London's financial heart was gripped by anxiety on Wednesday as the FTSE 100 index suffered significant losses, triggered by alarming new data confirming the UK economy contracted in the third quarter of 2024.
The blue-chip index fell by over 1% in early trading, reflecting a wave of pessimism sweeping through the City. The sell-off was a direct response to the Office for National Statistics (ONS) reporting a 0.1% contraction in Gross Domestic Product (GDP) between July and September.
Services Sector Slump Drives Economic Decline
The ONS data pinpointed a sharp slowdown in the dominant services sector as the primary catalyst for the economic decline. This crucial sector, which encompasses everything from hospitality to finance, saw its growth stall dramatically, raising red flags for economists and investors alike.
This gloomy economic snapshot has intensified the debate surrounding the UK's economic resilience. With two consecutive quarters of negative growth constituting a technical recession, the threat of the economy entering a recessionary phase in the final quarter of the year has become a tangible concern for policymakers at the Treasury and the Bank of England.
Global Markets Echo London's Gloom
The bearish sentiment was not contained to the Square Mile. European markets, including the DAX in Germany and the CAC 40 in France, also traded in negative territory, indicating a broader wave of risk aversion among investors.
Meanwhile, the Pound Sterling held its ground against both the US Dollar and the Euro, suggesting currency traders are now intently focused on the Bank of England's next move. The conflicting pressures of a weakening economy and persistent inflationary pressures present a formidable challenge for the Monetary Policy Committee.
Market analysts are now scrutinising every piece of upcoming data, searching for signals on whether this contraction is a temporary stumble or the start of a more prolonged period of economic difficulty for the UK.
