FTSE and pound fall in response to 'stunningly bad' GDP figures

The pound and UK shares slid on Tuesday as investors digested a shock contraction in the economy and awaited a key statement from the Federal Reserve on its efforts to boost the US recovery.

The FTSE 100 index of blue-chip shares closed down 26 points at 5,918 – after earlier flirting with the 5,900 mark – while the Mid-250 index slid 72 points to 11,501.

Analysts described as ‘shocking’ and ‘stunningly bad’ the 0.5% drop in fourth-quarter UK gross domestic product, which economists had forecast to grow 0.5%. The data renewed fears that Britain’s economic recovery has stalled.

Chancellor George Osborne blamed the contraction on the harshest December weather on record, pledging that the fall in output would not derail the government’s planned austerity measures.

On currency markets sterling slumped 1.15% against the dollar, at $1.58, and tumbled 1.07% against the euro, at €1.16.

Shares also fell on Wall Street, although following more mixed economic data. An index of consumer confidence rose in January to its highest level in eight months, but a report showed that single-family home prices declined for a fifth consecutive month in November.

The Fed’s rate-setting committee, meanwhile, met ahead of an interest rates decision tomorrow. The panel is also to issue an accompanying statement, amid speculation over the future of the central bank’s programme of buying billions of dollars of bonds to prop up the US economy.

At the time of writing the Dow Jones industrial average traded 56 points lower at 11,9245; the Standard & Poor's 500 Index slid 7 points to 1,284; and the Nasdaq Composite Index was down 23 points at 2,704.

In the UK financial and resources stocks dominated the losers' board on the FTSE 100. Copper miner Kazakhmys fell 58p to £15 and gold miner Randgold Resources dropped £1.80 to £48.55. Lloyds, the banking group, shed 2p to 63p.

Luxury goods retailer Burberry was the biggest gainer, rising 33p to £10.55.