London close: Stocks manage positive finish after Kwarteng u-turn

London stocks managed to break into positive territory by the close on Monday, after the new Liz Truss-led government abandoned its plans to axe the top income tax rate.

The FTSE 100 ended the session up 0.22% at 6,908.76, and the FTSE 250 was ahead 0.68% at 17,284.88.

Sterling was also in the green, last rising 1.08% on the dollar to $1.1291, and advancing 0.91% against the euro to €1.1494.

“Sterling is rallying as the UK government did a u-turn on its proposed 45p tax cut,” said Equiti Capital market analyst David Madden.

“The move boosted the pound for two reasons - firstly, it won’t lead to additional debt, and secondly it shows the Truss administration is flexible.”

Madden said the public made its opinion clear over the planned cut, and the fact the government backed down suggested they could compromise on other plans as well.

“The pound has pulled back some of the ground it lost last week but it is still considerably weaker on the month.”

The chancellor announced the scrapping of his controversial plans to abolish the top rate of tax before markets opened, following days of market turmoil and increasingly vocal opposition across the Conservative party.

“It is clear that the abolition of the 45p tax rate has become a distraction for our overriding mission to tackle the challenges facing our country,” Kwasi Kwarteng said in a tweeted statement.

“As a result, I’m announcing that we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened.

"This will allow us to focus on delivering the major parts of our growth package."

Kwarteng announced £45bn of debt-funded tax cuts just over a week ago, including abandoning plans to increase corporation tax and reversing a recently-introduced increase to National Insurance.

He did not use the so-called mini budget to discuss spending, however, nor did the government publish the Office for Budget Responsibility’s economic forecasts.

In economic news, a closely-watched survey showed the UK manufacturing sector continuing to struggle last month, with both orders and output falling.

September’s S&P Global/CIPS UK manufacturing purchasing managers’ index (PMI) came in at 48.4, up on August’s print of 47.3 but below the flash estimate of 48.5, and also missing consensus.

The output index rose to 44.2 from 42.7 in August, while the new orders index edged up to 44.8 from 43.9

Both remained firmly below the key 50 level, however, a reading above which indicates growth, while below suggests contraction.

Output had now fallen for three months, as production was scaled back in response to lower orders.

New export business also fell at the quickest pace since May 2020, despite the weak pound, with reports of lower demand from the US, European Union and China.

“The downturn in UK manufacturing continued at the end of the third quarter, meaning the goods producing sector looks set to have acted as a drag on GDP,” said Rob Dobson, director at S&P Global Market Intelligence.

“Factories are reporting tough market conditions both at home and abroad.

“With existing headwinds from the cost of living crisis likely to be exacerbated by the current volatility in financial markets, growing economic uncertainty and further increases in borrowing rates, the industrial sector is likely to remain in the doldrums during the coming quarter, to add to deepening recession risks.”

On the continent, manufacturing activity in the euro area contracted at a faster cadence in September, as new orders slid.

The S&P Global eurozone manufacturing purchasing managers’ index (PMI) came in at 48.4 for September, compared to the downwardly-revised reading of 49.6 for August.

It was just below the market consensus, which had pencilled in a reading of 48.5.

Across the pond, manufacturing activity in the US slowed last month amid ongoing supply chain issues and some indications of slower demand.

The Institute for Supply Management's factory sector purchasing managers' index slipped to 50.9 in September from a reading of 52.8 for August, and well below expectations for 52.4.

A key gauge tracking new orders fell from 51.3 to 47.1, while that for employment dropped from 54.2 to 48.7 and another linked to the prices paid by companies dipped from 52.5 to 51.7.

In energy, gas markets were expected to remain under pressure well into 2023 according to a fresh warning from the International Energy Authority, as Russia continued to cut supplies to Europe.

Publishing its latest quarterly gas report, the Paris-based IEA said Russia’s ongoing curtailment of natural gas flows to Europe “had pushed international prices to new highs, disrupted trade flows and lead to acute fuel shortages in some emerging and developing economies, with the market tightness expected to continue well into 2023”.

