London stocks traded modestly lower on Friday as investors weighed stronger-than-expected retail sales figures against deteriorating public finances, renewed political uncertainty and concerns over developments in the Middle East. While consumer spending showed encouraging signs of recovery, market sentiment remained cautious amid a widening government borrowing gap and speculation surrounding the future leadership of the Labour Party.
Official figures showed UK retail sales volumes increased by 1.2% in May, comfortably ahead of forecasts for a 0.5% rise and reversing April’s 1% decline. On an annual basis, sales volumes climbed 3.2%, surpassing expectations of 1.9%. Despite the upbeat data, attention quickly shifted to public sector borrowing figures, which revealed borrowing of £23.3 billion in May, £5.6 billion above official forecasts and the second-highest May figure on record.
Debt servicing costs also surged, with interest payments reaching a record £11.7 billion, driven by higher inflation-linked gilt costs. Borrowing for the financial year to date has reached £46.3 billion, exceeding projections by £7.7 billion, while public sector net debt climbed to 95.1% of GDP, its highest level in decades.
The FTSE 100 underperformed its European counterparts, slipping 0.12%, while Germany’s DAX and France’s CAC 40 posted modest gains. Sterling weakened slightly against the US dollar as investors reacted to growing political uncertainty following Andy Burnham’s victory in the Makerfield by-election. The result has fuelled speculation over Labour Party leadership dynamics, adding another layer of uncertainty to the domestic outlook.
International developments also remained in focus. Concerns resurfaced over the durability of the recently announced US-Iran framework after planned talks in Switzerland were postponed and diplomatic tensions increased. Markets also monitored developments around the Strait of Hormuz, where Iranian authorities introduced new shipping oversight measures aimed at maintaining trade flows through one of the world’s most important energy corridors.
Commodity markets reflected the changing risk environment. Oil prices moved higher, with Brent crude and WTI both advancing as traders assessed geopolitical risks and the outlook for global supply. Gold prices, however, retreated sharply as demand for traditional safe-haven assets eased.
UK Corporate Highlights
PPHE Hotel Group Shares Fall After Takeover Proposal Collapses
PPHE Hotel Group (LSE:PPH) came under pressure after confirming that a proposed £920.9 million takeover approach from Fattal Hotel Group will not proceed following opposition from a major shareholder. The company said it remains engaged in its broader strategic review process and disclosed that another preliminary expression of interest has been received from a separate party.
Barratt Redrow Appoints New Finance Chief
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