UK’s main equity indexes ended the week higher on Friday, supported by commodity stocks as hopes of smaller central bank rate hikes out of the world’s largest economy offset woes on domestic political uncertainty.
The blue-chip FTSE 100 index rose 0.4%, while the midcap FTSE 250 slipped 1.1%. Both the indexes logged weekly gains of more than 1% after a reversal of departing Prime Minister Liz Truss’s failed tax plan earlier this week.
Truss quit on Thursday, with 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, House of Commons leader Penny Mordaunt and former Prime Minister Boris Johnson are among the likely candidates.
The country now looks forward to welcoming its fifth prime minister in six years who would have to deal with both a recessionary and inflationary trend as investor focus on the Bank of England for clues on further interest rate hikes.
“Whoever is PM, we think a big fiscal tightening is on its way,” said Ruth Gregory, senior UK economist at Capital Economics.
“Given the signs that domestic inflationary pressures remain strong, we are sticking with our forecast that interest rates will rise from 2.25% now to 5.00%.”
Data on Friday showed British shoppers reined in their spending more sharply than expected in September as they felt the hit from rising prices. The UK’s retail index fell 2.9%, heading towards a more than two-year low hit last week.
Mining stocks were higher by 0.9% while Energy stocks advanced 1.6% on hopes of stronger Chinese demand and output cuts by OPEC and its allies.
Among individual stocks, Deliveroo gained 3.5% 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 2.1% after saying its chief financial officer would step down.
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