The IEA said it expected global gas consumption to decline by 0.8% in the current year because of both a “record” 10% slump in Europe and flat demand in the Asia Pacific region.

On London’s equity markets, Carnival closed 7.43% below the waterline, having tanked on Friday after the cruise operator said it was expecting to report a loss for the fourth quarter.

Holiday company TUI also fell by 2.5%, while Wizz Air lost 3.69% and easyJet descended 2.9% - the latter after a downgrade to ‘hold’ at HSBC.

On the upside, Telecom Plus rocketed 23.99% after boosting its full-year profit guidance after "record" customer growth during the first half.

Vodafone Group rose 2.57% after it confirmed it was in talks with Hong Kong-based CK Hutchison about a possible merger of its UK business with Three UK.

Other telecommunications plays were in the green as well, with BT Group up 4.41% and Airtel Africa gaining 3.17%.

Essentra rallied 15.28% after it announced the appointment of a new chief executive officer and the sale of its filters business.

Housebuilders were also in the black following recent heavy losses, with Barratt Developments up 3.51%, Persimmon rising 3.19%, and Taylor Wimpey ahead 2.4%.

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

Market Movers

FTSE 100 (UKX) 6,908.76 0.22%
FTSE 250 (MCX) 17,284.88 0.68%
techMARK (TASX) 4,128.99 0.27%

FTSE 100 - Risers

BT Group (BT.A) 126.70p 4.41%
Fresnillo (FRES) 798.40p 3.80%
B&M European Value Retail S.A. (DI) (BME) 317.30p 3.66%
Barratt Developments (BDEV) 354.20p 3.51%
JD Sports Fashion (JD.) 103.65p 3.44%
Persimmon (PSN) 1,277.00p 3.19%
Airtel Africa (AAF) 133.30p 3.17%
SSE (SSE) 1,573.00p 2.98%
Vodafone Group (VOD) 103.72p 2.57%
Legal & General Group (LGEN) 221.90p 2.49%

FTSE 100 - Fallers

Scottish Mortgage Inv Trust (SMT) 748.80p -4.29%
Endeavour Mining (EDV) 1,583.00p -3.53%
Haleon (HLN) 270.80p -3.03%
Flutter Entertainment (CDI) (FLTR) 9,694.00p -2.46%
Diageo (DGE) 3,707.50p -2.37%
Unilever (ULVR) 3,876.50p -2.33%
Coca-Cola HBC AG (CDI) (CCH) 1,853.50p -2.14%
Smith & Nephew (SN.) 1,035.00p -1.48%
Ocado Group (OCDO) 465.70p -1.44%
AstraZeneca (AZN) 9,806.00p -1.39%

FTSE 250 - Risers

Telecom Plus (TEP) 2,140.00p 23.99%
Essentra (ESNT) 210.50p 15.28%
Watches of Switzerland Group (WOSG) 722.50p 7.20%
CLS Holdings (CLI) 148.60p 6.74%
Royal Mail (RMG) 195.20p 6.48%
Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 302.00p 4.86%
Warehouse Reit (WHR) 113.00p 4.63%
FDM Group (Holdings) (FDM) 655.00p 4.47%
ITV (ITV) 59.82p 4.43%
Energean (ENOG) 1,391.00p 4.27%

FTSE 250 - Fallers

Aston Martin Lagonda Global Holdings (AML) 109.85p -8.08%
Carnival (CCL) 538.60p -7.43%
PureTech Health (PRTC) 236.00p -4.86%
Vietnam Enterprise Investments (DI) (VEIL) 612.00p -4.09%
Wizz Air Holdings (WIZZ) 1,526.00p -3.69%
Wetherspoon (J.D.) (JDW) 389.80p -3.66%
Apax Global Alpha Limited (APAX) 166.00p -3.49%
JPMorgan Indian Investment Trust (JII) 808.00p -3.35%
JPMorgan Global Growth & Income (JGGI) 395.50p -3.18%
Edinburgh Worldwide Inv Trust (EWI) 169.20p -2.98%