The FTSE 100 edged higher on Tuesday as investors responded to sweeping UK defence spending announcements and welcome inflation data across Europe.
The benchmark index closed up 12.90 points, or 0.1%, finishing the session at 10,497.12, while the FTSE 250 ended slightly lower at 23,013.45.
Prime Minister Keir Starmer unveiled plans to spend almost £300 billion over the next four years to modernise the UK’s armed forces, including more drones, uncrewed vehicles, and an upgrade to the nuclear deterrent.
The proposals include an extra £15 billion pumped into defence spending up to 2030, which Sir Keir described as a “huge historic shift for our nation and a legacy in which I take pride.”
Defence contractors Babcock International (LON: BAB) and BAE Systems (LON: BA.) rose 3.3% and 2.0% respectively, while QinetiQ (LON: QQ.) climbed 2.4% on the news.
Dan Coatsworth, head of markets at AJ Bell, said the extra funding “fired up” shares in defence contractors, giving a “leg-up to a sector that had lost momentum following a storming run in recent years.”
Coatsworth cautioned that “the big unknown is how long the new rally will last,” noting that valuations are “starting to look toppy for many key stocks.”
On the inflation front, annual price growth in Germany fell to 2.3% in June from 2.6% in May, according to provisional data from federal statistics agency Destatis, boosting hopes of the European Central Bank holding rates steady.
France saw consumer price rises slow to 1.8% from 2.4%, statistics authority Insee reported, as costs of petroleum products eased, sending the Cac 40 up 0.4% and the Dax 40 jumping 1.5%.
UK GDP data from the Office for National Statistics showed real gross domestic product increased by an unrevised 0.6% in the first quarter, providing a stable economic backdrop to the market session.
In currency markets, the dollar hit a 40-year low against the yen, trading at 162.60 yen, prompting ING to suggest the Bank of Japan could intervene imminently, with Friday’s US July 4th holiday identified as a possible window.
ING noted that “Japanese officials have made it clear that the weak yen poses a threat to import costs and Japan’s cost of living crisis, which has been a key topic for the electorate.”
On the FTSE 100, Sainsbury (LON: SBRY) rose 1.3% after total retail sales, excluding fuel, climbed 2.7% year-on-year in the 16 weeks to June 20, reaching £9.15 billion and beating consensus expectations of 2.4% growth.
Shell (LON: SHEL) shares rose 1.1% after Bloomberg reported the energy giant is nearing the sale of its South African fuel stations to a unit of Abu Dhabi National Oil for around £1 billion, covering around 600 retail outlets.
Brent crude for August delivery rose to $73.04 a barrel, while gold traded at $4,032.83 an ounce, with Wall Street also moving higher as the Dow gained 0.1%, the S&P 500 rose 0.5%, and the Nasdaq Composite advanced 1.1%.