London pre-open: Stocks to nudge down after GDP data

(Sharecast News) - London stocks were set to nudge down at the open on Wednesday following heavy losses in the previous session, as investors mulled the latest reading on the UK economy.

The FTSE 100 was called to open six points lower at 6,879.

Figures released earlier by the Office for National Statistics showed that the economy unexpectedly contracted in August for the first time in two months, raising the risk of a recession.

GDP fell 0.3% following 0.1% growth in July, and versus expectations of an unchanged reading.

ONS chief economist Grant Fitzner said: "The economy shrank in August with both production and services falling back, and with a small downward revision to July's growth the economy contracted in the last three months as a whole."

Meanwhile, bond markets remained in focus after Bank of England governor Andrew Bailey said the Bank would not extend emergency support and that pension funds had another three days to shore up their portfolios against further shocks.

CMC Markets analyst Michael Hewson said: "Having done so much to stabilise markets in the past few days, including the action to stabilise the linker market yesterday, this hard line could come back and bite the Bank of England hard if it serves to heighten volatility in the days ahead.

"Bailey's tone is particularly perplexing given some funds have suggested they need more time to stabilise their portfolios, and the Bank of England's warning yesterday of a fire-sale risk in markets.

"If you really believe there's a fire-sale risk why then turn around and put a three-day time limit on pension funds to sort out their risk profile? Markets don't work like that and further volatility in the coming days could well raise the prospect of another U-turn and deal another blow to the central bank's credibility, as well as the credibility of Bailey himself."

In corporate news, house builder Barratt said it expected annual results to be in line with expectations, but warned that private reservations had slipped as customers reacted to rising interest rates and reduced mortgage availability.

"The outlook for the year is less certain with the availability and pricing of mortgages critical to the long-term health of the UK housing market," Barratt said. Adjusted full-year pre-tax profits are expected to come in at £972.5m.