (^GDAXI) was 0.3% lower in Germany.

It came as the Office for National Statistics (ONS) revised up a previous growth estimate of 4.8% for the second quarter compared to the first three months of the year.

The growth left UK GDP 3.3% below its pre-pandemic level, after its near-20% plunge when lockdown first hit in March 2020.

“The economy grew more in the second quarter than previously estimated, with the latest data showing health services and the arts performing better than initially thought,” Jonathan Athow, the Office for National Statistics' deputy national statistician, said.

Read more: UK economic rebound from pandemic stronger than expected

“Household saving fell particularly strongly in the latest quarter from the record highs seen during the pandemic, as many people were again able to spend on shopping, eating out and driving their cars.”

Across the pond, the S&P 500 (^GSPC) sank 0.2% after a positive start, and the tech-heavy Nasdaq (^IXIC) gained 0.4%. The Dow Jones (^DJI) edged lost 0.6% by the time of the European close.

The cautious mood on Wall Street came despite US jobless claims rising for third consecutive week.

Claims rose to 362,000 in the week to 25 September, driven by a surge in unemployment in California, official data showed. Economists surveyed by Bloomberg were expecting a decrease to 330,000 new applications.

The data hints at a potential worsening of labour market conditions in the country, which are still hovering near pandemic lows.

On Wednesday, the Dow and S&P 500 provided a positive lead, though the unconvincing end to the trading day on Wall Street highlighted lingering uncertainty on trading floors.

Read more: Private sector growth slows as post-COVID boost wears off

While expected for most of the year, the prospect that the Federal Reserve and other major central banks will soon begin to remove the ultra-loose monetary policies they put in place at the start of the pandemic has dampened sentiment in recent weeks.

“Comments from the Federal Reserve that the persistence of supply chain problems could keep inflation elevated for longer appeared to assuage investors who had been fearing that the impending taper would be brought forward,” Richard Hunter, head of markets at Interactive Investor, said.

Watch: What is inflation and why is it important?

“Although not yet fully front and centre for investors, the usual political grandstanding which surrounds the debate on extending the government’s borrowing authority led Treasury Secretary Janet Yellen to warn of the serious consequences of a US credit default.

“While the possibility of that outcome currently remains low in the eyes of most market participants, any deterioration in the ongoing talks would inevitably harm sentiment.”

Asian markets mostly fell overnight following the previous day's retreat. Investors continue to fret that surging inflation will lead to interest rate hikes, while the debt stand-off in Washington and prospect of a historic US default was also adding pressure.

In Japan, the Nikkei (^N225) fell 0.3% after a recent rally to three-decade highs, while the Hang Seng (^HSI) was 0.4% lower after a three-day gain.

The Shanghai Composite (000001.SS) managed to advance 0.9% on the day.

Watch: What are SPACs?

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