London close: Stocks and sterling struggle for direction amid mixed data

London stocks and the pound were range-bound on Tuesday as investors where overwhelmed by a confusing political backdrop and a slew of UK economic data.

The FTSE 100 closed four points higher, or 0.05% at 7,692.04, having struggled all day to make serious gains, as Theresa May's reshuffled cabinet met for the first time following the resignation of Boris Johnson and David Davis over her Brexit strategy.

Johnson and Davis have been replaced as Foreign Secretary and Brexit Secretary by Jeremy Hunt and Dominic Raab. Meanwhile, Matt Hancock, is the new Health Secretary and Jeremy Wright is the new Culture Secretary, while Geoffrey Cox is Attorney General.

May also met German Chancellor Angela Merkel later in the day at the Western Balkan Summit.

In currency markets, sterling had a choppy day and finished the European session roughly flat against the dollar at 1.3259, having fallen sharply on Monday following Johnson's resignation, and 0.2% firmer against the euro at 1.1303.

Although politics were the main focus, investors also had a deluge of data to wade through.

Figures from the Office for National Statistics showed that Britain's economy accelerated in May, driven by a surge in construction and services output, after flat-lining in April, leaving the MPC on track to hike Bank Rate come August, according to some economists.

Gross domestic product expanded at a month-on-month pace of 0.3%, which was a tenth of a percentage point higher than in the month before. A 2.9% jump in construction output was a chief driver behind the gains, following a drop of 1.8% in March and a flat reading for April.

The ONS also revealed that industrial production fell 0.6% in the three months to May compared to the preceding three month period. Production in the month of May declined 0.4% compared to April, even worse than expected by economists, while manufacturing production bounced back with 0.4% growth on the month and 1.1% on the year in May after falls a month before, though again both not as strong as had been forecast.

"The upturn in the new monthly measure of GDP in May is just strong enough to tip the balance in favour of the MPC likely raising Bank Rate at its next meeting on August 2, provided the government doesn’t implode before then," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Market analyst Joshua Mahony at IG said with GDP data now set to be released on a monthly basis, the BoE might have hoped they are afforded better data with which to drive monetary policy decision-making. "However, while today’s GDP release saw robust services sector expansion and a return to growth for construction, the relatively measly 0.2% expansion seen over the March-May period hardly provides the solid rebound Mark Carney expected.

"However, with August rate rise expectations rising 10% over the past 24 hours it is clear that markets are less concerned with today’s GDP figures, and more influenced by the prospect of a soft-Brexit given the recent exit of hardline Brexiteers from the cabinet."

Trade data was also released, showing a total deficit of £2.8bn in May, smaller than the consensus £3.4bn, while April's deficit was revised down to £3.1bn from £5.3bn.

There was also some encouraging high street data from the British Retail Consortium and KPMG, showing total retail sales in the three months to June were 2.3% higher than last year and like-for-like sales up 1.1%.

Finally, figures from Barclaycard showed that consumer spending rose 5.1% year-on-year in June, with non-essential expenditure growing 5.5% and marking its best performance since October 2016. Almost two thirds of consumers said they felt confident in their household finances - the highest proportion in twelve months.

In corporate news, Ocado reversed earlier losses to trade up after saying it swung to a £9m loss before tax for the half-year to 3 June from a £17.7m profit a year ago.

Infrastructure services provider Kier rose as it secured three-year extensions on its Highways England contracts for Areas 3 and 9, with a total value of around £250m per annum. Management also said they were confident underlying profit and earnings will be in line with expectations.

Softcat surged after the IT infrastructure products and services provider said it expects 2018 adjusted operating profit to be "materially ahead" of its previous expectations thanks to favourable market conditions. Analysts at Credit Suisse upgraded the stock to 'outperform' in response, saying: “Importantly, the growth is broad based and is primarily driven by rising gross profit per customer. We see this as payback on the investments into sales and broadening the group’s capabilities, giving the group greater scope to capture increased wallet share with customers.”

Sky was higher amid reports that 21st Century Fox is preparing to make a higher bid of around £25bn in order to both satisfy investor pressure and to outbid rival Comcast.

Pubco Ei Group was bubbling up slightly on reports has appointed advisers as it looks to sell its commercial property division.

Dechra Pharmaceuticals crawled back earlier losses after saying that trading in the year to 30 June was "strong" and in line with management expectations.

Small cap group Cambian surged after received a 220p per share takeover offer from AIM-listed CareTech.

Tesco was in the red as it announced that its UK and Ireland chief executive Charles Wilson is stepping down as he recovers from throat cancer.

Interdealer broker TP ICAP tumbled 36% following a profit warning and news that its chief executive officer is departing.

In broker note action, Acacia Mining was upgraded to 'overweight' at Barclays, while Chemring was lifted to 'overweight' by the same outfit.

Ascential was boosted to 'add' by Peel Hunt, while Domino's Pizza was rated a new 'buy' at Goodbody Stockbrokers and Ted Baker was started at 'buy' by HSBC.

Computacenter was cut to 'underweight' at Barclays, Rentokil was downgraded to 'hold' at Jefferies, while Convatec was initiated at 'underperform' by Bank of America Merrill Lynch.

Panmure Gordon also started coverage of Equiniti with 'sell' recommendation and a 163p target, citing 15 “red flags” including disappointing organic growth, a sharp increase in net accrued income, endlessly recurring exceptional charges and deteriorating margins.