UK Stocks Rally on Q1 Economic Growth Despite Political Uncertainty
By Niket Nishant
Market Performance and Economic Overview
May 14 (Reuters) - UK shares rose on Thursday, as strong economic growth in the first quarter reassured investors shaken by the country's political uncertainty.
Political Developments Impacting Markets
Prime Minister Keir Starmer faced the increasing prospect of a leadership challenge, with his health minister reportedly ready to resign and his former deputy calling on him to "reflect" on his position.
Stock Market Indices Reaction
The blue-chip FTSE 100 index rose 0.39%, as of 11:09 am GMT, while the mid-cap FTSE 250 climbed 0.71%.
Unexpected Economic Growth
Britain's economy grew unexpectedly in March, data showed on Thursday, to cap another strong first quarter, suggesting it was in better shape than many feared after the economy barely grew in the fourth quarter of last year.
Analyst Perspectives on Growth Figures
However, some analysts warned that figures may have been skewed by the stockpiling of goods that businesses fear will become more expensive due to supply chain disruptions stemming from the Middle East conflict.
"We need to be cautious about judging the genuine trend," said Rob Wood, chief UK economist at Pantheon Macroeconomics.
George Brown, senior economist at Schroders, also said that the economic strength may wane as the year progresses.
"UK GDP has developed a habit of starting the year well, only for momentum to slow due to residual seasonality... That should mean the Bank of England talks tough but stops short of the hikes markets are pricing in."
Markets expect the central bank to raise rates at least two times this year, according to data compiled by LSEG.
Ongoing Political Uncertainty
Questions Remain Over Starmer's Future
Investors are worried that a potential successor to Starmer might adopt a more left-wing stance and advocate for increased spending, despite Britain's already strained finances.
Long-term British borrowing costs surged to their highest in nearly 30 years earlier this week.
In an interview with Bloomberg TV, JPMorgan Chase CEO Jamie Dimon warned that any move to hike taxes on banks in the event Starmer is replaced would prompt the bank to scrap plans to invest billions in a new London headquarters.
Key Stock Movers
Top Gainers and Losers
Among individual stocks, Legal and General rose 6.16% and were the biggest gainers on the FTSE 100, after the Financial Times reported that possible buying interest was building in the company.
Auto stocks advanced 3.23%, countering a 3.00% slide in the investment banking index, which was dragged down by an 11.19% decline in 3i Group.
The investment firm's stock hit its lowest since May 2023 due to a slowdown at discount retailer Action, its key portfolio company.
(Reporting by Niket Nishant in Bengaluru; Editing by Harikrishnan Nair)
