UK suffers deeper contraction in Q4 growth whilst Lloyds of London deep loss hits insurers

The FTSE 100 lost more ground on Wednesday in yet more choppy trading as the quarter heads towards a close after data from the Office of National Statistics showed that the UK suffered a surprisingly deeper contraction of growth in Q4 than expected.

Investors sold into stocks after the GDP release, which showed that the final reading of Q4 growth in the UK was a contraction of -0.3%, which was deeper than previously expected. The unexpected slip is a disappointment but perhaps it does not essentially change the UK growth picture considering the strong start to the year and the UK is not expected to see a technical recession of two consecutive quarters of negative growth.

It has long been digested that Q4 was a blip quarter and it will now all be about how strong the UK economy can bounce back in Q1 of the new year that will be the key focus for UK investors.

From a data perspective, investors will now watch the latest durable goods numbers from the US, which is likely to influence how European stock indices close out the trading session.

Insurance stocks were a key drag on the FTSE 100 index after Lloyds of London reported its second deepest yearly loss after a year of high disaster claims. Lloyds of London reported a loss of £516m for the year, compared to a profit of £2.2bn in 2010, after insurance claims rose excessively as a result of natural disasters such as the Thailand floods and Japanese earthquake.

The loss for Lloyds is no real surprise given the fact that they had already announced a deep loss in the first half of the same year. The failure to recover progressively from the losses owing to high insurance claims is hurting sentiment in the broader insurance sector today, with the FTSE 350 insurance sector losing 1.57% as a result and this has been a key drag on the FTSE 100.

Shares of RSA Insurance Group and Prudential were the two heaviest fallers in London trade, falling 5% and 3% respectively, though much of this was down to both stocks losing their dividend attraction.

The FTSE 100 has remained above support levels of 5840 and 5820, which is where the UK Index has historically found buyers. It will be important for near term outlook for the FTSE to remain above these levels upon which it can target another attempt at the psychological 6000 level, which has this far put a roof on the advances for UK stock prices. Failure to remain above near term support levels could see a revisit of the 5750 level.