FTSE 100 reaches fresh record as UK GDP disappoints

United Kingdom (​​​UK) equities pushed higher on Thursday, with the FTSE 100 reaching a fresh record high despite economic growth figures that fell short of expectations. The index's gains formed part of a broader European rally, with banks leading the advance.

​The Euro Stoxx 50 also reached record levels, suggesting investor confidence remains intact despite concerns about economic momentum. UK financials benefited from this positive sentiment, helping to offset weakness in other sectors that were more directly exposed to the gross domestic product (GDP) miss.

​The rally underscores a curious disconnect between economic data and market performance that has characterised much of the past year. Investors appear increasingly focused on corporate fundamentals and global capital flows rather than domestic growth figures.

​This pattern has been particularly evident in the UK market, where overseas interest in undervalued assets has provided consistent support despite questions about the economy's underlying strength.

​GDP figures undershoot forecasts

​The UK economy grew just 0.1% in the fourth quarter (Q4), falling short of the 0.2% consensus forecast. Annual growth came in at 1.0%, below the 1.2% expected, while December GDP was also 0.1%.

​The composition of growth revealed significant weakness in services, which showed 0% expansion in the quarter. This is concerning given services account for around 80% of UK economic activity and have typically been more resilient than other sectors.

​Production provided the main bright spot, rising 1.2% in the quarter. However, this was offset by a 2.1% fall in construction, with private housing activity proving a notable drag on overall performance.

​The pound and gilt markets showed limited immediate reaction to the GDP miss. Sterling hovered slightly above $1.36, while gilt yields were little changed, suggesting investors had largely priced in soft growth figures.

​Schroders accepts £9.9 billion Nuveen takeover

​The day's biggest corporate story came from Schroders, which surged as much as 31% after agreeing a £9.9 billion cash takeover by United States (US) asset manager Nuveen. The deal marks the end of more than two centuries of independence for the British fund manager.

​The acquisition highlights continued overseas interest in UK-listed companies, which many international buyers view as undervalued relative to global peers. Asset managers in particular have struggled with scale challenges and modest valuations compared to US competitors.

​For Schroders shareholders, the deal represents a significant premium to recent trading levels. The acceptance from the founding family, which still holds a substantial stake, removes a potential obstacle that has scuppered previous takeover approaches.

​Mixed messages from consumer giants

​RELX remained in focus following its latest results, which flagged positive momentum and another year of growth ahead. However, the stock remained volatile after a sharp de-rating linked to fears that artificial intelligence (AI) tools could disrupt its core information services business.

​Unilever dropped despite beating fourth quarter (Q4) sales expectations and announcing a €1.5 billion buyback programme. The fall came as the consumer goods giant guided to growth at the bottom end of its 4% to 6% medium-term range.

​British American Tobacco also leaned heavily on shareholder returns to offset concerns about its core business. The group guided to the lower end of its medium-term range for 2026, but announced a £1.3 billion buyback and reiterated dividend growth as cigarette volumes continue to decline.

​AI disruption theme spreads to new sectors

​The AI disruption narrative, which has already reshaped technology valuations, is now broadening into other areas. After US real estate services shares fell sharply overnight on concerns about AI replacing traditional agents, UK names such as Savills came into focus.

​Investors are rotating away from labour-intensive, fee-based business models that could face margin pressure from AI automation. This represents a significant shift from earlier AI enthusiasm, which focused primarily on technology enablers rather than potential losers.

​The speed at which these concerns are spreading suggests markets are becoming more sophisticated in their analysis of AI's impact. Rather than a blanket assumption that AI benefits all companies, investors are now making sector-by-sector assessments of winners and losers.

​Market resilience despite GDP weakness

​The FTSE 100's resilience in the face of soft GDP data demonstrates several factors at work. Many index constituents generate the bulk of their earnings overseas, insulating them from domestic economic weakness.

​Banks benefited from the broader European rally and ongoing optimism about net interest margins remaining elevated. The sector has been a consistent driver of FTSE 100 performance, even as economic growth has disappointed.

​Takeover activity like the Schroders deal also supports the bull case for UK equities. If international buyers continue to view British companies as undervalued, corporate activity could provide a floor under valuations even if economic growth remains subdued.