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London stocks fall as investors mull UK GDP

London stocks fell in early trade Friday as investors digested the latest UK GDP data and news of US President-elect Joe Biden’s COVID relief package.

At 0840 GMT, the FTSE 100 was down 0.5 per cent at 6,771.51, after data from the Office for National Statistics showed the economy shrank 2.6 per cent in November but beat expectations as the government imposed a second Covid-19 lockdown on England, according to ShareCast.

The drop in output ended six consecutive months of growth as all four nations in the UK put restrictions in place in an effort to stem a resurgence of coronavirus infections. Britain entered a stricter shutdown in early January that could last for months.

Output in November dropped back to 8.5 per cent less than in February compared with a 61 per cent shortfall in October. The economy was 8.9 per cent smaller than a year earlier compared with an annual decline of 6.8 per cent the month before.

The result showed the economy holding up better than the 4.6 per cent average drop forecast by analysts as businesses adapted to restrictions.

The services sector was most affected, dropping 3.4 per cent, with hairdressers and pubs the hardest hit. Production edged down 0.1 per cent with factories open and often busy ahead of the Brexit trade deadline. Construction expanded 1.9 per cent.

Spreadex analyst Connor Campbell said, “A $1.9trn stimulus package announcement from Joe Biden – including enhancing payments to Americans by $1,400 – failed to prevent losses at the European open.

“It seems the market’s view is that it is all well and good promising such stimulus – now Biden needs to get it through a precariously balanced, and distracted, Senate. If the incoming President can achieve that, then investors might be in the mood to celebrate.

“For now, however, they were too busy crunching the latest batch of Covid-19-impacted numbers. In the UK that meant news the economy contracted by 2.6 per cent in November – better than the -4.6 per cent expected, but a screeching halt to six consecutive months of expansion.

“The FTSE took little joy from the fact the UK economy didn’t suffer quite as bad as forecast – contraction is contraction whatever way you slice it, and this was during the lesser November lockdown.”

In equity markets, DS Smith was in the red after Merpas sold shares in the paper and packaging company in a placing.

Defence group Babcock tumbled after it said profits had fallen by more than a third in the nine months to date as the pandemic hit its civil aviation business.

Oilfield services provider Petrofac slid after the Serious Fraud Office said a former employee of one of its subsidiaries had admitted additional charges under the UK Bribery Act. No charges were brought against any group company or any other officers or employees, Petrofac said.

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