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European markets mixed as UK economy recovery slows

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·3-min read
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Now that most restrictions have come to an end, Oxford Street shopping district is busier than much of the last 18 months as shoppers return in their droves and retail business looks set to bounce back on 10th August 2021 in London, United Kingdom. Many people are wearing face masks in crowded places like this but they are no longer mandatory, while government advice suggests that it is advised to wear a face covering in busy public places inside and on transport, many people are still wearing them outside. (photo by Mike Kemp/In Pictures via Getty Images)
UK businesses are facing labour and supply shortages. Photo: Getty Images

European stocks were mixed on Friday evening as data showed UK economic growth slowed in July despite the ease of lockdown restrictions and the economy opening up.

The FTSE 100 (^FTSE) closed 0.1% higher. Both the DAX (^GDAXI) in Germany and the French CAC (^FCHI) were up in the morning but ticked lower at the close. The CAC fell 0.4% and the DAX was down 0.1%.

The "tiny upswing" earlier in the day came as "investors are looking forward to next week’s action with some of the major macroeconomic data lined up to be announced," said Kunal Sawhney, CEO of Kalkine Group, an equities research firm.

"The equity market sentiments have been battered by the sedative economic growth as businesses across the continent remain under pressure of raw material shortages, while British enterprises are trying to withstand severe constraints due to inadequacy of staff and supply chain crisis."

He said the current month is highly likely to remain uncertain "as there is no meaningful catalyst that can help in reinstating the confidence".

The UK’s Office for National Statistics (ONS) said GDP was up by 0.1% in July, a significant slowdown from the 1% growth experienced in June.

Businesses are facing labour shortages due to the so-called “pingdemic” (workers, even if they were fully vaccinated, being told by the NHS app to self-solate because they had come into contact with someone who had tested positive for COVID) as well as shortages of materials.

“After many months, during which the economy grew strongly, making up much of the lost ground from the pandemic, there was little growth overall in July,” said ONS deputy national statistician for economic statistics Jonathan Athow.

He said the service sector "saw no growth overall" but growth in IT, financial services and outdoor events – which could operate more fully in July – offset large falls in retail and law firms.

Meanwhile, oil and gas provided a strong boost to the economy, "having partially bounced back after summer maintenance. Car production also continued to recover from recent component shortages," he added.

Read more: Grim forecast for UK business investment amid supply and labour shortages

This comes as the European Central Bank said it plans to slow emergency bond purchases implemented during the COVID-19 pandemic over the next few months.

Reaction to this has been muted because the bank did not detail how it intends to end its €1.85 trillion (£1.6 trillion) Pandemic Emergency Purchase Programme.

Over in Asia, stocks rallied after two days of losses.

The Hang Seng (^HSI) closed 1.7% higher and the Shanghai Composite (000001.SS) gained 0.3% at close as tech shares rebound. They had earlier taken a hit when China's government asked gaming firms to ensure they implement new rules for the sector.

The Nikkei (^N225) closed 1.3% higher in Japan.

Read more: ECB slows pace of pandemic emergency purchase programme

Across the pond, US stocks were down at the European close. 

The S&P 500 (^GSPC) fell 0.2%, and the tech-heavy Nasdaq (^IXIC) lost 0.1%. The Dow Jones (^DJI) edged 0.3% lower.

This comes despite optimism there may be a thaw in US-China relations after news that the leaders of both countries had a phone call after seven months.

Meanwhile, calls for the US Federal Reserve to start reducing its asset purchases are growing. Fed governor Michelle Bowman has joined other policymakers who are saying that despite a weak August, the central bank should stick to its plan of trimming $120bn (£86bn) in monthly bond purchases.

While data has shown initial unemployment claims in the US fell to a pandemic-era low, evidence indicates the Delta variant may slow down recovery.

Watch: What is a V-shaped economic recovery?

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