Rolls-Royce shares fall as UK economy fears grow

Shares in Rolls-Royce fell nearly 5% on Thursday morning as the market greeted chief executive Warren East’s attempt at reassurance with a heavy dose of scepticism.

Rolls-Royce shares fall as UK economy fears grow

In his statement at the annual general meeting East told shareholders overall trading in the first few months of the year has been in line with expectations and the outlook for the year as a whole is unchanged, with the business significantly weighted towards the second half of 2016.

"Despite steady market conditions for most of our businesses, 2016 continues to be a challenging year overall as we sustain investment and start to transition major products in civil aerospace, and tackle weak markets in marine," East said.

Elsewhere in markets, London Stock Exchange Group shares were 0.7% up today after falling 8% yesterday on the news that Intercontinental Exchange had withdrawn its bid to buy the business.

The FTSE 100 as a whole was virtually flat by late morning at 6115.

On the macro side concerns rose over the strength of the UK economy as soft services sector data was published by Markit. The ‘Business Activity Index’ hit an 38-month low of 52.3, down from 53.7 last month.  

This index tracks changes in total UK services activity compared with one month previously. Readings above 50 signal growth in activity compared with the previous month, and under 50 means a contraction.

As with manufacturing, it appears the uncertainty over the upcoming referendum on European Union membership is hitting activity.

“The slowdown in the service sector follows similar weakness in manufacturing and construction to make a triple-whammy of disappointing news on the health of the economy at the start of the second quarter,” said Chris Williamson, chief economist at Markit. “The PMI surveys are collectively indicating a near stalling of economic growth, down from 0.4% in the first quarter to just 0.1% in April.”

“Some of the slowdown may be attributable to the early timing of Easter, though April also saw an increase in the number of companies reporting that uncertainty about the EU referendum caused customers to hold back on purchases, exacerbating already-weak demand linked to global growth jitters and ongoing government spending cuts,” Williamson added. 

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.

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