London's benchmark FTSE 100 index moved higher during Friday's session, climbing approximately 0.5% by late morning. The mid-cap FTSE 250 index mirrored the advance, also posting a 0.5% gain. The positive momentum followed the release of robust economic indicators, which fueled market optimism regarding the potential for future interest rate reductions by the Bank of England.
Economic Data Surprises to the Upside
The Office for National Statistics reported that UK retail sales volumes increased by 1.8% in January compared to December, significantly surpassing economist forecasts for a modest 0.2% rise. On an annual basis, sales jumped 4.5%, marking the strongest year-over-year growth since February 2022. Analysts suggested the data indicates consumers are becoming more confident as economic uncertainties subside.
Separately, the S&P Global UK Composite Purchasing Managers' Index (PMI), a key gauge of private sector business activity, rose to 53.9 in February from 53.7 in January. This reading represents the highest level since April 2024. A figure above 50 signifies economic expansion. Economists noted the data points to an encouraging start to the year for the UK economy.
Corporate Movers: Burberry Rises, Energy Giants Lag
Luxury fashion retailer Burberry emerged as one of the top performers on the FTSE 100 in early trading. In contrast, energy heavyweights BP and Shell saw their shares decline as global crude oil prices retreated from recent highs.
The mining sector was in focus following a major earnings report. Anglo American announced a full-year loss of $3.7 billion, driven by a substantial $2.3 billion pre-tax impairment charge related to its De Beers diamond business. The writedown reduces the book value of the diamond division to $2.3 billion. The company's chief executive noted an oversupply of rough diamonds in the current market and confirmed that a strategic review process for De Beers is ongoing.
Market Context and Fiscal Outlook
The gains on Friday followed a session of consolidation, with the blue-chip index pulling back from record levels the previous day. Other miners remained in the spotlight, with Rio Tinto shares under pressure after reporting a decline in annual profit for 2025, despite steady revenue and a maintained dividend. The profit drop was attributed to rising operational and financing costs.
Investor attention is now shifting to the UK's fiscal policy landscape. Following a record budget surplus in January, markets are keenly awaiting Chancellor Rachel Reeves's Spring Statement, scheduled for March 3. Analysts will scrutinize the statement for any adjustments to government tax and spending plans, which could influence economic growth projections and the trajectory for monetary policy.
Market sentiment remains susceptible to external shocks. A recent surge in oil prices, driven by geopolitical tensions and the potential for escalated conflict, alongside a stronger US dollar, could reignite inflation concerns. This combination may pressure commodity-sensitive stocks if investors adopt a more risk-averse stance.
Overall, the session reflected a cautiously optimistic tone, with domestic economic resilience providing support. However, corporate challenges in specific sectors and looming fiscal announcements suggest a complex environment for UK equities as the first quarter of 2026 progresses.
