London open: Stocks gain amid US rate cut expectations; UK economy flatlines

(Sharecast News) - London stocks rose in early trade on Friday amid growing expectations of a US rate cut next week, as investors mulled uninspiring UK GDP data. At 0825 , the FTSE 100 was up 0.3% at 9,323.21, while sterling was flat against the dollar at 1.3570.

Derren Nathan, head of equity research at Hargreaves Lansdown, said: "Wall Street closed at yet another record high. Accelerating US inflation, and initial jobless claims jumping to a near four-year high hardly sound like reasons to be cheerful. But core CPI, the preferred measure of the Federal Reserve Bank, was steady at 3.1% and bang in line with expectations.

"Taken together with the growing signs of deterioration in the jobs market, investors are choosing to focus on the outlook for US base rates where markets are now pricing in a fall of 0.7 percentage points by the end of 2025, with at least a quarter point cut expected next week."

On home shores, figures from the Office for National Statistics showed the economy stagnated in July, weighed down by weakness in the production sector.

There was no growth in the month of July, in line with consensus. GDP grew by a higher-than-expected 0.4% in June, and fell 0.1% in May.

However, in the three months to July - the ONS's preferred measure - GDP grew by 0.2%, down on June's 0.3% but in line with forecasts.

The services sector grew by 0.4% over the three months, while the construction sector expanded by 0.6%. In contrast, production fell 1.3%.

Liz McKeown, director of economic statistics at the ONS, said: "Within services, health, computer programming and office support services all performed well, while the falls in production were driven by broad-based weakness across manufacturing industries."

Kathleen Brooks, research director at XTB, said: "This report suggests that the UK economy is in a fragile position as we lead up to the Budget. It is also a reminder that the Labour government does not have a grip on growth and that their relentless tax and spend policies are having a detrimental impact on the economy. Let's hope the chancellor heeds the advice of the Barclays boss, her one-time city pal, in the FT today.

"This data is unlikely to give investors confidence in the UK economy, and we could see the pound extend losses later today. The bond market could also be impacted, when public sector debt is rising at the same time as growth is faltering and inflation is rising, this tends to be bad news for the UK economy.

"The Bank of England could be the UK's last hope, although MPC members have sounded wary of cutting rates in recent weeks due to stubbornly high levels of inflation. There is less than one full rate cut priced in by the BOE for this year, however, we could see some recalibration of rate cut expectations on the back of this report, which could also undermine sterling.

"Overall, the spectre of stagflation continues to hang over the UK economy, which is not ideal leading up to the Budget."

Investors were also mulling the latest analysis from the British Retail Consortium, which showed that up to 400 large retail stores face closure if the government pushes them into a higher business tax band.

The industry lobby said the large-format stores were at risk of closure if they were included in the new business rates surtax on premises with a rateable value over £500,000.

BRC chief executive Helen Dickinson said: "Britain's largest shops are magnets, pulling people into high streets, shopping centres and retail parks, supporting thousands of surrounding cafes, restaurants and smaller and independent shops. After years of rising costs, far too many stores have disappeared - leaving behind empty shells that once thrived at the heart of our communities. Four hundred more large stores could disappear if the Government forces them into its new higher tax band. This would mean up to 100,000 jobs lost, emptier high streets, and less revenue for the Exchequer.

"The Chancellor can back families, jobs and high streets this Autumn, by excluding large shops from the new higher business rates tax band. This would not cost the Exchequer a penny, yet would help secure the future of 400 retail stores, and the communities they support, right across the country. But failure to act risks shuttering hundreds more stores, costing jobs, communities and the economy far more in the long run."

There was no FTSE 350 corporate news of note out, but precious metals miner Fresnillo and gold miners Hochschild and Endeavour all shone as gold prices rose.

Upper Crust owner SSP rallied after an upgrade to 'buy' from 'hold' at Berenberg.

On the downside, Ocado tumbled. Morgan Stanley analysts pointed to "negative readacross" from comments made during US grocer Kroger's conference call on Thursday. Kroger is Ocado's main overseas warehouse technology client.

According to Bloomberg, Kroger chief executive Ronald Sargent said executives are taking a "hard look" at some of the company's automated facilities, i.e. customer fulfilment centres.

Morgan Stanley analysts cited two negative takeaways from the Kroger call. The first is an "increasing risk" that some of Ocado's existing CFC sites with Kroger could be closed. Secondly, it said a heightened focus on store-fulfilment for sub-two hour e-commerce delivery puts "a question mark on where the long-term CFC network fits in".

Bloomberg said that Morgan Stanley's "base case" on Ocado is "no new Kroger CFC committals" while the bear case is for closures.