FTSE 100 dips after weak data highlights recession risks

The S&P Global/CIPS flash composite Purchasing Managers' Index (PMI) dropped to 47.8 in January from 49.0 in December, at the bottom end of economists' forecasts, as businesses blamed higher Bank of England interest rates, strikes and weak consumer demand for the slowdown. Separately, data showed Britain's government borrowed more last month than in any December since monthly records began 30 years ago, reflecting the huge cost of energy support and soaring debt interest linked to rising inflation.

UK's blue-chip index fell on Tuesday, with healthcare and commodity stocks leading losses after data showed British private-sector economic activity fell at its fastest rate in two years in January.

The FTSE 100 fell 0.4%, with drugmaker AstraZeneca and miner Glencore proving the biggest drags on the index. The S&P Global/CIPS flash composite Purchasing Managers' Index (PMI) dropped to 47.8 in January from 49.0 in December, at the bottom end of economists' forecasts, as businesses blamed higher Bank of England interest rates, strikes and weak consumer demand for the slowdown.

Separately, data showed Britain's government borrowed more last month than in any December since monthly records began 30 years ago, reflecting the huge cost of energy support and soaring debt interest linked to rising inflation. "A difficult morning for the UK data-wise, as the higher-than-expected borrowing figures highlight the tight fiscal constraints the government is working under," said Stuart Cole, head macro economist at Equiti Capital.

"Similarly disappointing PMI numbers, showing output falling at its fastest pace for some two years, will reinforce fears that the UK economy is heading into recession, if not in one already." Market participants are pricing in a 70% chance of a 50-basis-point hike by the Bank of England next week.

Interest rate hikes are expected to continue with the U.S. Federal Reserve and the European Central Bank coming out with their monetary policy decisions next week. Senior surged 10.4% after the aerospace company said its adjusted profit for 2022 is expected above expectations, pushing the FTSE 250 midcaps up 0.3%.

Associated British Foods fell 1.6% after the group cautioned economic headwinds may dent consumer spending in 2023. Marston's jumped 7.2% after the pub group posted year-end holiday sales above pre-pandemic levels.

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