By Callum Keown
London stock markets were spared heavy losses on Friday by a plunge in the pound after data showed the U.K. economy contracted in the second quarter for the first time since 2012.
The FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +0.34% slipped 0.1% on the weak economic data, along with fears of political instability in Italy, and ongoing concern about growing trade protectionism.
But stocks were spared further losses by a sliding pound as many companies in the blue chip index derive revenue from exports which benefit from a weaker currency.
Sterling, /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0157% which has been hammered by rising no-deal Brexit risks, dropped 0.4% to $1.2085.
What’s moving the markets?
Italian Deputy Prime Minister Matteo Salvini’s calls for a general election sent other European stocks tumbling on Friday.
The leader of the League Party left the coalition government teetering on the brink of collapse and called on Prime Minister Giuseppe Conte to begin the election process.
Italy’s main stock index, the FTSE MIB /zigman2/quotes/210598024/delayed IT:I945 -1.10% , sank 2.3%, leading European stocks lower.
Trade policy tensions resurfaced after reports Washington would delay a decision on allowing U.S. technology companies to restart business with Huawei, the Chinese company that has been drawn into the U.S.-China trade war.
“We don’t think that a Q2 contraction will herald a technical recession in the U.K.,” Deutsche Bank U.K. economist Sanjay Raja said.
“In fact, we see more reasons for a bounce in Q3 data with auto production recovering from factory closures, fiscal loosening and a strong labor market keeping growth afloat — even if only marginally.”
Many U.K. companies had stockpiled inventories early in the year ahead of the original date for the U.K.’s withdrawal from the EU which is now set for Oct. 31.
Which stocks are active?
Advertising giant WPP /zigman2/quotes/202300097/delayed UK:WPP +1.41% rose 6.8% after the company’s half-year results convinced investors its turnaround was on track. A 2% fall in like-for-like sales was better than expected and the company also eased its decline in the U.S. and stuck to its full-year guidance.
Security firm G4S /zigman2/quotes/202248409/delayed UK:GFS +0.56% climbed 4.5% after the board approved plans to split off its cash solutions business, a move it said would unlock “substantial value” for shareholders. The demerger will take place in the first half of next year, the company said.