ondon stocks climbed as disappointing early data from the private sector fuelled suggestions that the Bank of England could soon halt its current cycle of interest rate hikes and lead to a lower peak in borrowing costs than previously forecast.
The closely followed S&P Global/CIPS flash UK purchasing managers’ index (PMI) fell to its worst reading for two and a half years, with economists warning that it could point towards a possible recession.
The FTSE 100 moved 0.68%, or 49.77 points, higher to finish at 7,320.53.
Elsewhere in Europe, the picture was largely similar as French and German industry data also showed pressure from interest rates but also suggested that inflationary pressure is continuing to ease.
Germany’s Dax index was 0.15% higher for the day and the Cac 40 closed up 0.08%.
Michael Hewson, chief market analyst at CMC Markets UK, said: “It’s been another day of disappointing economic data with French, German and UK flash manufacturing and services PMIs coming in well below expectations and pointing to a 0.2% contraction in Q3 GDP.
“Rather perversely this hasn’t been taken as the negative as it might have done as it serves to prove that the rate hikes that have been implemented by central banks are starting to have the desired effect, as services sector activity slowed more than expected in August.
“Consequently, the weak data has helped push the FTSE 100 to a one-week high, as well as helping it to outperform its European peers, as the more defensive areas of the market outperform, helped by utilities.”
London’s multinationals were also boosted by weakness in the pound, which came under pressure as a result of the latest PMI data.
Economists such as Martin Beck at EY Item Club suggested that although the Bank of England was still likely to increase rates again next month, it is unlikely to increase them beyond this, weighing on the value of sterling.
The pound was down 0.11% to 1.271 US dollars and 0.23% lower at 1.170 euros at market close in London.
In company news, JD Sports stumbled after Foot Locker became the sports retailer’s latest rival to post a weak earnings update.
The US footwear specialists cut its annual sales forecasts after it reported a 9.9% drop in sales to 1.86 billion dollars (£1.46 billion) for the latest quarter.
As a result, UK-based competitor JD Sports saw shares decline by 7.6p to 133.15p, adding to a fall in shares on Tuesday on the back of a weak showing from Dick’s Sporting Goods.
Costain climbed after the infrastructure company hinted that it could be close to paying shareholders a dividend for the first time in several years.
Shares in the company rose 3.1p to 51p.
Elsewhere, the price of a barrel of Brent crude fell by 0.8% to 83.41 US dollars as markets were closing in London.
The biggest risers in the FTSE 100 were Endeavour Mining, up 67p at 1,669p, Unite Group, up 29p at 937.5p, Segro, up 20.8p at 726.2p, Fresnillo, up 15p at 553p, and Flutter, up 360p at 14,000p.
The biggest fallers in the index were JD Sports, down 7.6p at 133.15p, BP, down 6.75p at 471.15p, Centrica, down 1.95p at 144.5p, Frasers Group, down 10.5p at 784.5p, and B&M, down 5.8p at 563p.