FTSE 100 lower as unsettling economic news overshadows stimulus optimism

Yellow road sign stating business open as usual during period of road works

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

“A raft of downbeat news knocked back investor confidence a bit today, batting away the ball of optimism that had gathered speed over the Joe Biden’s huge stimulus plan for the US economy.

The FTSE 100 and the more domestically focused FTSE 250 are lower, after the latest snapshot of the UK economy, provided unsettling reading, showing that far from building on a fragile recovery, output is on the slide once again.

Inevitably given the restrictions put in place, the services sector bore the brunt of the November lockdown. The 8.3% contraction over the three month period was worse than expected but not a surprise given that bars, restaurants, hotels and hairdressers were forced to turn away bookings throughout November. 

It’s a bitter taste of what is to come with the third nationwide lockdown, expected to shut many more businesses in the services sector until March at the earliest.

Concerns about the rapid spread of new strains of the virus are rising, with vaccine roll outs not likely to make a huge dent in the numbers admitted to hospital for many weeks.

After a strong run by sterling this week, rising robustly against the dollar, reaching just shy of $1.37, the pound has lost a bit of steam today, as the outlook deteriorates for the economy.

There are fresh signs though that businesses are adapting to the new reality imposed by the pandemic. The adoption of click and collect for example has helped the UK retail sector show more resilience.

Construction is also bright spot for the UK economy with output growing sharply by 12.4% in the three months to November 2020 compared with the previous three-month period.  It’s not just repairs and maintenance seeing growth, new work built up even more strongly by 11.9%.

The US construction sector is likely to continue to show strength with expectation of another recovery package aimed at improving America’s infrastructure, once the emergency stimulus plan is passed by Congress.’’

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