London close: Stocks fall as UK wages rise faster than expected

London stocks closed in the red on Tuesday as unexpected wage growth data added to market concerns and the Conservative party unveiled its election manifesto.

The FTSE 100 fell 0.98%, ending the day at 8,147.81 points, while the FTSE 250 dropped 0.88% to close at 20,266.85 points.

In currency markets, sterling was last down 0.06% on the dollar, last trading at $1.2723, while it gained 0.2% against the euro, changing hands at €1.1850.

“European stock indices resumed their descents, sliding by around a percent, as investors switched out of these, following the shift to the right in the European parliamentary elections,” said IG senior market analyst Axel Rudolph.

“The FTSE 100 briefly dipped to a five-week low as UK unemployment hit its highest level since September 2021 while average earnings remained stubbornly high.

“US indices were also under pressure despite US small business optimism reaching a five-month high ahead of Wednesday's CPI data release and FOMC meeting.”

Rudolph said the Fed was expected to keep rates on hold, but added that the focus would be on whether the central bank maintains its projections for three rate cuts in 2024 or reduce these to two.

“The oil price traded flat, having gained around 6% from last week's four-month low, while natural gas prices surged by, at one stage 5%, due to unseasonably cold weather.

“The gold price managed to stabilise, following last week's sharp fall, but the price of silver tumbled by nearly two percent.”

UK wages grow faster than expected in April quarter

In economic news, the Office for National Statistics reported that wages in the UK grew more rapidly than anticipated in the three months leading to April, complicating expectations for a potential rate cut this summer.

Total pay, including bonuses, increased 5.9%, surpassing forecasts of 5.7% and matching the revised figures for the prior three-month period.

Regular earnings, excluding bonuses, rose by 6%, consistent with the previous period and slightly below the expected 6.1%.

Adjusted for consumer price inflation, total pay saw a real increase of 2.7%, the fastest since the summer of 2021.

However, the unemployment rate edged up to 4.4% from 4.3% in the same timeframe.

“This month's figures continue to show signs that the labour market may be cooling, with the number of vacancies still falling and unemployment rising, though earnings growth remains relatively strong,” the ONS noted.

The Bank of England meanwhile highlighted a significant rise in mortgage arrears, reaching their highest level in nearly eight years during the first quarter of 2024.

Outstanding balances with arrears climbed by 4.2% to £21.3bn, marking a 44.5% increase from the same period last year.

The proportion of mortgage balances in arrears rose to 1.28% from 1.23%, the highest since late 2016.

That increase coincided with elevated borrowing costs, driven by the Bank of England's rate hikes to a 16-year high of 5.25% in response to persistent inflation.

Despite those challenges, the overall value of residential mortgage loans remained stable at £1.65trn, showing a slight decline of 0.1% over the quarter and 1.4% annually.

However, new mortgage commitments surged by 30.8% to £60.1bn, reflecting a 31.2% year-on-year increase.

Additionally, lending to borrowers with high loan-to-income ratios fell to 39.7%, the lowest level since early 2016.

Sunak takes wraps off tax-cutting manifesto

On the election front, embattled prime minister Rishi Sunak announced nearly £17bn in tax cuts as he attempted to revive his struggling election campaign ahead of the 4 July vote.

The Conservative Party, trailing significantly in the polls, unveiled a manifesto earlier in the day, pledging to cut national insurance with an eventual aim to eliminate the levy entirely and reintroduce a help-to-buy scheme for prospective homeowners.

Its primary new fiscal measure was a widely anticipated 2p reduction in employee national insurance contributions (NICs) to 6p from April 2027, estimated to cost over £10bn annually and save around £450 a year for an average earner of £35,000.

However, independent calculations suggested that workers would lose £150 from continued freezes on income tax and NIC thresholds.

Additional promises included cutting stamp duty on house purchases and ensuring the state pension was not subject to income tax.

The total cost of the measures was projected to exceed £17bn annually by the 2030 financial year, with most funds allocated to the halving of employee NI rates and £2.6bn towards abolishing self-employed NICs.

