UK stocks hit by weak retail sales, rising yields

UK's main equity indexes fell on Friday, as weaker-than-expected retail sales figures and a jump in bond yields added to worries about political uncertainty following the resignation of British Prime Minister Liz Truss. The blue-chip FTSE 100 index fell 1.0%, while the midcap FTSE 250 slipped 1.6%.

UK's main equity indexes fell on Friday, as weaker-than-expected retail sales figures and a jump in bond yields added to worries about political uncertainty following the resignation of British Prime Minister Liz Truss.

The blue-chip FTSE 100 index fell 1.0%, while the midcap FTSE 250 slipped 1.6%. Both the indexes trimmed gains made after a historic reversal of Truss's failed tax plan earlier this week. Truss quit on Thursday after the shortest and most chaotic tenure of any British prime minister, forced out after her unfunded tax cut proposals crashed the pound and sent British borrowing costs soaring.

A leadership election will be completed within the next week to replace Truss. Former finance minister Rishi Sunak, Penny Mordaunt and former prime minister Boris Johnson are among the likely candidates. "If we're looking at UK equities, I don't think the recent political uncertainty fundamentally alters the attractiveness of the market," said Max Newman, a portfolio Manager at Julius Baer.

"Any company in the UK that has a consumer facing business, whether it's retailing or housebuilders, you've seen a very punishing share price reaction this year. They're starting to reflect a recessionary environment for those companies," Newman said, adding there could be more weakness in store for the domestically exposed stocks. Data on Friday showed British shoppers reined in their spending more sharply than expected in September as they felt the hit from rising prices. UK's retail index fell 4.1%, heading towards a more than two-year low hit last week.

Meanwhile, U.S. and European government bond yields surged further as investors priced in aggressive policy tightening by the Federal Reserve. However, bets of an outsized 1% rate hike next month by the Bank of England eased following the fiscal policy reversal this week. Among individual stocks, Deliveroo gained 4.9% after the food delivery company upgraded its adjusted earnings margin guidance and said it was confident it could adapt to the worsening economic outlook.

Holiday Inn owner IHG fell 4.5% after saying its chief financial officer would step down.