London stocks inched higher on Friday, bouncing back from sharp losses, but investors were facing downbeat data that showed the economy struggling against continued fallout from the pandemic.
Gross domestic product rose just 0.1% in July, and remains 2.1% below its pre-pandemic peak, said the Office for National Statistics. It also fell short of consensus forecasts for 0.6% growth.
“This reading on the health of the economy is significantly worse than expected and a particular worry is that many of the supply chain issues have exacerbated since July, with companies in industries right across the board warning of problems,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, in a note to clients.
“If fewer cars roll off production lines, if drivers aren’t available to deliver goods and if shelves go bare, then the only way for output to go is down,” said the analyst, who added that the struggle to find workers, driving up wages and inflation.
“All this raises the unpalatable possibility that stagflation could take hold, where there is a drag on economic growth and knock on higher unemployment, amid the headache of rising prices,” she said.
The FTSE 100
rose 0.3% to 7,048.57, marking its first gain in five sessions, after a 1% drop on Thursday, the worst decline since August 19. Still, the index is headed for its worst weekly loss — 1.3% as of Thursday — in four weeks.