UK FTSE 100 Drops On Poor Barclay Results And A Strong GBP

Britain’s premier index, the FTSE 100 saw its biggest fall in months last week as a result of poorer-than-expected results from Barclays and discouraging economic results. The FTSE 100 was down 0.5 percent to close at 7,203.94, bringing its weekly gain down to 1.3 percent.

For the entire month, the FTSE 100 was down 1.6 percent largely due to the pound climbing by over 3 percent against the dollar.

Blue chips saw their biggest drop since November 2016 suffering from the stronger pound which gained to $1.29 despite reports that UK growth had slowed by more than what was expected in the first quarter of 2017.

The pound’s jump was led by British Prime Minister Theresa May’s decision to call for a snap general election to get a mandate before the upcoming Brexit talks.

Analysts from Bank of America Merrill Lynch have however forecasted that the pound is unlikely to influence UK equities significantly during the next 12 months. They do not expect the rally to last as they believe it will be checked by the UK’s economy.

The country’s GDP for the first quarter was lower than expected with rising inflation hitting consumer confidence and slowing growth. According official data, UK’s economy grew by 0.3 percent missing estimates of 0.4 percent. The Office for National Statistics attributed the gap to the services segment seeing a decline.

Kallum Pickering, senior U.K. economist at Berenberg said in a note that while the economy’s deceleration was scary, the trend rate was hovering around 0.4 percent. Pickering also observed that the economy was in its eighth year of expansion and that the labor market was at full employment.

The FTSE 100 was also dragged down by poor results from banking major Barclays. The bank’s first quarter results was disappointing despite a doubling of profits due to its investment banking division failing to take advantage of a trading boom in bonds.

In a statement, Laith Khalaf, senior analyst at Hargreaves Lansdown said

Taking a bit of a longer-term view, Barclays is still in a state of recovery and is moving towards its goal of being a UK retail bank and a transatlantic corporate bank, but this particular quarter I think the results were a bit disappointing compared to what analysts were expecting.

Results from other banking firms were more promising. Royal Bank of Scotland registered its first profit in a quarter since September 2015, showing signs of a turnaround. Lloyds Bank also registered growth which boosted its shares by 0.3 percent.

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