London close: Banking panic overshadows Hunt's Budget

London's financial markets saw a significant downturn by the close on Wednesday, after Chancellor Jeremy Hunt took the wraps off his long-awaited Budget earlier in the afternoon.

The FTSE 100 dropped 3.83%, closing at 7,344.45, while the FTSE 250 saw a decline of 2.63%, finishing at 18,625.85.

Investor concerns were exacerbated by reports that a top shareholder of Credit Suisse would refuse to provide the struggling lender with any further financial assistance.

Sterling was in a mixed state, falling 0.98% on the dollar to trade at $1.2039, while it strengthened 0.7% on the euro to €1.1407.

“Hopes for a return of calm have been dashed today, as what began with a regional banking crisis in the US morphs into another crisis over European banks, with Credit Suisse the name in everyone’s sights,” said IG chief market analyst Chris Beauchamp.

“The bank has seen its biggest shareholder rule out providing more funding, followed by an appeal for public support from the Swiss National Bank.”

Beauchamp said such headlines were not the kinds of things likely to encourage investors to head back into European banking stocks.

“After having been relatively unaffected by the initial stages of the crisis, stocks in Europe have really joined in the selling, erasing more of their 2023 gains.”

Chancellor takes the trimmers to pension tax policy

The UK economy looked set to avoid a recession in 2023, according to Chancellor Jeremy Hunt, who unveiled a “budget for growth” in the Commons earlier.

Hunt announced a number of measures to boost productivity and growth, including increasing the annual pension allowance to £60,000 from £40,000, scrapping the lifetime allowance, and introducing “full capital expensing” for the next three years, letting companies deduct their investments in IT equipment, plant, and machinery from taxable profits.

Additionally, Hunt said every pound invested by a company could be deducted "in full and immediately" from taxable profits.

“Hunt has unveiled a pensions tax-cutting bonanza far beyond anyone’s pre-budget expectations, and the most significant retirement policy intervention since the 2015 pension freedoms,” said Tom Selby, head of retirement policy at AJ Bell.

“The lifetime allowances have long acted as a drag anchor on strong investment performance and a deterrent to retirement saving, while also creating horrendous complexity in the system.

“It has also added to the huge turmoil engulfing the NHS, with senior doctors choosing early retirement over paying a pension tax penalty.”

Despite avoiding a recession, living standards were still expected to record their biggest two-year fall in seven decades, with the tax burden increasing for millions of people, according to earlier data from the Office for Budgetary Responsibility.

“Fiscal policy will no longer dampen GDP growth over the next year, following the chancellor’s tweaks today,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“Indeed, the OBR predicts that the primary deficit will increase to 2.2% of GDP in 2023-2024, whereas previously it expected it to be reduced by 0.6%.”

Tombs said the Monetary Policy Committee, however, need not respond to the loosening of fiscal policy, as most of the new measures were designed to boost the economy’s supply side.

“The chancellor remained committed to many policies that will bear down on demand over the year.

“He has stuck to plans to effectively increase labour taxes in April by freezing, in nominal terms, the thresholds for national insurance contributions and the basic and higher rates of income tax.”

Elsewhere, the UK government u-turned on plans to axe support for household energy bills, following pressure from campaigners.

Average annual bills would now stay at £2,500 instead of £3,000 until the end of June under a price cap system.

Falling wholesale prices had given the government some room to manoeuvre, with the announcement coming hours before Hunt’s Budget statement.

However, the one-off support of £400 that had been available over the winter in monthly instalments would still end on 1 April.

International economic data paints mixed picture

On the continent, eurozone industrial production increased by 0.7% in January, better than the expected 0.4%.

The production of intermediate goods grew by 1.5%, while production of capital goods fell by 0.2%, durable consumer goods by 0.7%, energy by 0.8%, and non-durable consumer goods by 2.1%.

Across the pond, US retail sales volumes dipped by 0.4% in February, according to the Department of Commerce.

That was in line with economists' forecasts for a dip of 0.4%, while January's monthly increase in retail sales was revised up by two tenths of a percentage point to 3.2%.

Wholesale inflation in the US meanwhile slipped unexpectedly last month, with total final demand prices drifting lower at a month-on-month pace of 0.1% in February, according to the US Department of Labor.

Economists had forecast a rise of 0.4%.

Still stateside, manufacturing activity in the New York region deteriorated sharply in March, according to data released on Wednesday.

The New York Fed’s Empire State index fell to -24.6 from -5.8 in February, coming in well below expectations for a decline to -8.0.

Finally on data, China’s economy strengthened in the first two months of 2023, official data showed, after the end of Covid restrictions boosted consumer spending.

