London midday: FTSE slumps, government bonds hammered after mini-budget

London stocks were sharply lower by midday on Monday, sterling hit a fresh 37-year low against the dollar and gilt yields surged after Chancellor Kwasi Kwarteng announced a swathe of tax cuts, the likes of which have not been seen since Thatcher was in Number 10.

The FTSE 100 was down 1.7% at 7,035.56, while the pound fell below $1.11 for the first time since 1985.

Newly-appointed chancellor Kwasi Kwarteng unveiled his plans to boost economic growth, including axing the cap on bankers’ bonuses, abolishing the highest rate of income tax and permanently increasing the stamp duty threshold.

Addressing the House of Commons, Kwarteng told fellow politicians that the government was targeting annual growth of 2.5% in the medium term.

"Growth is not as high as it should be," he said. "We need a new approach for a new era, focused on growth."

As expected, Kwarteng confirmed that the 1.25 percentage points rise in National Insurance - introduced earlier this year by predecessor Rishi Sunak to help fund social care - will be unwound from 6 November. Kwarteng said additional funding for the NHS would be maintained at the same level, though did not immediately specify how.

Neil Wilson, chief market analyst at Markets.com, said: "Bond vigilantes were only ever biding their time. The reaction in the bond market to the misnamed mini-Budget (it was anything but mini!) is striking with yields surging after the chancellor unveiled sweeping tax cuts that abandon any semblance of fiscal discipline.

"It means more borrowing and more borrowing costs. This is not the reaction any chancellor wants from a budget but what else could he expect?

"Of course, it’s not just vigilantism, per se - traders are now betting the fiscal easing will drive the Bank of England to take a much more forceful approach to tightening. Markets now indicate a 50% chance the BoE goes for a jumbo 100bps hike in November."

A glum survey released earlier by GfK, which showed that UK consumer confidence fell to a record low in September as the cost-of-living crisis continues to weigh, did nothing to help the mood either.

Investors were also mulling the latest survey from S&P Global CIPS, which showed that business activity in the UK fell in September at the fastest rate since January 2021, amid cost pressures and waning demand.

The composite purchasing managers’ index - which measures activity in the services and manufacturing sectors - declined to 48.4 from 49.6 in August, coming in below consensus expectations of 49.0. A level above 50 indicates expansion, while a reading below signals contraction.

The services PMI fell to 49.2 in September 50.9 a month earlier, while the PMI for the manufacturing sector printed at 48.5, up from 47.3.

In equity markets, housebuilders initially rallied on news of the stamp duty changes but quickly fell back again, having gained earlier in the week following reports of such a move by the Chancellor.

Luxury fashion brand Burberry lost ground as it said that Julie Brown plans to step down as chief operating and financial officer in April 2023 after six years.

Wealth manager Investec ticked lower despite saying that it expects to post a jump in first-half adjusted operating pre-tax profit to between £372.6m and £406.2m, from £325.7m a year earlier.

Engineer Smiths Group was sitting pretty at the top of the FTSE 100 as it said full-year organic revenues and pre-tax profits had grown ahead of expectations amid "high demand" across the majority of its end markets.

Outside the FTSE 350, Made.com tumbled more than 20% as it put itself up for sale and announced plans to cut a third of its staff.

Market Movers

FTSE 100 (UKX) 7,035.56 -1.73%
FTSE 250 (MCX) 18,052.67 -1.52%
techMARK (TASX) 4,163.85 -0.78%

FTSE 100 - Risers

Smiths Group (SMIN) 1,512.50p 2.86%
Haleon (HLN) 271.50p 2.07%
Kingfisher (KGF) 241.90p 0.58%
Vodafone Group (VOD) 109.28p 0.39%
Airtel Africa (AAF) 137.40p 0.37%
St James's Place (STJ) 1,063.50p 0.33%
Aveva Group (AVV) 3,147.00p 0.32%
Prudential (PRU) 937.00p 0.30%
Relx plc (REL) 2,168.00p -0.14%
HSBC Holdings (HSBA) 514.10p -0.17%

FTSE 100 - Fallers

Antofagasta (ANTO) 1,052.50p -5.01%
Fresnillo (FRES) 694.80p -5.00%
Harbour Energy (HBR) 458.10p -4.98%
Intermediate Capital Group (ICP) 1,035.00p -4.92%
Land Securities Group (LAND) 541.80p -4.88%
Anglo American (AAL) 2,702.50p -4.79%
British Land Company (BLND) 360.60p -4.78%
SEGRO (SGRO) 767.00p -4.72%
Glencore (GLEN) 469.35p -4.21%
Burberry Group (BRBY) 1,647.00p -4.13%

FTSE 250 - Risers

Abrdn Private Equity Opportunities Trust (APEO) 417.00p 2.96%
Vistry Group (VTY) 713.50p 1.78%
JPMorgan Global Growth & Income (JGGI) 417.00p 0.97%
Twentyfour Income Fund Limited Ord Red (TFIF) 106.00p 0.95%
Countryside Partnerships (CSP) 234.40p 0.95%
C&C Group (CDI) (CCR) 155.10p 0.91%
Ferrexpo (FXPO) 136.10p 0.89%
Caledonia Investments (CLDN) 3,470.00p 0.87%
Pets at Home Group (PETS) 302.00p 0.87%
TP Icap Group (TCAP) 170.30p 0.83%

FTSE 250 - Fallers

LondonMetric Property (LMP) 174.40p -8.02%
Urban Logistics Reit (SHED) 143.00p -7.74%
Tritax Big Box Reit (BBOX) 137.00p -7.43%
Synthomer (SYNT) 150.70p -7.38%
Tritax Eurobox (GBP) (EBOX) 69.30p -5.97%
Warehouse Reit (WHR) 126.80p -5.65%
Aston Martin Lagonda Global Holdings (AML) 141.75p -4.99%
Jupiter Fund Management (JUP) 97.60p -4.78%
IWG (IWG) 129.90p -4.77%
Home Reit (HOME) 96.40p -4.55%