London close: Stocks stumble amid thin volumes, IMF downgrade

London stocks dipped lower late on Wednesday amid thin trading volumes, a downgrade of UK growth forecasts from the International Monetary Fund and a mixed start on Wall Street.

The FTSE 100 fell 0.25% to 7,525.22, with volumes on the index down 30% versus the 100-day average, while the pound was up 0.1% on the dollar at 1.3403 and down 0.2% against the euro to 1.1286.

On the one hand, investors cheered progress on the US tax reform front after the Senate approved a tax bill that includes $1.5trn of tax cuts - the biggest tax overhaul in three decades - that will now go back to the House of Representatives for a final vote later in the day.

Nancy Pelosi, House minority leader said it is "the worst bill in history. An all-out looting of America, a wholesale robbery of the middle class." She also went on to describe it as one of the most scandalous acts of plutocracy in the country's history.

There some caution among analysts too.

Marshall Gittler, head of strategy at ACLS Global, said: "There may also be some belated realisation that this bill won’t necessarily boost the US economy that much but will cause the US budget deficit to ballon. Of course, that could be USD-positive if it pushes US bond yields higher, but at what cost? Higher bond yields stemming from faster economic activity are a plus for a currency, but are higher bond yields stemming from government profligacy really a positive?"

Focusing on the UK, the International Monetary Fund downgraded its growth forecasts due to Brexit uncertainty. It now expects 1.6% growth this year, down from a previous estimate of 1.7% and 1.5% next year, down from 1.7%.

In its annual update on the UK, the IMF said Brexit had suppressed domestic demand while the pound's post-referendum fall has pushed up inflation and squeezed real income and spending. Business investment has also been weaker than would be expected amid a global economic recovery.

Oanda analyst Craig Erlam said: "The downward revision comes as little surprise to anyone that’s seen the data this year and the ongoing impact that a combination of slow wage growth and high inflation will have on the consumer.

"It’s no surprise that the IMF cited Brexit as being behind the UK’s disappointing growth, claiming the data has justified its “gloomy” forecasts prior to the vote, with the body having been among those lambasted for their dire predictions. While forecasts of recessions now appear to have been over the top, it seems clear that over the next couple of years, low levels of growth are to be expected until more clarity on the future relationship is known and the inflationary impact of the pound’s depreciation passes."

Elsewhere, figures from the Consortium of British Industry showed the balance of retail sales fell to +20 in December from +26 in November, in line with economists' expectations.

CBI principal economist Alpesh Paleja said: "Retailers have seen decent growth heading into the vital Christmas trading period, although it was weaker than expected. It’s clear that people are stocking up on food for their Christmas lunch, with grocers’ sales driving most of the sales growth seen in December."

In corporate news, Tesco edged up after its £3.7bn takeover of Booker was given final clearance from the Competition and Markets Authority. Booker was also trading higher.

William Hill gained after announcing the appointment of Roger Devlin as its chairman-designate with effect from 1 February.

Carillion rallied as it said its new chief executive will start 11 weeks earlier than planned.

EasyJet flew higher after analysts at Panmure Gordon upgraded the stock to 'hold', while paper and packaging group Mondi was boosted by an upgrade to 'buy' by Goldman Sachs and Tullow Oil climbed higher after an upgrade to 'hold' at Jefferies.

On the downside, some profit taking hit Gulf-focused healthcare provider NMC Health after it issued an in-line trading statement and a strategy update that broadens management's ambition to emerging markets as well as confirming its goal of creating a global IVF business. After seeing its shares triple over the last two years, some investors may have got cold feet about a veering onto new paths.

London property developer Shaftesbury declined despite snapping up six buildings on Neal Street near Covent Garden for £24.6m, while

Drax suffered heavy losses after it cut its full-year core earnings guidance by £10m following an unplanned outage at a rail unloading facility.

Micro Focus International slipped after saying that John Schultz had left its board and will be replaced by an independent non-executive director.

Bodycote was in the red after saying it has entered into a long-term agreement to provide Doncasters Group with its hot isostatic pressing and heat treatment requirements in the UK.

Market Movers

FTSE 100 (UKX) 7,520.81 -0.31%
FTSE 250 (MCX) 20,346.13 0.02%
techMARK (TASX) 3,491.44 -0.40%

FTSE 100 - Risers

GKN (GKN) 304.40p 1.64%
BHP Billiton (BLT) 1,434.50p 1.38%
BAE Systems (BA.) 569.00p 0.89%
Ashtead Group (AHT) 1,969.00p 0.66%
Rentokil Initial (RTO) 313.20p 0.45%
Smith (DS) (SMDS) 517.50p 0.39%
HSBC Holdings (HSBA) 758.29p 0.26%
BP (BP.) 508.70p 0.18%
Whitbread (WTB) 3,870.00p 0.16%
Experian (EXPN) 1,594.00p 0.06%

FTSE 100 - Fallers

British American Tobacco (BATS) 4,920.00p -1.50%
Shire Plc (SHP) 3,863.50p -1.44%
Unilever (ULVR) 4,125.50p -1.37%
Informa (INF) 724.00p -1.09%
3i Group (III) 891.50p -1.05%
London Stock Exchange Group (LSE) 3,750.00p -1.00%
Royal Bank of Scotland Group (RBS) 274.70p -0.94%
Rolls-Royce Holdings (RR.) 854.00p -0.93%
Lloyds Banking Group (LLOY) 66.57p -0.86%
Scottish Mortgage Inv Trust (SMT) 439.80p -0.72%

FTSE 250 - Risers

Tullow Oil (TLW) 192.90p 5.70%
CLS Holdings (CLI) 249.00p 4.58%
TalkTalk Telecom Group (TALK) 148.00p 4.52%
Vedanta Resources (VED) 767.50p 4.42%
Evraz (EVR) 335.50p 3.49%
Dignity (DTY) 1,787.00p 3.41%
Ocado Group (OCDO) 356.90p 3.33%
Brown (N.) Group (BWNG) 265.50p 3.31%
Provident Financial (PFG) 870.00p 3.20%
Kaz Minerals (KAZ) 800.00p 2.96%

FTSE 250 - Fallers

Sophos Group (SOPH) 525.00p -7.73%
Alfa Financial Software Holdings (ALFA) 531.50p -3.01%
Dunelm Group (DNLM) 694.00p -2.73%
Drax Group (DRX) 270.60p -2.10%
Softcat (SCT) 516.00p -2.09%
esure Group (ESUR) 257.70p -1.90%
UDG Healthcare Public Limited Company (UDG) 827.50p -1.84%
Diploma (DPLM) 1,206.00p -1.63%
Dechra Pharmaceuticals (DPH) 2,035.00p -1.60%
Thomas Cook Group (TCG) 118.40p -1.58%