UK shares rise as strong GDP data offsets political uncertainty

UK shares moved higher on Thursday after stronger-than-expected economic growth data reassured investors, even as political uncertainty surrounding Prime Minister Keir Starmer continued to weigh on market sentiment.

The blue-chip FTSE 100 rose 0.39% by 11:09 a.m. GMT, while the mid-cap FTSE 250 gained 0.71%.

Investor sentiment improved after data showed Britain’s economy expanded unexpectedly in March, capping a strong first quarter.

The figures suggested the economy was in a better position than many had anticipated after weak growth during the final quarter of last year.

Analysts caution over growth sustainability

Despite the upbeat economic figures, analysts warned that the strength may not fully reflect underlying demand conditions.

Some economists said businesses may have increased stockpiling activity due to concerns over rising costs linked to supply chain disruptions stemming from the Middle East conflict.

Rob Wood, chief UK economist at Pantheon Macroeconomics, cautioned against reading too much into the data.

George Brown, senior economist at Schroders, also warned that the momentum could fade later in the year, as cited in a Reuters report.

He added that the trend could mean the Bank of England maintains a firm tone on inflation while avoiding the full extent of interest rate increases currently expected by markets.

“That should mean the Bank of England talks tough but stops short of the hikes markets are pricing in,” Brown said.

According to data compiled by LSEG, markets currently expect the central bank to raise interest rates at least two more times this year.

Political uncertainty clouds investor outlook

Questions surrounding Starmer’s political future remained a key concern for investors.

The British prime minister faced increasing pressure amid reports that his health minister was prepared to resign, while his former deputy publicly urged him to “reflect” on his leadership position.

Investors are also concerned that any potential successor could adopt a more left-leaning economic agenda involving higher government spending, despite already strained public finances.

Long-term British borrowing costs climbed earlier this week to their highest levels in nearly 30 years, highlighting growing concerns around fiscal stability.

In an interview with Bloomberg TV, Jamie Dimon warned that any move to increase taxes on banks if Starmer were replaced could affect investment plans.

Dimon said JPMorgan Chase would scrap plans to invest billions in a new London headquarters if such tax increases were introduced.

Legal & General jumps, 3i Group slides

Among individual stocks, Legal & General climbed 6.16%, making it the top performer on the FTSE 100 after the Financial Times reported growing potential buying interest in the company.

Auto stocks also performed strongly, rising 3.23%.

However, gains in the broader market were partly offset by weakness in investment banking-related shares.

The investment banking index fell 3.00%, dragged lower by a sharp decline in 3i Group.

Shares in 3i Group dropped 11.19% and hit their lowest level since May 2023 due to slowing performance at discount retailer Action, the firm’s key portfolio company.