London close: FTSE falls but losses capped by weaker pound, housebuilders

London stocks had fallen into the red by the close on Thursday amid escalating tensions in the Middle East, but a weaker pound and strength in the housebuilding sector kept a lid on losses.

The FTSE 100 ended down 0.1% at 8,282.52, having spent most of the day in the black, while sterling was down 1.2% against the dollar at 1.3109 after Bank of England governor Andrew Bailey told the Guardian that the central bank could become a "bit more aggressive" in cutting interest rates as long as news on inflation continued to be good.

A weaker pound tends to benefit the top-flight index as around 70% of its constituents derive their earnings from abroad. Indeed, the UK outperformed its peers in Europe, with the benchmark Stoxx 600 index falling 0.9%.

Bailey told the Guardian he has been encouraged by the fact that cost of living pressures had not been as persistent as the BoE thought they might be. He said in an interview that if the news on inflation remained positive there was a chance the Bank could become "a bit more activist" in its rate-cutting approach.

Inflation currently stands at 2.2%, which is just above the BoE’s 2% target.

Kathleeen Brooks, research director at XTB, pointed out that part of the pound’s selloff was due to external factors.

"As geopolitical risks in the Middle East have risen, the US dollar has caught a bid. The currencies that were most extended versus the USD have sold off rapidly, as investors have sought the safety of the USD.

"Hence, the pound and the yen were in the sellers’ sights, as the markets scrambled to buy dollars. The pound is still the best performing currency in the G10 FX space so far this year, thus, if tensions escalate further, then we could see another leg lower for GBP/USD."

Investors were also mulling a survey out earlier which showed that business activity growth eased to a three-month low in September but prices charged inflation slowed.

The S&P Global services purchasing managers’ index fell to 52.4 from 53.7 in August, coming in below the flash estimate of 52.8. Still, it remained above the 50.0 mark that separates contraction from expansion.

There was some more upbeat news on inflation, as the survey showed that prices charged inflation in the service sector- which acts as a barometer of domestic inflationary pressures - fell to the lowest in September since February 2021.

Tim Moore, economics director at S&P Global Market Intelligence, said: "The September PMI surveys suggest that the UK economy is still on a positive trajectory, with improving order books accompanied by cooling inflationary pressures.

"UK service providers indicated a moderate expansion of activity in September, fuelled by resilient business and consumer spending. However, the post-election rebound lost some momentum as output, new work and employment all increased at the slowest pace for three months.

"Robust domestic demand has been recorded throughout the third quarter of 2024, helping to offset a headwind from lacklustre export sales. Survey respondents linked rising volumes of total new work to renewed growth in the UK economy and the impact of domestic political stability on investment spending."

Moore said some service sector firms commented on delayed decision-making among clients due to uncertainty ahead of the Budget on 30 October.

"However, the majority of survey respondents (56%) expect a rise in business activity during the year ahead, while only 11% forecast a downturn," he said.

In equity markets, Tesco jumped as it lifted its annual profit guidance despite a slight slowdown in underlying sales growth in the second quarter.

Due to stronger-than-expected volumes in the first half, which the grocer put down to its ongoing investments in "value, quality and service", retail adjusted operating profit for the year ending 24 February was now expected to be £2.9bn, up from earlier guidance of at least £2.8bn and higher than last year’s £2.76bn.

Housebuilders were among the top performers after Bailey’s comments, with Persimmon, Barratt, Vistry, Taylor Wimpey and Bellway all up.

The sector was also boosted by data from Zoopla which showed that house sales rose in September at the fastest rate since the post-lockdown rebound.

SSP Group closed down as it said it expected to deliver a large jump in full-year profits, despite weaker trading in Continental Europe, especially in France where demand during the Olympics was lower than anticipated.

The company, which operates food outlets at train stations and airports, said core profits for the year to September would come in at £350-360m, up from the £280m reported a year earlier and lower than planning assumptions of £375m at the top end.

Burberry slid as Stifel cut its price target on the shares to 720p from 800p and reduced its FY25 and FY26 sales forecasts by 8% and 10%, respectively.

Phoenix Group, Smith & Nephew, Bodycote, Weir Group, Kainos, TP Icap, TBC Bank and Hargreaves Lansdown all fell as they traded without entitlement to the dividend.

Market Movers

FTSE 100 (UKX) 8,282.52 -0.10%
FTSE 250 (MCX) 20,740.06 -0.21%
techMARK (TASX) 4,815.72 -0.70%

FTSE 100 - Risers

Rolls-Royce Holdings (RR.) 533.40p 2.81%
Tesco (TSCO) 364.00p 2.56%
Shell (SHEL) 2,564.00p 1.71%
Scottish Mortgage Inv Trust (SMT) 856.00p 1.66%
JD Sports Fashion (JD.) 142.45p 1.50%
Persimmon (PSN) 1,647.00p 1.42%
Barratt Developments (BDEV) 481.30p 1.39%
HSBC Holdings (HSBA) 685.00p 1.33%
Vistry Group (VTY) 1,303.00p 1.32%
Sainsbury (J) (SBRY) 292.80p 1.24%

FTSE 100 - Fallers

Phoenix Group Holdings (PHNX) 523.50p -5.76%
Diploma (DPLM) 4,208.00p -5.10%
M&G (MNG) 202.40p -2.50%
Prudential (PRU) 703.20p -2.39%
Antofagasta (ANTO) 1,946.00p -2.38%
GSK (GSK) 1,460.50p -2.34%
Anglo American (AAL) 2,423.00p -2.22%
Ashtead Group (AHT) 5,628.00p -2.19%
Spirax Group (SPX) 7,370.00p -2.19%
Mondi (MNDI) 1,389.50p -2.18%

FTSE 250 - Risers

Energean (ENOG) 860.50p 2.93%
Games Workshop Group (GAW) 10,810.00p 2.85%
Dr. Martens (DOCS) 56.10p 2.75%
Domino's Pizza Group (DOM) 302.00p 2.37%
Telecom Plus (TEP) 1,816.00p 2.37%
PureTech Health (PRTC) 145.60p 2.25%
Close Brothers Group (CBG) 380.00p 2.21%
4Imprint Group (FOUR) 5,030.00p 2.13%
Bellway (BWY) 3,130.00p 1.89%
Ninety One (N91) 179.30p 1.88%

FTSE 250 - Fallers

Bodycote (BOY) 560.00p -5.88%
Spectris (SXS) 2,608.00p -4.05%
Burberry Group (BRBY) 635.60p -3.93%
RS Group (RS1) 770.00p -3.75%
Kainos Group (KNOS) 839.00p -3.67%
Aston Martin Lagonda Global Holdings (AML) 104.90p -3.32%
Hochschild Mining (HOC) 184.60p -3.25%
Victrex plc (VCT) 930.00p -3.13%
Bridgepoint Group (Reg S) (BPT) 325.80p -3.04%
Raspberry PI Holdings (RPI) 345.00p -2.65%