Hikma, Oxford Instruments rise as miners languish

On London’s equity markets, Hikma Pharmaceuticals gained 2.23% after Citi raised its price target for the stock to 2,845p from 2,770p, reflecting increased confidence in the company's performance and future prospects.

Oxford Instruments surged 6.54% following the announcement of a corporate structure simplification and reporting full-year profits that surpassed expectations.

On the downside, GSK dipped 0.38% after the company revealed it had initiated an appeal against a Delaware Superior Court decision allowing plaintiff expert testimony in the Zantac litigation case.

GSK, along with Pfizer, Sanofi, and Boehringer Ingelheim, is seeking an interlocutory review by the Delaware Supreme Court, arguing the ruling was inconsistent with previous applications of the Daubert standard.

FirstGroup fell 2.77% despite announcing a 45% dividend increase following a substantial rise in annual profits.

Heavily-weighted mining stocks were among the worst performers, as Antofagasta dropped 4.26%, Rio Tinto fell 1.92%, Glencore decreased 2.15%, and Anglo American finished down 0.59%.

Rio Tinto was particularly in focus after agreeing to purchase Mitsubishi Corporation’s 11.65% stake in Boyne Smelters (BSL), increasing its interest to 73.5% on completion of that and another recent acquisition from Sumitomo Chemical Company.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 8,147.81 -0.98%
FTSE 250 (MCX) 20,266.85 -0.88%
techMARK (TASX) 4,799.53 -0.53%

FTSE 100 - Risers

Hikma Pharmaceuticals (HIK) 1,973.00p 2.23%
Rentokil Initial (RTO) 415.20p 1.44%
Convatec Group (CTEC) 249.00p 1.30%
Intermediate Capital Group (ICG) 2,270.00p 1.07%
RS Group (RS1) 708.50p 1.00%
Experian (EXPN) 3,679.00p 0.79%
3i Group (III) 2,970.00p 0.78%
Croda International (CRDA) 4,253.00p 0.50%
Melrose Industries (MRO) 622.40p 0.48%
Bunzl (BNZL) 2,958.00p 0.34%

FTSE 100 - Fallers

Antofagasta (ANTO) 2,067.00p -4.26%
Standard Chartered (STAN) 721.20p -4.25%
Marks & Spencer Group (MKS) 296.60p -4.20%
Admiral Group (ADM) 2,563.00p -3.54%
Unite Group (UTG) 882.50p -3.02%
Barclays (BARC) 209.05p -2.65%
Land Securities Group (LAND) 628.50p -2.56%
Sainsbury (J) (SBRY) 257.00p -2.36%
HSBC Holdings (HSBA) 677.60p -2.31%
NATWEST GROUP (NWG) 303.80p -2.28%

FTSE 250 - Risers

Oxford Instruments (OXIG) 2,595.00p 7.11%
Me Group International (MEGP) 169.60p 4.69%
ICG Enterprise Trust (ICGT) 1,232.00p 3.70%
Wood Group (John) (WG.) 200.60p 1.83%
Senior (SNR) 161.00p 1.77%
Computacenter (CCC) 2,806.00p 1.67%
NB Private Equity Partners Ltd. (NBPE) 1,598.00p 1.52%
Apax Global Alpha Limited (APAX) 154.20p 1.31%
HarbourVest Global Private Equity Limited A Shs (HVPE) 2,400.00p 1.26%
Baillie Gifford US Growth Trust (USA) 198.00p 1.23%

FTSE 250 - Fallers

Future (FUTR) 1,050.00p -5.23%
W.A.G Payment Solutions (WPS) 67.00p -4.29%
Direct Line Insurance Group (DLG) 199.90p -3.86%
Supermarket Income Reit (SUPR) 70.50p -3.56%
AO World (AO.) 105.40p -3.30%
Energean (ENOG) 1,016.00p -3.24%
Kainos Group (KNOS) 1,140.00p -3.23%
Great Portland Estates (GPE) 335.50p -3.03%
Balanced Commercial Property Trust Limited (BCPT) 74.50p -2.87%
SDCL Energy Efficiency Income Trust (SEIT) 65.30p -2.83%