Market Update: FTSE Strides Higher After Improved UK Economic Report Card

The Footsie is off on the front foot in early trade, boosted by hopes of a ceasefire being extended in the Middle East and a surprise boost in the UK’s growth story. There are much better marks on the UK’s economic report card after the surprise acceleration in activity in February. The 0.5% increase was much stronger than the 0.1% growth figure forecast. This is heartening news, given it shows there is more resilience to deal with the repercussions of the Iran war. Earlier snapshots indicated that the activity had been flatlining, but growth for January has also been revised upwards. Banks, retailers and housebuilders are among the gainers in early trade as the UK’s fortunes turn a little more positive.

Unfortunately, it’s likely to be a brief respite given the toxic economic shock being unleashed by the Middle East conflict, with sharply higher energy costs set to weigh down companies and consumers. There will be fears that the economy will have taken one step forward only to take two steps back once the full effects filter through. Services and manufacturing grew by 0.5% in February, both sectors which are likely to be hit by a squeeze as bills rise, with consumers set to become more cautious and companies hit with higher running costs. Construction also rose by 1% with building sites whirring back to activity. The more positive reading has put more of a spring in the step of housebuilders in early trade, but with interest rates looking set to rise and materials costs increasing there is still a risk of fresh weakness ahead.

However, for now investors are taking a glass-half-full attitude, encouraged by hopes of a ceasefire being extended in the Middle East. Oil prices still remain highly elevated, with Brent crude trading around $95 dollars a barrel but they have retreated from the dangerous highs seen during the conflict. Markets appear to be pricing in an imminent end to the war, with bumper corporate results lifting sentiment. The S&P 500 is set to hit new heights later, as what’s been a powerful rally shows little sign of giving up steam.

Back home, investors have cheered Tesco’s results as the grocer stacked up more market share, and delivered sales growth right across the business, despite tough competition in the supermarket sector. Like-for-like sales were up 3.5% as customers piled up trollies, lured in by Clubcard deals. A fresh £750 million buyback scheme has also buoyed the share price which rose more than 3% in early trade. Tesco is like a prize fighter in the supermarket ring, punching away competition from the discounters, with price match offers and staying super nimble due to deep relations with suppliers.

An expanded Tesco Finest range is helping it land clean shots on more premium supermarkets, drawing their customers into its corner. At the same time, existing Tesco shoppers are choosing to treat themselves at home rather than going out, adding power to Finest volumes. Both these shifts are having real staying power, especially as consumers across the income spectrum are set to tighten their belts, suggesting Tesco still has plenty of punches left to throw.