London open: Stocks fall, sterling drops again as IMF criticises UK tax cuts

London stocks fell in early trade on Wednesday, with sterling under the cosh again after the International Monetary Fund criticised the UK government’s tax plan.

At 0820 BST, the FTSE 100 was 0.8% lower at 6,930.20, while the pound was down 0.6% against the dollar at 1.0673 after the IMF urged the UK to reverse the tax cuts announced in the mini-Budget last week, warning that the measures will add to inflation and increase inequality.

In addition, Moody's cautioned late on Tuesday that the mini-budget risks "permanently weakening the UK's debt affordability", suggesting that a credit rating downgrade could be on the cards.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "The IMF’s move has added to worries that the UK is fast taking on the characteristics of an emerging market economy, and risks ditching its developed country status. It’s now not only wracked with trade disruptions, an energy crisis and soaring inflation but it’s also being closely monitored by international body known as the world’s lender of last resort.

"UK gilt yields - the interest paid on government debt - have retreated marginally but they are still sky high, with the yield on 10-year gilts hovering around 4.4%, up my more than 340% in a year. They have hit the highest level since the financial crisis in 2008, which is piling pressure on mortgage holders, given gilt yields have an impact on swap rates, which guide lenders’ mortgage offers.

"Expectations that there will be a super-size interest rate hike coming from the Bank of England to try and counter the government splurge on tax cuts and spending have increased. But chief economist Huw Pill signalled this significant monetary response would not come until policymakers are due to meet as scheduled in November, instead of an emergency hike, which is likely to have added to the pound’s fresh weakness."

In equity markets, luxury fashion brand Burberry was the standout gainer on the FTSE 100 even as it said that chief creative officer Riccardo Tisci will be stepping down at the end of the month. Tisci has decided to leave after almost five years, during which he spearheaded Burberry's creative transformation.

He will be succeeded by Daniel Lee, who will join the group on 3 October. Burberry said that Lee - an award-winning designer - will be based at the company headquarters in London and report to chief executive Jonathan Akeroyd.

Elsewhere, manufacturing firm Spirax-Sarco Engineering ticked up after agreeing to buy US custom electric thermal solutions specialist Durex International in a deal valued at $342.2m.

Outside the FTSE 350, fast-fashion retailer Boohoo slumped as it cut its outlook for the full year and reported a slide in interim profit, pointing to a challenging consumer backdrop.

The company said it now expects lower sales than previously anticipated, which in turn means that adjusted EBITDA margins are likely to be between 3% and 5%, down from previous guidance of 4% to 7%. Boohoo, which had previously guided to "low single digits" growth in revenue, highlighted an increase in inflation-driven costs.

Market Movers

FTSE 100 (UKX) 6,930.20 -0.78%
FTSE 250 (MCX) 17,162.56 -0.82%
techMARK (TASX) 4,147.65 -0.28%

FTSE 100 - Risers

Burberry Group (BRBY) 1,724.50p 2.37%
Endeavour Mining (EDV) 1,599.00p 0.57%
National Grid (NG.) 952.40p 0.44%
DCC (CDI) (DCC) 4,640.00p 0.43%
GSK (GSK) 1,321.80p 0.39%
Spirax-Sarco Engineering (SPX) 10,170.00p 0.39%
AstraZeneca (AZN) 9,959.00p 0.36%
British American Tobacco (BATS) 3,381.00p 0.19%
BT Group (BT.A) 125.75p 0.16%
Bunzl (BNZL) 2,733.00p 0.11%

FTSE 100 - Fallers

Legal & General Group (LGEN) 225.80p -3.26%
Rightmove (RMV) 486.90p -2.74%
Ocado Group (OCDO) 526.40p -2.73%
HSBC Holdings (HSBA) 482.85p -2.59%
Anglo American (AAL) 2,582.00p -2.29%
Aviva (AV.) 400.00p -2.18%
Rolls-Royce Holdings (RR.) 67.78p -2.09%
Antofagasta (ANTO) 1,053.00p -1.96%
Phoenix Group Holdings (PHNX) 548.20p -1.90%
Next (NXT) 5,178.00p -1.75%

FTSE 250 - Risers

Darktrace (DARK) 317.50p 1.70%
Hipgnosis Songs Fund Limited NPV (SONG) 96.50p 1.37%
Close Brothers Group (CBG) 924.50p 1.26%
Bluefield Solar Income Fund Limited (BSIF) 122.00p 0.83%
VinaCapital Vietnam Opportunity Fund Ltd. (VOF) 490.50p 0.62%
JPMorgan Global Growth & Income (JGGI) 412.50p 0.61%
NextEnergy Solar Fund Limited Red (NESF) 102.60p 0.59%
Baillie Gifford Japan Trust (BGFD) 738.00p 0.54%
Countryside Partnerships (CSP) 205.00p 0.49%
Witan Inv Trust (WTAN) 214.00p 0.47%

FTSE 250 - Fallers

ASOS (ASC) 580.50p -7.05%
Network International Holdings (NETW) 284.20p -4.76%
Mitie Group (MTO) 60.00p -4.46%
Auction Technology Group (ATG) 676.00p -3.84%
Tullow Oil (TLW) 42.68p -3.61%
Royal Mail (RMG) 187.15p -3.56%
Virgin Money UK (VMUK) 128.60p -3.05%
Molten Ventures (GROW) 306.60p -2.73%
easyJet (EZJ) 293.00p -2.59%
Wetherspoon (J.D.) (JDW) 437.80p -2.41%