London close: Banks lead stocks weaker as Braverman resigns

London stocks closed below the waterline on Wednesday, after Liz Truss had her first round of Prime Minister’s Questions, while data released earlier showed UK inflation hitting double digits again in September.

The FTSE 100 ended the session down 0.17% at 6,924.99, and the FTSE 250 was off 1.61% at 17,247.55.

Sterling was meanwhile mixed, last trading down 0.8% on the dollar at $1.1230, while it managed to strengthen 0.01% against the euro to €1.1486.

“European markets have struggled for gains today, although the downside has been limited, with progress constrained by a sharp rise in US yields, as well as the US dollar, after Minneapolis Fed President Neel Kashkari said that the Federal Reserve would be in no position to pause on rate rises if inflation was still rising, even with the rate at 4.5%,” said CMC Markets chief market analyst Michael Hewson.

“UK banking shares have struggled the most today on fears that they could be hit by a new windfall tax on top of the 8% banking surcharge they pay on top of the corporation tax rate.

“With that due to rise to 25% next year it seems there is no length that politicians will stoop to try and fill various holes in the public finances.”

On the political front, it was revealed not long after markets closed that home secretary Suella Braverman had resigned, adding fuel to the roaring fire surrounding the Truss administration.

According to the BBC, the resignation was due to an apparent breach of the ministerial code - described as an “honest mistake”, rather than a disagreement over policy.

Braverman - seen as a member of the Conservative party’s far right - was appointed as home secretary on 6 September by the then-fresh prime minister Liz Truss, replacing Boris Johnson appointee Priti Patel.

Earlier, the beleaguered prime minister pledged to keep the so-called ‘triple-lock’ guarantee on state pension increases, as she tried to re-establish her authority days after being publicly humiliated by the destruction of her signature economic growth plan.

Truss, and new finance minister Jeremy Hunt had refused to say whether they would stick to the pledge to uprate the state pension in line with the formula of whichever is higher out of inflation, average earnings or 2.5%.

However, at the weekly prime minister’s questions session, the SNP’s Westminster leader Ian Blackford challenged her on whether the lock would remain.

“I honestly don’t know what he is talking about because we have been clear in our manifesto that we will maintain the triple lock and I am completely committed to it,” Truss said, surprising many.

“So is the chancellor.”

There was speculation that Hunt, who replaced the sacked and discredited Kwasi Kwarteng last week, was preparing to ditch the Conservative’s manifesto pledge to retain the pension increase formula.

Elsewhere, the new chancellor was earlier reported to be considering upping the amount of tax paid by banks, in a bid to plug funding gaps.

According to the Financial Times, citing allies of the chancellor, Hunt was considering introducing a windfall tax on bank profits, as well as extending the energy profit levy on oil and gas producers beyond 2025.

Banks - which currently pay corporation tax of 19% and the bank surcharge of 8% - are expected to make bumper profits from rising interest rates.

Energy companies, meanwhile, have benefited from the surge in wholesale oil and gas prices this year.

In economic news, soaring food prices helped push up inflation in September, according to official data, to a record 10.1%.

The Office for National Statistics said the consumer price index rose by 10.1% in the 12 months to September, compared to August’s rate of 9.9%.

That figure was largely in line with expectations, with most economists having forecast a CPI uptick of 10%.

On a monthly basis, CPI rose by 0.5% in September, compared to 0.3% in the same month last year.

The ONS said that rising food prices made the largest upward contribution to the change in CPI, with food and non-alcoholic drinks prices up 14.6% in the year to September - the highest since April 1980.

It said the largest downward pressure was transport, as the price of motor fuels and second-hand cars continued to fall.

“With energy prices set to rise in October, and upward pressure on the cost of imports from the weak pound, the rise in inflation will add to the list of concerns for households and the Monetary Policy Committee,” said Martin Beck, chief economic advisor to the EY Item Club.

“[We] expect CPI to peak at around 11% in October, followed by a more gradual decline than previously anticipated, caused by the recent fall in sterling.

“However, the outlook for inflation beyond the next few months has become more uncertain following the recent fiscal U-turns made by the new chancellor.”

UK house price growth meanwhile eased in the year to September, according to figures from the ONS, with average house prices rising 13.6%, down from 16% growth in July.

The average price of a house stood at £296,000 in August, up £36,000 on the same time a year earlier.

“Despite UK house prices increasing between July and August 2022, annual growth has slowed because of the sharp rise in house prices in August 2021 following changes in the stamp duty holiday,” the ONS said.

