The FTSE 100 index ended a directionless trading session on Thursday with a minor loss, as disappointing news from major retailers counterbalanced gains in the defence and banking sectors.
Blue-Chip Index Ends Flat Amid Retail Turmoil
The UK's premier share index, the FTSE 100, closed down a mere 3.52 points at 10,044.69. In contrast, the FTSE 250 mid-cap index managed a slight gain, finishing up 11.49 points at 22,892.30. The mixed performance came on a day dominated by corporate updates from some of Britain's best-known high street names.
Investment director at Fidelity International, Tom Stevenson, struck a note of cautious optimism. He pointed to robust corporate earnings as a key driver for potential returns, but advised against expecting a repeat of last year's stellar performance. "There's certainly a good case to be made for another year of decent returns, but it would be prudent not to expect another 20% year," Stevenson remarked.
Tesco and AB Foods Lead the Fallers
The day's most significant moves were decidedly negative for two retail heavyweights. Associated British Foods (ABF) plunged 14%, making it the FTSE 100's biggest loser, after issuing an unexpected profit warning. The owner of Primark and several food businesses stated that both adjusted operating profit and earnings per share for the current financial year are now expected to fall below last year's levels.
Analyst Georgina Johanan from JPMorgan noted the company faces "trouble on several fronts," citing weaker Primark sales in Europe, higher markdowns, and a mixed performance in its food division.
Tesco shares dropped 6.7% after the supermarket giant reported third-quarter sales that fell short of market expectations. For the 13 weeks to 22 November, group like-for-like sales, excluding VAT and fuel, rose 3.1% year-on-year. However, this growth was below the consensus forecast of 3.6%. Performance over the critical six-week Christmas period to 3 January showed a 2.4% rise in like-for-like sales.
Tesco CEO Ken Murphy acknowledged that "competition is as intense as ever." Despite the sales miss, the company maintained its profit guidance for the 2026 financial year, expecting to hit the upper end of a £2.9bn to £3.1bn range.
Defence Stocks Rally on Trump Budget Pledge
Providing crucial support to the index was a strong rally in defence stocks, sparked by comments from US President Donald Trump. On his Truth Social platform, Trump stated his intention to increase the US military budget to a colossal $1.5 trillion for 2027, citing "very troubled and dangerous times."
In response, shares in BAE Systems jumped 5.0%. The banking sector also performed well, with NatWest, Lloyds, and Barclays all closing higher after Bank of America raised its price targets for the UK lenders, citing a supportive operating environment.
Oil giant Shell was another notable faller, dropping 3.7% after a trading update that analysts at RBC Capital Markets described as "disappointing."
Looking ahead, investors will focus on Friday's trading update from J Sainsbury and key economic data including US nonfarm payrolls and inflation figures from China.
