UK’s FTSE 100 tumbled to a more than two-month low on Friday as the new government’s economic plan including tax cuts and other business friendly measures did little to ease worries about a potential recession highlighted by weak economic data.
Britain’s new finance minister, Kwasi Kwarteng, announced an economic agenda designed to thrust Britain out of a cycle of stagnation and into a new era of higher economic growth – but with a hefty bill attached.
The internationally focussed FTSE 100 extended losses, falling 1.6% to its lowest since July 15, while the domestically focussed FTSE 250 index dropped 1.1% to hit near two-year lows.
UK’s homebuilder stocks were among the rare bright spots, climbing 1% after Kwarteng said stamp duty will be cut to help families to afford to buy homes. It is among UK’s worst performing sectors this year as rising rates sparked worries about affordability.
“Given that share prices are weak, I think all support measures are pretty helpful for the housebuilding sector,” said Roger Jones, head of equities at London & Capital.
“Overall, there’s very little from the initial headlines and speech that is going to surprise anyone.”
The plan also included scrapping the country’s top rate of income tax and an increase in the corporation tax rate. Kwarteng said Britain will spend about 60 billion pounds ($67 billion) on subsidizing gas and electricity bills for the next six months for households and businesses.
A survey showed the downturn in British businesses steepened this month as they battled soaring costs and faltering demand, hammering home the rising risk of recession.
The S&P Global/CIPS flash Composite Purchasing Managers’ Index (PMI) fell to 48.4 in September. A Reuters poll of economists had pointed to a reading of 49.0. Any reading below 50 marks a contraction in activity.
“We’re very cautious about cyclical equities. We need to see PMI get to trough levels rather than the downward trajectory that we’re on at the moment,” said Jones.
Data earlier showed British consumer confidence slid this month to its lowest level since records began in the mid-1970s.
Oil and mining majors were the biggest drags on the FTSE 100 as commodity prices weakened against a strong dollar.
Among single stocks, Burberry fell 4% after the luxury group said Chief Financial Officer Julie Brown was planning to step down in April.
Smiths Group rose 4.1% after the industrial technology group provided upbeat full-year 2023 forecast.
Made.com plunged 21.7% after the online furniture retailer said it was cutting jobs and mulling options including a sale as it struggles with a steep fall in consumer spending and supply chain snags. (Reporting by Sruthi Shankar in Bengaluru; editing by Uttaresh.V and Anil D’Silva)