London saw the lowest annual house price growth, at 8.3%, down from 10.1% in July.

Meanwhile, the South West was the region with the highest annual growth, with average prices up 17% in the year to August.

That was down from 21.1% growth in the prior month.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted that the house price data was based on transactions which would have been facilitated by mortgage offers made a few months earlier.

“The continued growth in prices, therefore, is not a sign that they are holding up well in the face of the recent surge in mortgage rates," he said.

On London’s equity markets, banks were under the cosh following the reports that the chancellor was preparing to raid their profits, as well as those of energy companies.

Lloyds Banking Group was down 4.68%, NatWest Group lost 2.37%, and Barclays fell 2.17%.

Both NatWest and Lloyds were also likely weighed down by rating downgrades at KBW, although HSBC bucked the trend, closing up 1.77% after an upgrade to ‘outperform’ at the same outfit.

Moneysupermarket tumbled 15.39% after Amazon said it was launching a UK insurance comparison website.

Quilter lost 6.56% even after the fund manager reported “resilient” gross and net flows in its third quarter update on Wednesday, amid a “volatile” market environment.

On the upside, online fashion retailer Asos jumped 12.24% after saying it would post a first-half loss driven by price reductions, adding that it would review its business model after finishing its fiscal year in the red.

Asos posted a pre-tax loss of £32m, swinging from a profit of £177m, and said trading at the start of the new fiscal year had been volatile.

On an adjusted basis profits fell to £22m in the 12 months to August 31 2022, in line with recently lowered guidance and down from £193.6m last year when consumers turned to online purchases during Covid lockdowns.

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Abigail Townsend.

Market Movers

FTSE 100 (UKX) 6,924.99 -0.17%
FTSE 250 (MCX) 17,247.55 -1.61%
techMARK (TASX) 4,142.40 -0.37%

FTSE 100 - Risers

BP (BP.) 455.25p 2.25%
International Consolidated Airlines Group SA (CDI) (IAG) 117.92p 1.93%
Pershing Square Holdings Ltd NPV (PSH) 2,720.00p 1.87%
HSBC Holdings (HSBA) 474.00p 1.77%
Vodafone Group (VOD) 101.16p 1.56%
Scottish Mortgage Inv Trust (SMT) 750.00p 1.54%
Imperial Brands (IMB) 2,026.00p 1.45%
BAE Systems (BA.) 809.60p 1.35%
GSK (GSK) 1,382.20p 1.35%
F&C Investment Trust (FCIT) 882.00p 1.26%

FTSE 100 - Fallers

Kingfisher (KGF) 204.70p -5.89%
SEGRO (SGRO) 720.20p -4.69%
Lloyds Banking Group (LLOY) 40.83p -4.68%
Hargreaves Lansdown (HL.) 765.20p -4.23%
Rightmove (RMV) 460.80p -4.10%
Dechra Pharmaceuticals (DPH) 2,608.00p -3.91%
B&M European Value Retail S.A. (DI) (BME) 308.40p -3.35%
Flutter Entertainment (CDI) (FLTR) 10,550.00p -3.34%
Land Securities Group (LAND) 515.80p -3.19%
Harbour Energy (HBR) 371.80p -3.08%

FTSE 250 - Risers

ASOS (ASC) 550.00p 12.24%
RHI Magnesita N.V. (DI) (RHIM) 1,710.00p 5.56%
ITV (ITV) 67.68p 2.48%
Aston Martin Lagonda Global Holdings (AML) 104.55p 2.05%
Discoverie Group (DSCV) 738.00p 1.93%
Tullow Oil (TLW) 37.48p 1.90%
Abrdn (ABDN) 144.45p 1.83%
Mitie Group (MTO) 67.50p 1.81%
Energean (ENOG) 1,343.00p 1.21%
Diversified Energy Company (DEC) 126.80p 1.12%

FTSE 250 - Fallers

Moneysupermarket.com Group (MONY) 177.00p -15.39%
Quilter (QLT) 87.12p -6.56%
Trainline (TRN) 314.80p -6.34%
HarbourVest Global Private Equity Limited A Shs (HVPE) 2,160.00p -6.09%
Hochschild Mining (HOC) 58.00p -5.48%
Baltic Classifieds Group (BCG) 140.00p -5.46%
Watches of Switzerland Group (WOSG) 771.00p -5.33%
Mitchells & Butlers (MAB) 108.20p -5.29%
Volution Group (FAN) 310.00p -5.20%
OSB Group (OSB) 386.60p -5.01%