By Sara Sjolin, MarketWatch

U.K. GDP data confirm economy is growing at slowest in 5 years

U.K. stocks broke a two-day skid as a selloff in the pound resumed on signs that Brexit discussions between Brussels and London may be harsher than previously expected.

A selloff for energy companies, however, capped gains after reports OPEC and Russia are discussing plans to boost production.

What are markets doing?

The FTSE 100 index gained 0.2% to close at 7,730.28, trimming its weekly loss to 0.6%. The London benchmark has moved sharply lower over the last two days on increasing concerns about trade talks between the U.S. and China, and on worries over President Donald Trump's decision to pull out of a historic summit (http://www.marketwatch.com/story/north-korea-says-its-still-willing-to-meet-trump-any-time-2018-05-24) with North Korea.

U.K. markets are closed for a local bank holiday on Monday.

The pound fell to $1.3319, from $1.3379 late Thursday in New York. Sterling touched a fresh 2018 low earlier this week around $1.3305.

What is driving the market?

The fall in sterling provided a lift to the FTSE 100 on Friday. A weaker pound tends to boost the FTSE 100, as the index's components conduct the bulk of their business overseas and a softening in sterling lifts revenue when converted back into the U.K. currency.

Sterling was hit by concerns over the Brexit negotiations after European Union officials said the British government was "chasing a fantasy" in the talks, according to the Guardian newspaper. The comment came after a tense week of discussions, with the two sides fighting over the future security relationship. Fears are the lack of agreement could lead to a complete breakdown in negotiations.

(https://twitter.com/ryansabey/status/999917671251496962)

Bank of England Gov. Mark Carney warned in a speech late Thursday (https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/guidance-contingencies-and-brexit-speech-by-mark-carney.pdf?la=en&hash=AB4FDD511C5594498916614748D3867298EA8163) that a "disorderly" Brexit could trigger another interest rate cut to support the British economy.

Meanwhile, calm appeared to be returning to the market after a week of geopolitical ups and downs, as North Korea made a restrained response to Trump's withdrawal from a planned June meeting with Kim Jong Un. A senior foreign ministry official said North Korea was still willing to meet (http://www.marketwatch.com/story/north-korea-says-its-still-willing-to-meet-trump-any-time-2018-05-24) and "sit down face-to-face with the U.S. and resolve issues anytime and in any format."

What data are in focus?

The U.K. economy expanded at 0.1% in the first-quarter, confirming a previous estimate from the Office for National Statistics. The reading was in line with expectations.

The slow growth rate marks period since the fourth quarter of 2012 and has largely been attributed to exceptionally cold weather in February and March.

When the first GDP reading came out in late April, it shocked investors with how weak it was. At the time, it sent the pound sharply lower, as it was seen as completely ruling out a BOE rate hike in May.

At the May BOE meeting, the central bank kept rates on hold, with Carney citing temporary weakness in the economy as the reason to stay put.

What are strategists saying?

"If Bank of England Governor Mark Carney was hoping for a surprise uplift in the latest GDP estimate this morning, he was dealt yet another blow," said Anthony Kurukgy, senior sales trader at Foenix Partners, in a note.

"The latest reading, which came in line with market expectations (0.1%) reaffirms the U.K. central bank's views that a combination of stagnated growth and 'softer' data will only keep the likelihood of U.K. interest rate hikes on hold. With the 'unreliable boyfriend' at the helm, there's an argument to say that one interest rate rise in 2018 isn't exactly a foregone conclusion," he added.

Stock movers

Energy companies were among the biggest decliners on Friday as oil prices slumped almost 4% (http://www.marketwatch.com/story/oil-prices-slide-as-opec-russia-mull-output-increase-2018-05-25) after reports said OPEC and Russia are considering lifting production by as much as 1 million barrels a day. Shares of Royal Dutch Shell PLC (RDSA.LN) (RDSA.LN) fell 1.4% and BP PLC (BP.LN) (BP.LN) ended 2% lower.

Shares of GVC Holdings PLC (GVC.LN) rose 4.4% after the sports-betting and gaming group said revenue increased in the 20-week period (http://www.marketwatch.com/story/gvc-revenue-up-despite-weather-hit-to-uk-sales-2018-05-25) ending May 20 even as U.K. sales were hit by adverse weather.

AstraZeneca PLC (AZN.LN) (AZN.LN) added 0.9% after the drug giant reported positive results for its Imfinzi cancer drug.

Royal Mail PLC (RMG.LN) dropped 2.8% after Berenberg cut the delivery company to sell from hold, according to Dow Jones Newswires. Berenberg said Royal Mail faces little profit growth in coming years, as its customers are likely to scale back on sending out marketing materials due to the EU's new General Data Protection Regulation. The GDPR privacy rules come into effect on Friday.

Read:5 things to know about the GDPR rules taking effect Friday--which could cost big, bad tech billions (http://www.marketwatch.com/story/5-things-to-know-about-europes-new-data-rules-which-could-cost-big-bad-tech-billions-2018-03-21)

 

(END) Dow Jones Newswires

May 25, 2018 12:04 ET (16:04 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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