Market Report: Next out of fashion as GDP data hits retailers

Next was sold last night after some grim economic data triggered caution about the high street's prospects in the year ahead.

The fashion chain lost 67p to 2,075p, while Marks & Spencer lost 8p to 361.4p. On the second tier, Debenhams was 0.7p weaker at 67.2p and Dixons Retail was 0.35p behind at 21.96p, after official figures showed that the economy had gone into reverse in the three months to December.

The Office for National Statistics said GDP had contracted by 0.5 per cent on the quarter, undershooting City hopes of 0.4 per cent growth.

Worryingly, statisticians added that the result would have been flattish, thus still missing forecasts, even if the country had been spared the disruption caused by the snow. Retailers with a big exposure to the UK soon fell back as traders reassessed their view of the outlook for the economy – and, in turn, the all-important UK consumer.

"In times of uncertainty, retailers bear the brunt as, when we see the economy hit, households are more cautious," Peel Hunt's retail analyst John Stevenson said, summing up the fears in the market.

The concerns were echoed by BNP Paribas' economist Alan Clarke. "The biggest question for 2011 growth is whether or not consumer spending will grow – especially with inflation running well in excess of income growth... We expect pedestrian consumer spending growth at best," he said.

On the upside, the luxury goods group Burberry bucked the sector trend in spectacular fashion, climbing to 1,063p, up 33p, on the read-across from Luxottica, the world's largest premium spectacles group.

Issuing results on Monday, Luxottica, which makes eyewear for Burberry, said it expected a strong 2011 after robust demand for luxury brands drove last year's sales to new records.

Overall, the strength – or the weakness – of the UK economy was the main talking point of the day, dragging the FTSE 100 down to a session low of 5,904.33. Although there was some improvement after US data showed growing confidence among American consumers, the index was still 26.14 points lower at 5,917.71 at the end of the session. The FTSE 250 was also hit, sliding by 71.8 points to 11,501.6.

The news from Spain did not help. The government gave the country's savings banks seven months to raise capital via private means or face partial nationalisation, and financial stocks eased in response.

Lloyds was the weakest of the lot, shedding 1.9p to 63.15p, while its state-backed peer Royal Bank of Scotland fell back to 43.29p, down 0.79p. But the international banking groups fared better, with investors moving in on their exposure to stronger economies. Standard Chartered led the way, gaining 5p to 1,658.5p, while HSBC rose by 0.8p to 698p.

The mining sector was weak last night. Though often a foil against concerns about the UK – the sector is more exposed to the goings-on in the commodity markets and to demand from big metal consumers such as China – stocks lost ground amid fears of further monetary tightening in the big emerging economies.

Commodity markets cooled in response, weighing on the mood around London's legion of mining companies. Eurasian Natural Resources was 28p lower at 1,002p, while Kazakhmys lost 58p to 1,500p. Precious metals producers tracked the gold price, which is on course for its worst monthly performance in 13 months, as investors book profits after last year's strong gains.

As a result, the Mexican silver producer Fresnillo fell to 1,312p, down 43p, while Randgold Resources fell to 4,855p, down 180p. African Barrick Gold shed 8p to 518.5p.

Elsewhere, Vodafone rose by 1.6p to 179.5p on the back of results from the US group Verizon Communications. The update showed strong customer growth at Verizon Wireless, the group's venture with Vodafone.

Ocado, the online grocer which has enjoyed a strong run in recent weeks, was 11p behind at 228p amid profit-taking. That said, market-watchers continued to speculate about the recent run of gains.

The rally means that, despite last night's pullback, the stock is up nearly 30 per cent since the beginning of the year. The rise has reignited bid talk, with Morrisons being mooted as a potential buyer earlier in the week.

The rumours failed to attract much support, however, with smart money continuing to peg the rise on a short squeeze. But there has also been some chatter about a mystery stakebuilder, a theory which received some credence after Arden analyst Nick Bubb weighed in last night

"We suspect that the real answer is that an American stake-builder is at work, although whether that is an institutional fund or a giant online company with tonnes of cash remains to be seen," he said.