London open: FTSE up but gains muted after Fitch downgrade

London stocks were higher in early trade on Thursday, but gains were unspectacular after Fitch downgraded the UK’s credit rating outlook.

At 0830 BST, the FTSE 100 was up 0.2% at 7,064.94, while sterling was 0.1% firmer versus the dollar at 1.1339.

Late on Wednesday, Fitch downgraded the UK’s credit outlook to "negative" from "stable", citing the government’s recently-announced mini-budget.

Fitch said: "The large and unfunded fiscal package announced as part of the new government's growth plan could lead to a significant increase in fiscal deficits over the medium term."

The ratings agency maintained its AA- credit rating for the UK. This is one notch lower than Standard & Poor’s.

Fitch said the change in fiscal trajectory will push general government debt to 109% of GDP by 2024 from an estimated 101% in 2022, reflecting both higher primary deficits and a weaker growth outlook.

“This level would be more than double the forecast 'AA' median of 49%,” it said.

It also noted the recent surge in government bond yields, saying this reflects higher interest rates and uncertainty over the fiscal strategy.

Fitch said the government deficit will remain elevated at 7.8% of GDP in 2022 and increase to 8.8% in 2023, due to the impact of high inflation on index-linked government debt, household support, the energy price cap and tax cuts, before easing to 7.2% in 2024.

This compares with deficits projected to average 2% for the 'AA' median, it noted.

The ratings agency also said that although the government reversed the scrapping of the 45p top rate tax, "the reportedly negative impact of the tax package, and related financial market volatility, on public opinion and the government's weakened political capital could further undermine the credibility of and support for the government's fiscal strategy".

In equity markets, tobacco company Imperial Brands jumped to the top of the FTSE 100 as it unveiled a £1bn share buyback and said current year trading was in line with expectations. "In line with previous guidance, we expect full-year net revenue and group adjusted operating profit to both grow by around 1% at constant currency," the company said.

RS Group - formerly Electrocomponents - rallied after it said full-year revenue and adjusted pre-tax profit were set to be "slightly ahead" of current consensus estimates following strong trading year to date.

On the downside, Shell lost ground as it warned third-quarter profits would be hit by a sharp decline in oil refining margins and weaker natural gas trading.

Victoria Scholar, head of investment at Interactive Investor, said: "Shell enjoyed record profits in the first and second quarter spurred by a surge in underlying oil and gas prices following Russia’s invasion of Ukraine. However, since June, oil has posted four consecutive months of declines, with Brent crude down by around 25% even after this week’s countertrend rally.

"In what is a notoriously cyclical business, Shell is grappling with a dysfunctional and volatile gas market as well as expectations of softening oil demand, particularly from China as the global economy cools."

Elsewhere, DS Smith, Centrica, Kingfisher and Synthomer fell as they traded without entitlement to the dividend.

Market Movers

FTSE 100 (UKX) 7,064.94 0.17%
FTSE 250 (MCX) 17,658.04 0.54%
techMARK (TASX) 4,201.21 0.55%

FTSE 100 - Risers

Imperial Brands (IMB) 1,963.50p 3.51%
RS Group (RS1) 1,039.00p 3.28%
Flutter Entertainment (CDI) (FLTR) 10,565.00p 2.32%
Fresnillo (FRES) 822.60p 2.24%
Entain (ENT) 1,150.50p 1.95%
JD Sports Fashion (JD.) 106.50p 1.91%
Ocado Group (OCDO) 464.80p 1.91%
SEGRO (SGRO) 737.40p 1.82%
Intermediate Capital Group (ICP) 1,091.50p 1.82%
Melrose Industries (MRO) 104.70p 1.60%

FTSE 100 - Fallers

Smith (DS) (SMDS) 249.80p -3.37%
Shell (SHEL) 2,306.50p -3.03%
Centrica (CNA) 70.60p -1.42%
Kingfisher (KGF) 223.90p -0.71%
Vodafone Group (VOD) 102.00p -0.57%
National Grid (NG.) 920.00p -0.52%
Dechra Pharmaceuticals (DPH) 2,536.00p -0.39%
Airtel Africa (AAF) 132.90p -0.37%
AstraZeneca (AZN) 9,910.00p -0.34%
Schroders (SDR) 394.00p -0.33%

FTSE 250 - Risers

IP Group (IPO) 64.15p 6.83%
Volution Group (FAN) 323.50p 5.55%
Aston Martin Lagonda Global Holdings (AML) 106.40p 4.67%
Oxford Instruments (OXIG) 1,962.00p 4.58%
TUI AG Reg Shs (DI) (TUI) 114.30p 3.86%
Chemring Group (CHG) 312.50p 2.80%
888 Holdings (DI) (888) 98.65p 2.71%
Wizz Air Holdings (WIZZ) 1,477.50p 2.64%
ICG Enterprise Trust (ICGT) 1,060.00p 2.51%
Greggs (GRG) 1,886.00p 2.44%

FTSE 250 - Fallers

Synthomer (SYNT) 106.70p -5.16%
Bank of Georgia Group (BGEO) 1,940.00p -3.00%
Polymetal International (POLY) 195.00p -2.50%
C&C Group (CDI) (CCR) 152.70p -2.49%
Sirius Real Estate Ltd. (SRE) 67.20p -2.47%
TP Icap Group (TCAP) 199.40p -2.45%
Discoverie Group (DSCV) 654.00p -2.39%
Vistry Group (VTY) 589.00p -2.32%
Merchants Trust (MRCH) 517.00p -1.15%
Network International Holdings (NETW) 300.00p -1.12%