Retail sales rose 3.5% year-on-year in the year to February, reversing a 1.8% fall in December.

Industrial production also improved, ahead 2.4% compared to a 1.3% rise in December.

The figure was slightly below expectations, however, for 2.6%.

Britain’s banks drag London’s bourse seriously lower

On London’s equity markets the standout losers were the banks, with Barclays falling by 9.09%, Standard Chartered by 7.69%, NatWest Group by 5.69%, Lloyds Banking Group by 4.6%, and HSBC Holdings by 4.96%.

It came after Credit Suisse entered freefall on the back of reports that the chairman of Saudi National Bank said the shareholder would not provide any more injections of cash if there was another call for more liquidity.

“It looks like there are increasingly worried investors and counterparties looking at Credit Suisse as potentially being the next shoe to drop,” said Neil Wilson, chief market analyst at Markets.com.

“If Suisse were to run into serious existential trouble, we would be in a whole other world of pain - it really is too big to fail.

“I’m not sure the European Central Bank can go ahead with a 50-basis point hike tomorrow in this febrile kind of environment.”

Elsewhere, insurer Prudential also saw a significant fall, dropping 12.43%, despite reporting a better-than-expected rise in annual profit on the back of new insurance sales and noting that China’s relaxation of Covid restrictions had also provided a boost.

Online trading platform IG Group tumbled by 9.91% after posting a decline in third-quarter revenues amid lower market volatility.

Media group Future weakened 5.38% after an initiation at ‘hold’ by Jefferies, which cited a cautious outlook.

On the upside, Balfour Beatty gained 2.17% after the construction company posted a jump in full-year profit, announced a £150m share buyback, and hailed a "strong" operational and financial performance across the group.

4imprint Group rallied by 1.57% after reporting a rise in full-year profit and revenue and proposing a special dividend.

Meanwhile, Spirent Communications was boosted by an upgrade to ‘buy’ from ‘hold’ at Berenberg, while Ibstock was lifted by an upgrade to ‘buy’ at Numis, with the former rising by 2.02% and the latter by 3.68%.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,344.45 -3.83%
FTSE 250 (MCX) 18,625.85 -2.63%
techMARK (TASX) 4,476.50 -1.57%

FTSE 100 - Risers

United Utilities Group (UU.) 1,053.50p 0.96%
Haleon (HLN) 318.50p 0.95%
Unite Group (UTG) 940.50p 0.43%
SEGRO (SGRO) 782.60p 0.31%
Fresnillo (FRES) 737.60p 0.14%
GSK (GSK) 1,381.40p 0.07%
Severn Trent (SVT) 2,810.00p -0.07%
BT Group (BT.A) 143.30p -0.17%
Reckitt Benckiser Group (RKT) 5,796.00p -0.34%
Rightmove (RMV) 540.20p -0.55%

FTSE 100 - Fallers

Prudential (PRU) 1,036.00p -12.43%
Glencore (GLEN) 412.00p -10.72%
Barclays (BARC) 138.24p -9.09%
Shell (SHEL) 2,259.50p -8.50%
BP (BP.) 486.80p -8.29%
Standard Chartered (STAN) 643.20p -7.69%
International Consolidated Airlines Group SA (CDI) (IAG) 133.64p -7.61%
Anglo American (AAL) 2,559.50p -7.60%
Abrdn (ABDN) 199.85p -7.56%
Rolls-Royce Holdings (RR.) 144.14p -7.13%

FTSE 250 - Risers

Ibstock (IBST) 174.90p 3.68%
Big Yellow Group (BYG) 1,200.00p 2.65%
Balfour Beatty (BBY) 348.00p 2.17%
Assura (AGR) 50.60p 2.16%
Spirent Communications (SPT) 177.10p 2.02%
Vietnam Enterprise Investments (DI) (VEIL) 571.00p 1.96%
Domino's Pizza Group (DOM) 270.60p 1.88%
4Imprint Group (FOUR) 4,540.00p 1.57%
Safestore Holdings (SAFE) 965.50p 1.47%
Pennon Group (PNN) 873.00p 1.45%

FTSE 250 - Fallers

Harbour Energy (HBR) 247.40p -12.92%
IG Group Holdings (IGG) 695.50p -9.91%
Tullow Oil (TLW) 29.38p -9.21%
Carnival (CCL) 636.40p -8.96%
Aston Martin Lagonda Global Holdings (AML) 240.40p -8.35%
Mitchells & Butlers (MAB) 151.50p -8.24%
Wizz Air Holdings (WIZZ) 2,657.00p -8.11%
Hunting (HTG) 230.00p -8.00%
Dr. Martens (DOCS) 128.30p -7.63%
ASOS (ASC) 784.50p -7.49%