London market awaits British growth data

London stock market traders will next week pore over British economic growth data as they wait to see if the FTSE 100 can forge a rebound. The FTSE 100 index slid 1.76 percent over the past week to finish on Friday at 5,896.25 points. The Office of National Statistics (ONS) on Tuesday publishes its first estimate of British gross domestic product (GDP) for the fourth quarter of 2010.
"A weak reading is likely to do little positive for stock market sentiment and sow doubts that valuations are getting ahead of a still fragile economic recovery," said David Jones, an analyst at traders IG Group.
Britain emerged from a record-length downturn in late 2009 but economists remain fearful that the government's severe austerity measures could help push the economy into a so-called "double dip" recession. At the same time, the Bank of England may soon start raising interest rates from record-low levels, after news that British inflation had spiked to 3.7 percent in November on the back of soaring energy and food prices.
The BoE's main task is to keep 12-month British inflation close to a target level of 2.0 percent. "I think the UK economy is underheating, not overheating," said VTB Capital economist Neil MacKinnon, who is predicting weak 0.2-percent growth for the fourth quarter, or three months to December.
"The call for the BoE to raise interest rates is misplaced. Higher UK interest rates would have no impact on the main source of (upwards) pressure on the 'cost of living' - which is higher global food prices and higher oil prices."
MacKinnon added: "Putting interest rates up would be a major policy mistake, in my view, given that tax increases and spending cuts have yet to fully impact the economy."
Other important economic releases due next week include British public finances on Tuesday, and minutes from the Bank of England's most recent monetary policy meeting a day later.
In company developments, International Airlines Group - created by the merger of British Airways and Iberia of Spain - will on Monday begin trading on the London stock market. Earnings updates are meanwhile due from pharmaceuticals group AstraZeneca and broadcaster BSkyB on Thursday.