FTSE on track for worst run in a decade

British shares slumped to a near two-year low on Friday on concerns about slowing earnings growth, with investors punishing Rolls-Royce and Royal Bank of Scotland (RBS).

The FTSE 100, on track for its biggest monthly drop in a decade, closed down 1.4% as selling accelerated after a weak start on Wall Street, where grim earnings from Amazon and Alphabet shook confidence.

Financials led the UK pack lower, followed by the energy sector, which was hit by weaker oil prices and a stronger dollar after better-than-expected US GDP data.

Only 10 stocks advanced, with Randgold Resources rising 3.6% as investors sought shelter in safe haven gold assets and defensive sectors. Bullion hit three-month highs.

Notching up a fifth consecutive weekly loss, the midcap FTSE 250 was down 1.2%.

Pan European stocks were set for their biggest monthly drop since August 2011.

A slew of downbeat corporate outlooks with warnings of higher raw material costs, damage from tariffs and waning Chinese demand underscored worries about corporate growth. Analysts have been downgrading their forecasts for European earnings at their fastest pace since 2016, according to Refinitiv IBES data.

“There aren’t many more lifelines for FTSE heavyweight sectors, with base metals down on China growth worries and oil still in the doldrums on perceived weak demand,” Mike van Dulken and Artjom Hatsaturjants at Accendo Markets said in a note.

RBS fell 5%, touching its lowest point since February 2017, after the UK bank warned of economic uncertainty. It took a £100m impairment provision to account for greater uncertainty.

“The latest results are a bit of a curate’s egg,” said Laith Khalaf, senior analyst at Hargreaves Lansdown. “The headline numbers are ahead of expectations, but this is largely a matter of one-off items toppling onto the right side of the scales.

“The core business is looking pretty stagnant, at best, and the bank’s interest margin is heading in the wrong direction, despite rising rates,” he added.

Rolls-Royce was rocked by news it will produce fewer engines for Airbus’s new A330neo jet than expected, sending its shares down as much as 13%. It recovered ground to close down 3.5%.

Calls for Europe to halt arms sales to Saudi Arabia after the killing of journalist Jamal Khashoggi added pressure to the defence sector.