London midday: Stocks turn lower as sterling slides under $1.04
London stocks had slumped into the red by midday on Monday, while sterling fell to an all-time low against the dollar amid concerns the swathe of tax cuts announced by chancellor Kwasi Kwarteng last week will do little to boost growth and will instead add to inflation.
The 100 was 0.9% lower at 6,959.22, reversing earlier gains, while the pound was down 1.1% against the dollar at 1.0743, having plunged to as low as 1.0327 in Asian trading - levels not since Britain went decimal in 1971.
Sterling was being battered by concerns that the so-called mini-budget announced on Friday will pile further pressure on an already-heavily indebted economy. At the same time, UK gilt yields surged, with the 10-year moving past 4%.
Russ Mould, investment director at AJ Bell, said: "The market’s continuing verdict on the mini-Budget which turned out to be anything but mini couldn’t really have been any more savage as sterling hit an all-time low against the dollar.
"The sceptre of parity against the dollar, which felt far off just a week ago, now feels dangerously close.
"Amid talk of an emergency rate rise from the Bank of England, the FTSE 100 tried to rebound on Monday but quickly lost strength.
"When the pound is weak it lifts the relative value of the overseas earnings which dominate the index. More instructive is the performance of the more domestic-facing FTSE 250 which remained under pressure and slipped to its lowest levels since 2020.
"The problem for the new Government is the growth it hopes to engineer through tax cuts is unlikely to come through that quickly while the reduction in the buying power of the pound will effectively import more inflation at a time of already acute inflationary pressures.
"Government borrowing costs are also going through the roof - a key question facing investors in the face of all this is can and will Truss, Kwarteng and co. hold their nerve."
Investors were also mulling the latest survey from Rightmove, which showed that house prices continued to push higher in September, despite the cost-of-living crisis and interest rates at 14-year highs.
According to the latest Rightmove House Price Index, the average asking price of a property coming to market was £367,760 in September, up 0.7% on August and 8.7% year-on-year.
The increase was largely in line with the average September rise of 0.6% seen over the last 10 years.
The Bank of England last week upped interest rates for the seventh consecutive time, leaving the cost of borrowing at its highest since 2008. According to Rightmove, the average monthly mortgage payment for first-time buyers putting down a 10% deposit has now reached £1,057 per month, or 40% of an average gross salary, for the first time since November 2012.
Inflation also remains at near-40 year highs at 9.9%.
But Tim Bannister, director of property science at Rightmove, said: "The end of the summer break and the start of the new school term is usually a time when we see renewed focus from buyers, as those with plans to move see an autumn window of opportunity ahead.
"Price growth this month in the middle and high-end sectors highlights that even when finances are more stretched, many of the reason for looking to move up the ladder remain."
In equity markets, housebuilders were the worst performers amid concerns the BoE will have to ramp up interest rates, increasing borrowing costs further. Taylor Wimpey, Persimmon, Berkeley, Barratt, Bellway and Vistry all fell sharply.
Retailers were also weak, with Next, B&M and Marks & Spencer all trading down.
Virgin Money was also under pressure as Berenberg re-established coverage of the shares at ‘hold’ from ‘under review’, saying the bank will struggle to re-rate given potential revenue headwinds and a sector-lagging return on tangible equity.
Outside the FTSE 350, Pendragon shares surged after the car dealership got a £400m takeover offer from its largest shareholder, Hedin Group.
FTSE 100 - Risers
Melrose Industries (MRO) 103.15p 3.34%
Smiths Group (SMIN) 1,534.50p 2.99%
Ashtead Group (AHT) 3,927.00p 2.56%
Spirax-Sarco Engineering (SPX) 10,040.00p 2.39%
Scottish Mortgage Inv Trust (SMT) 808.00p 2.12%
Croda International (CRDA) 6,600.00p 2.10%
Ocado Group (OCDO) 565.00p 2.10%
Halma (HLMA) 2,104.00p 2.09%
Rolls-Royce Holdings (RR.) 73.27p 1.93%
Fresnillo (FRES) 702.80p 1.83%
FTSE 100 - Fallers
Taylor Wimpey (TW.) 96.00p -6.93%
Persimmon (PSN) 1,267.00p -6.15%
Berkeley Group Holdings (The) (BKG) 3,303.00p -5.20%
B&M European Value Retail S.A. (DI) (BME) 302.30p -4.97%
Rentokil Initial (RTO) 476.30p -4.70%
Next (NXT) 5,248.00p -4.34%
Barratt Developments (BDEV) 388.70p -4.26%
Lloyds Banking Group (LLOY) 44.28p -4.22%
Rightmove (RMV) 549.00p -4.02%
NATWEST GROUP (NWG) 232.90p -3.92%
FTSE 250 - Risers
Darktrace (DARK) 318.20p 4.95%
Aston Martin Lagonda Global Holdings (AML) 149.70p 4.18%
Playtech (PTEC) 406.60p 4.04%
Weir Group (WEIR) 1,475.00p 2.15%
Watches of Switzerland Group (WOSG) 795.50p 2.12%
JTC (JTC) 713.00p 1.86%
Softcat (SCT) 1,181.00p 1.81%
Fidelity Emerging Markets Limited Ptg NPV (FEML) 606.10p 1.66%
Spectris (SXS) 2,821.00p 1.58%
European Opportunities Trust (EOT) 661.00p 1.38%
FTSE 250 - Fallers
Mitie Group (MTO) 62.70p -9.39%
Virgin Money UK (VMUK) 128.45p -9.19%
Vistry Group (VTY) 664.50p -6.28%
Syncona Limited NPV (SYNC) 159.00p -6.03%
Bellway (BWY) 1,804.50p -5.92%
Mitchells & Butlers (MAB) 143.10p -5.61%
Ferrexpo (FXPO) 128.80p -5.57%
Urban Logistics Reit (SHED) 136.00p -5.56%
Travis Perkins (TPK) 778.60p -5.28%
UK Commercial Property Reit Limited (UKCM) 58.80p -5.16%