LONDON MARKET OPEN: UK ekes out 0.1% growth; M&A dominates market

London’s equity markets faced a cautious session, as investors balanced modest domestic economic improvements against the backdrop of persistent geopolitical instability. Despite the UK economy returning to growth in May, market sentiment remained restrained by ongoing tensions in the Middle East, which continue to influence energy costs and supply chain logistics.

Macroeconomic backdrop

According to the Office for National Statistics, UK gross domestic product rose 0.1% in May following a 0.1% contraction in April. This performance aligned with market expectations, driven by a 0.3% expansion in the services sector. However, this growth was partially offset by a 0.5% decline in production and a 0.8% drop in construction output. Analysts at ING indicated that while the monthly figure suggests underlying strength, it fits a historical pattern of early-year outperformance that typically loses momentum as the summer progresses.

Media additions

The broader economic environment remains sensitive to external factors. The conflict in Iran has kept energy prices, specifically Brent crude, under pressure. These international risks have prompted a cautious outlook among traders, even as the government seeks to stabilise domestic industrial sectors. Notably, the Steel Industry (Nationalisation) Act 2026 has now received royal assent, resulting in British Steel moving into public ownership. This transition aims to safeguard domestic supply chains and secure the long-term future of the company’s Scunthorpe site through a newly appointed leadership team.

M&A activity drives market focus

While macroeconomic data provided a subdued environment, merger and acquisition activity served as the primary catalyst for movement across the London indices. Investor attention focused heavily on the mid-cap space, where specific takeover developments exerted significant influence on index performance.

Rotork saw a major surge after ABB agreed to acquire the flow control specialist. The deal, values the Bath-based company at GBP4.14 billion on a fully diluted basis, represents a substantial premium to the company's previous closing price. The acquisition is intended to integrate Rotork’s instrumentation business into ABB’s existing automation division. In the FTSE 100, takeover interest surrounding DCC remained a focal point. The company has extended the deadline for a consortium led by Energy Capital Partners and KKR to announce a firm offer until July 27, following the receipt of an improved proposal.

Additional corporate developments highlighted the divergence in sector performance:

• Diploma: The company topped the FTSE 100 leaderboard after reporting 15% organic revenue growth in the nine months to June 30 and subsequently upgrading its full-year guidance.
• Gooch & Housego: Shares rose sharply following the announcement of a cash acquisition agreement with Arlington Capital Partners.
• Ocado Group: The company recorded a significant decline after reports that North American partners Kroger and Sobeys are reducing the scope of their warehouse collaborations.
• Experian: Shares faced downward pressure despite the company reporting a strong start to its financial year.

What to watch next

Market participants are preparing for a week of significant data releases and corporate milestones that may determine the trajectory of indices in the near term. International economic data remains a priority, with the eurozone scheduled to release trade balance figures, while investors in the United States look toward reports on weekly jobless claims, retail sales, and pending home sales.

Furthermore, the July 27 deadline for the DCC takeover remains a critical date for shareholders. Beyond individual corporate deals, the market continues to monitor bond yields and the potential for further geopolitical volatility in the Strait of Hormuz. Analysts suggest that until there is more clarity regarding energy supply chains and the stability of global trade routes, equities may continue to be driven more by deal-specific news than by broad macroeconomic trends.