The FTSE 100 index experienced a modest rise on Thursday, buoyed by unexpectedly robust growth in the UK economy, positive trading reports from major companies, and a surge in Wall Street markets. The index closed 30.41 points higher, finishing the day at 10,589.99, while the FTSE 250 and AIM All-Share also saw increases, reflecting a general uplift in market sentiment.
UK Economic Growth Surprises Analysts
Recent figures have revealed that the UK economy expanded by 0.5% in February, exceeding forecasts that anticipated only a 0.1% increase. This growth follows a slight upward revision of January’s figure, which was initially reported as stagnant but has now been adjusted to show a 0.1% rise. Sanjay Raja, Chief UK Economist at Deutsche Bank, remarked that these statistics “smashed expectations,” indicating that the UK entered the ongoing energy crisis from a stronger position than many had predicted.
However, Raja cautioned that this positive momentum may be short-lived. He noted that households are likely beginning to feel the financial strain from the energy shock linked to the ongoing crisis in the Middle East. With fuel prices surging over 20% since the onset of the oil crisis and dual fuel bills expected to follow suit, he anticipates a slowdown in economic growth as we move into the second quarter of 2026 and beyond.
Central Bank’s Cautious Approach to Interest Rates
Amidst the backdrop of economic uncertainty, Bank of England Governor Andrew Bailey addressed concerns regarding potential interest rate hikes. Speaking at the International Monetary Fund’s spring meeting in Washington, Bailey acknowledged the complexities of the current economic landscape. He emphasised that the Bank would not hastily make decisions on interest rates, highlighting the myriad uncertainties affecting the UK economy during this turbulent period.
Corporate Updates Drive Market Gains
On the corporate front, several companies reported strong earnings that contributed to the market’s upward trend. Tesco saw its shares rise by 4.7% after announcing an annual profit that exceeded expectations and raising its free cash flow guidance. The supermarket reported a pretax profit increase of 8.5% to £2.4 billion, a figure that surpassed both analysts’ predictions and the company’s own previous guidance.
Additionally, Intertek surged by 9% after rejecting a bid valued at £5,150 per share from EQT Fund Management, asserting that the offer did not adequately reflect its future potential. In contrast, easyJet faced a 5% decline in its stock price following a profit warning, revealing that it expects a headline pretax loss of between £540 million and £560 million for the first half of the year due to soaring fuel costs.
Global Market Trends Influencing the FTSE
While European markets exhibited mixed results, with the CAC 40 closing flat and the DAX 40 rising 0.4%, US markets showed positive movement. The Dow Jones Industrial Average gained 0.1%, while the S&P 500 and Nasdaq Composite rose by 0.3% and 0.4%, respectively, with both indices reaching new record highs. This surge was driven by optimism surrounding potential progress in US-Iran negotiations, although the oil price remains on an upward trajectory, trading at $98.39 a barrel, amid ongoing geopolitical tensions.
Why it Matters
The current economic landscape presents a complicated picture for UK households and businesses alike. While recent growth figures offer a glimmer of hope, the looming energy crisis and rising living costs pose significant challenges that could dampen consumer spending and overall economic momentum. As the Bank of England deliberates on interest rate policy, the choices made in the coming weeks will be crucial in navigating the potential impacts of these external shocks on the UK economy. Investors and consumers alike will need to remain vigilant as these dynamics unfold in a rapidly changing economic environment.
