London close: Stocks finish weaker as Chancellor warns on economy
London stocks closed in the red on Wednesday, with banking shares under particular pressure, as investors digested Chancellor Rishi Sunak’s spending review.
The FTSE 100 was down 0.64% at 6,319.09, and the FTSE 250 was 1.11% weaker at 19,569.39.
Sterling was in a stronger position, last rising 0.18% on the dollar to $1.3381, and remaining flat against the euro at €1.1235.
“Dealers have booked some profits from the impressive gains that were racked up yesterday thanks to vaccine hopes and optimism that [US] President Trump will step down early next year without a tantrum,” said CMC Markets analyst David Madden.
“The FTSE 100 is underperforming its eurozone equivalents as oil, mining, pharma and banking stocks are contributing to the pressure on the UK benchmark.
“It is worth noting that commodity stocks enjoyed a very bullish move yesterday so now we are seeing a small pullback.”
Chancellor Rishi Sunak said the UK economy was forecast to contract by a historic 11.3% this year, as government borrowing neared £400bn, in his spending review during the afternoon.
Sunak told Parliament that the Office for Budget Responsibility is predicting the UK economy would shrink by 11.3% in 2020.
That would be the biggest contraction since 1709, when freezing weather conditions across Europe - known as the Great Frost - ruined harvests and killed livestock.
Unemployment, meanwhile, was forecast to peak at 2.6m, or 7.5%, in the second quarter of 2021.
At the same time, government spending and borrowing had soared.
The government spent £280bn "getting the country through" the pandemic, Sunak said, with another £55bn allocated for 2021, while borrowing was forecast to hit £394bn this year, the equivalent of 19% of GDP.
The highest recorded level of borrowing in peacetime history, it was expected to remain above £100bn for the length of the current Parliament.
“Rishi Sunak, the UK Chancellor of the Exchequer, dished out the dreadful news about how much the Covid-19 crisis will cost the UK economy - £394bn is the predicted budget deficit for 2020,” David Madden added.
“GDP this year is tipped to be -11.3% and then it is expected to rebound by 5.5% next year.”
Madden said that, even if the economy recovered by that much, GDP would still be down roughly 6.5% from the pre-pandemic level.
“Mr Sunak mapped out a £3bn scheme to assist with the labour market, and £4bn will be invested in levelling up other parts of the country.”
Stocks had kicked off the session moderately higher, taking their cue from a record close on Wall Street.
Overnight, the Dow finished above 30,000 for the first time, lifted by the prospect of a smooth transition to power by US President-elect Joe Biden and reports that former Federal Reserve Chair Janet Yellen is his top pick for Treasury Secretary.
The S&P 500 also hit a fresh record high.
In equity markets, the FTSE 350 banks index finished down 1.67% at 2,576.11, with Barclays losing 4.81%, Lloyds Banking Group off 3.47% and NatWest 1.63% weaker.
Media platform Future slumped 16.72% after agreeing to buy GoCo in a deal that values the GoCompare owner at 136p a share, and reporting a jump in full-year profit and revenue.
GoCo Group itself ended the session up 5.82%.
“The deal is clearly a positive for GoCo shareholders, at least in the short term, but what it offers Future investors is less clear,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
“If investors in Future wanted exposure to GoCo’s AutoSave business they could have bought the shares in the market yesterday, and at a significantly lower price.
“We think Future has its work cut out to prove the deal adds up.”
Virgin Money UK fell 4.76% after the financial services provider reported a 77% slump in annual profit as it took a £501m impairment charge against an expected surge in bad loans.
On the upside, GKN owner Melrose managed to finish 1.53% firmer after saying it was trading at the top of board expectations, although it also struck a cautious note about the outlook.
Engine maker Rolls-Royce reversed earlier losses to break above the waterline in late trading, adding 1.87% by the close.
Animal genetics company Genus advanced 6.48% after saying it was likely to perform ahead of its previous profit growth expectations for the financial year 2021.
FTSE 100 - Risers
Unilever (ULVR) 4,560.00p 5.07%
Fresnillo (FRES) 1,087.50p 3.77%
Flutter Entertainment (FLTR) 13,300.00p 2.78%
Sage Group (SGE) 589.00p 2.59%
United Utilities Group (UU.) 918.20p 2.45%
Reckitt Benckiser Group (RB.) 6,422.00p 2.12%
Avast (AVST) 490.00p 2.08%
CRH (CRH) 3,171.00p 1.93%
DCC (DCC) 5,626.00p 1.73%
Compass Group (CPG) 1,400.50p 1.71%
FTSE 100 - Fallers
Barclays (BARC) 143.40p -4.53%
Rolls-Royce Holdings (RR.) 110.90p -4.19%
Next (NXT) 6,546.00p -3.85%
Whitbread (WTB) 3,166.00p -3.68%
Legal & General Group (LGEN) 261.90p -3.68%
Lloyds Banking Group (LLOY) 38.13p -3.47%
Hargreaves Lansdown (HL.) 1,454.00p -3.07%
Aviva (AV.) 327.60p -3.02%
Land Securities Group (LAND) 693.90p -2.94%
Prudential (PRU) 1,220.50p -2.90%
FTSE 250 - Risers
Genus (GNS) 4,174.00p 6.48%
Centrica (CNA) 47.13p 3.95%
Centamin (DI) (CEY) 110.30p 3.52%
VinaCapital Vietnam Opportunity Fund Ltd. (VOF) 386.00p 2.65%
C&C Group (CCR) 226.00p 2.49%
Pershing Square Holdings Ltd NPV (PSH) 2,320.00p 2.19%
Apax Global Alpha Limited (APAX) 183.60p 2.11%
Frasers Group (FRAS) 459.80p 1.91%
Hochschild Mining (HOC) 214.40p 1.90%
Capital & Counties Properties (CAPC) 138.80p 1.76%
FTSE 250 - Fallers
Future (FUTR) 1,634.00p -16.72%
Capita (CPI) 46.30p -8.43%
Network International Holdings (NETW) 278.00p -7.27%
Cineworld Group (CINE) 55.00p -6.78%
Greencore Group (GNC) 115.80p -6.61%
TUI AG Reg Shs (DI) (TUI) 510.80p -6.55%
Clarkson (CKN) 2,600.00p -5.79%
National Express Group (NEX) 230.80p -5.33%
Wood Group (John) (WG.) 300.50p -4.91%
Petrofac Ltd. (PFC) 166.25p -4.78%