FTSE 100 extends gains as pound slips on bleak retail sales data

Data showed British retailers suffered the biggest drop in sales in almost three years during December, raising the risk that the economy entered a recession in the fourth quarter. Retail sales volumes shrank 3.2% between December and November as people did their Christmas shopping earlier than usual.

London's blue-chip share index rose on Friday, as the pound came under pressure from a much weaker-than-expected retail sales data, which further swayed expectations around when the Bank of England would start cutting interest rates.

The FTSE 100 rose 0.6%, extending its climb for a second day, but still on course for a weekly loss. Data showed British retailers suffered the biggest drop in sales in almost three years during December, raising the risk that the economy entered a recession in the fourth quarter.

Retail sales volumes shrank 3.2% between December and November as people did their Christmas shopping earlier than usual. The numbers were worse than economists' forecast for a 0.5% drop. "The BOE will become increasingly of the view that the economy is slowing quite dramatically and they need to start easing rates," said Roger Jones, head of equities at London & Capital.

"Inflation does look like it will continue in a downward path despite the data earlier showing a small tick-up. In terms of the timing, we're speaking Q2 when the bank will probably be arm-twisted to start cutting rates." The sterling dipped 0.2% after the data was released, in turn lifting dollar earners such as Shell and AstraZeneca, which draw a large part of their revenue overseas.

The domestically focussed FTSE 250 index added 0.4%, but was on track for a weekly loss. 4imprint Group jumped 11.5% to become the top gainer in the midcap index after the advertising and marketing company raised its profit forecast.

Homebuilder Persimmon climbed 2.3% after Morgan Stanley upgraded the stock to "overweight" from "underweight." Wincanton rallied 47.3% to a 2-1/2-year high after CEVA Logistics, a unit of French shipping group CMA CGM, said it would buy the British logistics firm in an all-cash deal worth nearly 600 million pounds (about $719 million).