London close: Stocks drop on global growth worries, pound pops
London stocks stumbled on Thursday wore on as global growth worries hit markets, as the Bank of England and European Commission cut forecasts for growth this year and next.
Having been steady until midday, FTSE 100 dropped 79 points of 1.1% to 7,093.58 by the close. Meanwhile, sterling made a late rally, climbing 0.3% against the dollar to 1.2972 and 0.4% versus the euro to 1.1424 after the European Union agreed to work with Theresa May on “whether a way through can be found that would gain the broadest possible support in the UK Parliament" as well as respecting the EU's own lines in the sand.
Earlier the pound had dropped to its lowest level in nearly three weeks after the BoE decided unanimously to stand pat on interest rates at 0.75% and cut its growth forecasts for this year and the next.
The Bank's growth forecast for this year was slashed to 1.2% from 1.7%, while the estimate for next year was downgraded to 1.5% from 1.7%. The BoE said it expects this year to see the slowest growth since the recession in 2009 amid rising Brexit uncertainty.
David Cheetham, chief market analyst at XTB said despite the dip in the pound, market reaction was fairly muted.
"Amongst the most dovish news was the lowering of economic growth forecasts for both this year and next and the statement that the bank sees one rate hike fully price in over the next three years. The bank also forecasts inflation, as measured by CPI to move below the 2% level in the coming months, largely due to a fall in fuel prices.
"On the whole it seems like Governor Carney and his fellow rate-setters are erring on the side of caution as far as rate increases are concerned for the time being and this is weighing on the pound a little."
Meanwhile, house price figures out earlier from lender Halifax showed annual growth in the UK eased in January.
Annual house price growth slowed to 0.8% on the year last month from 1.3% in December, missing expectations for a 1.5% increase. On the month, house prices plunged 2.9% in January following a 2.5% rise in December. Analysts had pencilled in a 0.5% decline.
Halifax managing director Russell Galley pointed out that this is the second time in three years that there has been a drop as a new year starts.
"However, the bigger picture is actually that house prices have seen next to no movement over the last year, with annual growth of just 0.8%. This could either be viewed as a story of resilience, as prices have held up well in the face of significant economic uncertainty, or as a continuation of the slow growth we’ve witnessed over recent years."
Howard Archer, chief economic advisor to the EY ITEM Club, said if the UK ultimately manages to leave the EU with a deal at the end of March, he expects UK house prices will eke out a modest gain of 2% over 2019. "If the UK leaves the EU at the end of March without an approved Brexit 'deal', house prices could fall by around 5% in 2019."
In corporate news, tour operator TUI tanked as it cut its earnings outlook due to warm weather and the weak pound.
Ad giant WPP was sharply lower after French advertising rival Publicis reported weaker-than-expected fourth-quarter organic revenues.
Petrofac plunged after one of its former executives pleaded guilty to 11 counts of bribery as part of an ongoing investigation into the company by the Serious Fraud Office.
Meat supplier Cranswick was sold off as revenues edged down 2% over the festive period and it warned operating margin was likely to decline amid a "challenging" commercial landscape.
Shares in online grocery specialist Ocado continued to drop as the fire continued to burn for a third day at its high-tech Andover depot. After local residents had to be evacuated due to clouds of burning chemicals, the local fire brigade said on Thursday that the fire was still being fought but was under control and that the evacuation zone had been lifted.
Bellway retreated even as the housebuilder reported stronger-than-expected volume growth for the first half, as margin guidance disappointed.
Fashion brand Superdry managed to reverse earlier losses after it posted a drop in third-quarter revenue amid weak store sales as it pinned the blame on unseasonably warm weather and product mix.
On the upside, catering company Compass rallied as it said organic revenue for the three months to 31 December 2018 grew by 6.9% driven by strong levels of new business wins, continued good retention rates and bolstered by the impact of the new UK Defence contracts and a positive sporting events calendar.
Smith & Nephew was also in the green as it launched five new strategic "imperatives" for the medium-term after it enjoyed a solid finish to 2018. Revenue for the calendar year grew 2% to $4.9bn, with trading profit up 7% to $1.1bn.
Beazley rose as its pre-tax profit for 2018 came in ahead of analysts' expectations and the insurer said it expects a stronger 2019, with firmer pricing for some lines of business and higher interest rates set to underpin its investment returns.
In broker note action, Morrisons and Tesco were respectively initiated at 'equalweight' and 'overweight' by Morgan Stanley, while Citi resumed coverage of William Hill at 'buy'.
Market Movers
FTSE 100 (UKX) 7,093.58 -1.11%
FTSE 250 (MCX) 18,799.26 -1.44%
techMARK (TASX) 3,438.31 -0.72%
FTSE 100 - Risers
Smith & Nephew (SN.) 1,545.00p 5.71%
Compass Group (CPG) 1,758.00p 3.66%
Hiscox Limited (DI) (HSX) 1,495.00p 1.77%
Imperial Brands (IMB) 2,571.50p 1.42%
Diageo (DGE) 2,965.00p 1.37%
SEGRO (SGRO) 651.20p 1.24%
Centrica (CNA) 139.45p 0.90%
Land Securities Group (LAND) 879.80p 0.39%
British Land Company (BLND) 576.00p 0.35%
Halma (HLMA) 1,484.00p 0.27%
FTSE 100 - Fallers
TUI AG Reg Shs (DI) (TUI) 954.60p -19.38%
Ocado Group (OCDO) 873.80p -9.77%
WPP (WPP) 800.40p -8.38%
Wood Group (John) (WG.) 506.60p -7.22%
Smurfit Kappa Group (SKG) 2,178.00p -5.55%
Smith (DS) (SMDS) 333.50p -5.44%
Melrose Industries (MRO) 164.95p -5.39%
Mondi (MNDI) 1,813.50p -4.28%
Royal Bank of Scotland Group (RBS) 240.00p -3.92%
GVC Holdings (GVC) 657.00p -3.74%
FTSE 250 - Risers
Beazley (BEZ) 520.00p 5.26%
Funding Circle Holdings (FCH) 334.85p 4.30%
Safestore Holdings (SAFE) 584.50p 3.18%
Plus500 Ltd (DI) (PLUS) 1,635.00p 2.38%
Euromoney Institutional Investor (ERM) 1,308.00p 1.87%
Vivo Energy (VVO) 133.20p 1.31%
Tate & Lyle (TATE) 685.00p 1.30%
Barr (A.G.) (BAG) 749.00p 1.22%
BCA Marketplace (BCA) 207.00p 0.98%
Lancashire Holdings Limited (LRE) 579.50p 0.96%
FTSE 250 - Fallers
Petrofac Ltd. (PFC) 395.00p -29.34%
Cranswick (CWK) 2,580.00p -12.96%
Metro Bank (MTRO) 1,268.00p -6.70%
Premier Oil (PMO) 70.00p -6.42%
TI Fluid Systems (TIFS) 180.00p -5.66%
Capita (CPI) 112.35p -5.39%
Aberforth Smaller Companies Trust (ASL) 1,194.00p -4.33%
Weir Group (WEIR) 1,495.17p -4.09%
Rank Group (RNK) 164.00p -3.87%
EI Group (EIG) 200.00p -3.85%