London midday: FTSE in the red as business activity slumps

London stocks had fallen further by midday on Tuesday, as investors mulled a surge in public borrowing and news that UK business output fell in January at the fastest rate in two years.

The FTSE 100 was down 0.5% at 7,747.56, while sterling was 0.5% lower versus the dollar at 1.2319.

A survey out earlier showed that private sector business activity fell sharply in January as higher interest rates and weakening demand weighed heavily.

The latest S&P Global CIPS flash UK PMI composite output index fell to 47.8 in January, from 49.0 a month previously and below consensus for 48.8. It was also the lowest reading for two years, and the sixth consecutive month it has stayed below 50.0.

A reading below the neutral 50.0 threshold indicates contraction, while one above suggests growth.

Within that, the UK services PMI business activity index fell to 48.0 from 49.9 in December, also a two-year low. Service providers reported a marked loss of momentum since December, due to higher interest rates and falling consumer confidence.

The manufacturing output index rose to 46.6 from 44.4, a six-month high, while the manufacturing PMI rose to 46.7 from 45.3, although both indices remain well below 50.0.

However, optimism for the year ahead picked up sharply, with respondents citing hopes for a turnaround in global economic conditions and easing cost pressures.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year.

"Jobs also continued to be lost as firms tightened their belts in the face of these headwinds.

"There were some bright spots, including improved business expectations for the year ahead and further cooling of inflationary pressures. But this is undeniably a disappointing start to the year for the UK."

Elsewhere, data from the Office for National Statistics showed government borrowing hit a fresh high in December, mostly due to the household energy support scheme and high debt interest costs.

Public sector net borrowing came in at £27.4bn, up £16.7bn on December 2021. This marked the highest December figure since records began in January 1993 and was above consensus expectations of £17.8bn and the Office for Budget Responsibility’s forecast of £17.6bn.

Ruth Gregory, senior UK economist at Capital Economics, said: "Overall, today’s worse-than-expected public finances figures will only embolden the Chancellor in the Budget on 15th March to keep a tight grip on the public finances and mean that he waits until closer to the next general election, perhaps in 2024, before announcing any significant tax cuts."

In equity markets, Primark owner Associated British Foods fell even as it posted a 20% rise in sales during the Christmas period as consumers continued to hunt for bargains amid the cost-of-living crisis. The company, which also has agriculture, sugar and food ingredients operations, said revenue in the 16 weeks to January 7 rose to £6.7bn, with Primark sales up 18% to £3.1bn. Group full-year expectations remain unchanged.

Senior surged to the top of the FTSE 250 after it said adjusted pre-tax profit for 2022 was set to be above the top end of the range of consensus expectations following a strong performance from its Flexonics division. The range is between £16.2m and £18m.

Private equity firm Bridgepoint also rallied after it announced a share buyback programme of up to £50m.

In broker note action, Direct Line was hit by a downgrade to ‘sell’ at Citi, while DS Smith was boosted by an upgrade to ‘outperform’ at Davy. Sage was weaker after a downgrade to ‘add’ from ‘buy’ at Numis.

Market Movers

FTSE 100 (UKX) 7,747.56 -0.48%
FTSE 250 (MCX) 19,854.09 0.26%
techMARK (TASX) 4,444.87 -0.31%

FTSE 100 - Risers

Rolls-Royce Holdings (RR.) 110.44p 2.07%
Fresnillo (FRES) 887.00p 1.79%
JD Sports Fashion (JD.) 161.45p 1.67%
Endeavour Mining (EDV) 1,960.00p 1.61%
United Utilities Group (UU.) 1,065.50p 1.33%
Beazley (BEZ) 645.50p 1.25%
Hiscox Limited (DI) (HSX) 1,122.50p 1.17%
Severn Trent (SVT) 2,814.00p 1.11%
Smith (DS) (SMDS) 355.20p 1.08%
Admiral Group (ADM) 2,134.00p 1.04%

FTSE 100 - Fallers

AstraZeneca (AZN) 10,730.00p -2.79%
Glencore (GLEN) 563.80p -2.47%
Associated British Foods (ABF) 1,829.00p -2.17%
Tesco (TSCO) 246.60p -1.28%
Anglo American (AAL) 3,545.00p -1.21%
BT Group (BT.A) 128.90p -1.11%
Convatec Group (CTEC) 243.60p -1.06%
GSK (GSK) 1,398.40p -0.88%
BP (BP.) 476.60p -0.87%
London Stock Exchange Group (LSEG) 7,264.00p -0.87%

FTSE 250 - Risers

Senior (SNR) 149.60p 9.68%
Bridgepoint Group (Reg S) (BPT) 241.80p 6.05%
PureTech Health (PRTC) 268.00p 4.48%
Hochschild Mining (HOC) 84.20p 4.21%
Hammerson (HMSO) 27.02p 3.76%
Molten Ventures (GROW) 394.20p 2.92%
Chemring Group (CHG) 282.50p 2.54%
IntegraFin Holding (IHP) 322.80p 2.41%
Bytes Technology Group (BYIT) 413.40p 2.33%
SSP Group (SSPG) 265.50p 2.27%

FTSE 250 - Fallers

Hays (HAS) 123.10p -2.30%
Harbour Energy (HBR) 319.10p -2.18%
International Distributions Services (IDS) 227.30p -2.03%
Tullow Oil (TLW) 36.76p -1.97%
Hikma Pharmaceuticals (HIK) 1,681.50p -1.87%
Watches of Switzerland Group (WOSG) 914.00p -1.72%
BBGI Global Infrastructure S.A. NPV (DI) (BBGI) 155.20p -1.65%
Network International Holdings (NETW) 267.60p -1.55%
Dechra Pharmaceuticals (DPH) 2,672.00p -1.47%
Apax Global Alpha Limited (APAX) 177.00p -1.34%