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London Markets: London stocks struggle after stronger-than-expected UK economic growth data

U.K. stocks fell Friday, after fresh data showing stronger-than-expected economic growth and global inflation worries that weighed on investors.

The FTSE 100 index
UKX,
-0.58%

fell 0.7% to 7,616.49, though set for a weekly gain of 1.3%. The index remains among the strongest globally year to date, up more than 3%.

The pound
GBPUSD,
+0.04%

rose 0.2% to $1.3658, while the yield on the 10-year gilt
TMBMKGB-10Y,
1.525%

slipped 1 basis point to 1.512%. But the two-year gilt
TMBMKGB-02Y,
1.398%

surged to 1.38%, the highest level ince 2011.

Global yields remained elevated a day after U.S. consumer inflation came in a higher-than-expected 7.5% for January, a 40-year high. That has firmed up the case for not only a Federal Reserve interest rate hike in March, but some Wall Street banks are now calling for numerous U.S. hikes this year, such as seven from Goldman Sachs.

Read: Inflation’s on fire, and the Fed’s poised to act. Here’s how markets and the economy have reacted to the first hike in a cycle.

In the U.K., meanwhile, where two interest rate increases have already been pushed through by the Bank of England recently, data showed economic growth expanded by a stronger-than-expected 7.5% in 2021, rebounding from a 9.4% plunge at the height of the pandemic.

“In December Britain’s economy contracted by 0.2% month-on-month to equal its pre-COVID level from February 2020. However this was better than the 0.6% slump that analysts were expecting. The service sector suffered a 0.5% drop and was the main contributor to the decline,” said Victoria Scholar, head of investment at interactive investor

Despite the December slowdown, “the U.K. economy still managed to enjoy its strongest annual growth figures since the 1940s, successfully rebounding from the pandemic doldrums of 2020,” she said, in a note to clients.

Among stocks on the move, shares of Unilever
UL,
-1.76%

ULVR,
+2.88%

rose 2.8%, reversing some of Thursday’s losses after the consumer goods giant’s earnings beat forecasts and announced a share-buyback program, but also warned inflationary costs will pressure its margins in 2022.

British American Tobacco
BATS,
+0.52%

said it was launching a share-buyback program of up to 2 billion pounds ($2.71 billion), and reported higher 2021 pretax profit after booking lower costs. Shares of the heavyweight rose 0.7%.

Weighing on the FTSE 100 was weakness for banks, with Barclays
BARC,
-2.97%

BCS,
-0.18%

down 3% and NatWest
NWG,
+0.44%

off over 1%. Pharmaceutical companies also weighed with a 1.3% drop for GlaxoSmithKline
GSK,
-1.65%

GSK,
+0.41%
.

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