European stock markets fell into the red on Friday despite the UK economy posting its fastest growing since World War II.
It came as Britain’s economy grew by 7.5% last year thanks to a rebound in the spring when lockdown restrictions were eased.
According to the Office for National Statistics (ONS) on Friday, it was the biggest increase in 80 years, since 1941, and meant the UK also had the fastest growth in the G7 after a 9 year decline, 4% of GDP in 2020.
It beat growth in the United States, which came in at 5.7%, France and Germany at 7% and 2.7% respectively, and Italy at 6.5%.
However, the UK economy contracted by 0.2% in December as the Omicron Variant weighed on the recovery, but it was a smaller contraction than economists had expected.
It came after a sell-off on Wall Street on Thursday due to rising inflation in the United States. This has stoked expectations that the Federal Reserve will embark on a more aggressive campaign of monetary tightening.
The larger-than-expected jump in the US CPI to a 40-year high of 7.5% in January led to a sharp rise in yields, with the US 10-year jumping 2%.
Meanwhile, the 2-year yield jumped 1.5%, rising 26 basis points on the day, to end above 1.6%. This week alone, the US 2-year yield rose 30 basis points.
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Michael Hewson of CMC Markets said: “The upside move was fueled by FOMC member James Bullard, who said he favored a 50 basis point hike in March, with 50 basis points more by July, while also suggesting the central bank hold an emergency meeting and raise early.
“Seems unlikely given they’re still doing QE and it’s due to end in March anyway, so a few more weeks shouldn’t change too much, but clearly he’s spooked by the number. yesterday’s inflation, and he can’t be alone.”
Sydney, Seoul, Wellington, Taipei, Manila and Jakarta also all fell into the red, although Singapore managed to recover slightly.
The Nikki (^N225) in Japan was closed for holidays.