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U.K. Stocks Decline as Economy Shrinks; Lloyds, Tesco, Next Drop

U.K. stocks dropped after Britain’s economy unexpectedly shrank the most in more than a year in the fourth quarter as construction slumped and the coldest weather in a century hampered services and retailing.

Lloyds Banking Group Plc led financial stocks lower, sliding 2.9 percent. Allied Irish Banks Plc sank 7.2 percent in Dublin after announcing it will buy back 2 billion euros ($2.7 billion) of its bonds. Tesco Plc paced declines by retail stocks, falling 1.6 percent.

The benchmark FTSE 100 Index lost 26.14, or 0.4 percent, to 5,917.71 at the 4:30 p.m. close in London, its first decline in three days. The gauge has rallied 68 percent since its low in March 2009 as the Bank of England purchased 200 billion pounds ($316 billion) of assets to spur the economy. The FTSE All-Share Index declined 0.5 percent today, while Ireland’s ISEQ Index advanced 1.1 percent.

Today’s economic data represent “a severe slowdown when compared to the 0.7 percent growth in the third quarter,” Azad Zangana, European economist at Schroders Plc, said in e-mailed comments. “These are a disappointing set of numbers and should dash any threat of a rise in interest rates in the near future.”

Britain’s economic growth has lost momentum even before Prime Minister David Cameron’s government cuts public spending further to reduce the budget deficit. Gross domestic product fell 0.5 percent after gaining 0.7 percent in the third quarter. Economists had forecast a 0.5 percent gain, according to the median of 33 estimates in a Bloomberg News survey.

The economy’s growth rate would have been “flattish” in the fourth quarter without the impact of the weather, the Office for National Statistics said in London.

Lloyds, RBS Slide

Lloyds, 41 percent U.K.-government owned, fell 2.9 percent to 63.2 pence. Royal Bank of Scotland Group Plc lost 1.8 percent to 43.3 pence.

Banks led declines in Europe today after Spain’s plans to to strengthen its lenders failed to calm investors.

Allied Irish Banks Plc plummeted 7.2 percent to 24.6 euro cents in Dublin. The lender will buy back about 2 billion euros of subordinated bonds at a 70 percent discount as it seeks to raise money as a cushion against losses. The bank will add about 1.4 billion euros to the core Tier 1 capital it holds by repurchasing the dollar, euro and pound-denominated notes, Allied Irish said in a statement.

Retailers Slump

Tesco, the U.K.’s largest retailer, slumped 1.6 percent to 399 pence. Marks & Spencer Group Plc lost 2.2 percent to 361.4 pence. Next Plc fell 3.1 percent to 2,075 pence.

PZ Cussons Plc plummeted 7 percent to 352.6 pence. The U.K. maker of Imperial Leather soap said fiscal first-half pretax profit dropped 0.4 percent from a year earlier to 445.5 million pounds.

Hornby Plc sank 11 percent to 123 pence, the biggest drop in more than a year. The U.K. maker of model trains said pretax profit in the year to the end of March 31 will probably be “below current market expectations” because of bad weather before Christmas.

To contact the reporter on this story: Jack Jordan in London at jjordan22@bloomberg.net.

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

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