London midday: Stocks in the red, sterling off highs after govt U-turn

The FTSE 100 was down 0.6% at 6,854.73, while the pound was off earlier highs but still 0.3% firmer against the dollar at 1.1198. Earlier, chancellor Kwasi Kwarteng scrapped controversial plans to abolish the top rate of tax following days of market turmoil and increasingly vocal opposition across the Conservative party.

Kwarteng tweeted: "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.

"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."

Russ Mould, investment director at AJ Bell, said: "The pound enjoyed a welcome bounce after Kwasi Kwarteng manoeuvred his first U-turn as Chancellor by scrapping the proposed cut to the 45% tax rate, with sterling jumping from $1.1088 to $1.12646 in less than two hours.

"The U-turn is important for two reasons. First, the market was panicking about the cost of the tax cuts and how that would push up Government debt and in turn raise the prospect of reduced public spending and benefit cuts.

"Removing one of the key components of this seemingly flawed plan provided some relief, and you saw that in how the pound rallied and 10-year gilt rates briefly fell below 4%.

"The other factor to consider is that Kwarteng has effectively admitted to a massive policy error only weeks into his tenure as Chancellor. If Liz Truss is to establish any credibility as Prime Minister, can she afford to have anyone on her team who has effectively scored an own goal in the opening game?

"The fact that both the pound fell back and gilt rates started to move higher after the news had been digested is the market’s way of saying there are still plenty of problems with the Government’s finances, state of the consumer and business, and economic outlook. With or without the 45% tax cut, the country still faces challenging times with individuals and companies finding life a lot harder."

Investors were also mulling a survey showing that the UK manufacturing sector continued to struggle last month, with both orders and output falling.

September’s S&P Global CIPS UK manufacturing purchasing managers' index came in at 48.4, up on August’s print of 47.3 but below the flash estimate of 48.5. It also missed 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 remain firmly below the key 50 level, however. A reading above that indicates growth, while a reading below 50 suggests contraction.

Output has now fallen for three months, as production is scaled back in response to lower orders. "There were reports of expected orders being postponed, or cancelled, due to factors such as rising uncertainty, inflationary pressure and the cost of living crisis," S&P Global noted.

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.

"Manufacturers faced weak global market conditions, rising uncertainty, high transportation costs reducing competitiveness and longer lead times, leading to cancelled orders," S&P Global noted.

Rob Dobson, director at S&P Global Market Intelligence, said: "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.

"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."

In UK equity markets, Carnival was under the cosh again, having tanked on Friday after the cruise operator said it was expecting to report a loss for the fourth quarter. Travel company Tui also fell sharply, along with easyJet and Wizz Air. EasyJet was knocked lower by a downgrade to ‘hold’ at HSBC.

Going the other way, Telecom Plus surged as it boosted full-year profit guidance after "record" customer growth during the first half.

Vodafone shot up after it confirmed that it is in talks with Hong Kong-based CK Hutchison about a possible merger of its UK business with Three UK.

Essentra rallied as 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, Persimmon and Taylor Wimpey all up.

Market Movers

FTSE 100 (UKX) 6,854.73 -0.57%
FTSE 250 (MCX) 17,116.41 -0.30%
techMARK (TASX) 4,090.44 -0.66%

FTSE 100 - Risers

BT Group (BT.A) 125.60p 3.50%
Barratt Developments (BDEV) 352.30p 2.95%
Vodafone Group (VOD) 104.00p 2.85%
Persimmon (PSN) 1,267.50p 2.42%
BP (BP.) 443.20p 2.33%
SSE (SSE) 1,563.00p 2.32%
B&M European Value Retail S.A. (DI) (BME) 312.40p 2.06%
Airtel Africa (AAF) 131.50p 1.78%
Shell (SHEL) 2,285.50p 1.74%
Taylor Wimpey (TW.) 89.78p 1.68%

FTSE 100 - Fallers

Ocado Group (OCDO) 448.60p -5.06%
Hargreaves Lansdown (HL.) 830.20p -4.27%
Scottish Mortgage Inv Trust (SMT) 750.20p -4.12%
St James's Place (STJ) 999.60p -3.51%
Melrose Industries (MRO) 98.90p -3.23%
Halma (HLMA) 1,982.00p -3.08%
Haleon (HLN) 270.80p -3.03%
International Consolidated Airlines Group SA (CDI) (IAG) 91.98p -2.84%
Prudential (PRU) 869.00p -2.77%
Intertek Group (ITRK) 3,606.00p -2.72%

FTSE 250 - Risers

Telecom Plus (TEP) 2,115.00p 22.54%
Essentra (ESNT) 203.00p 11.17%
GCP Infrastructure Investments Ltd (GCP) 103.00p 5.32%
CLS Holdings (CLI) 146.00p 4.73%
888 Holdings (DI) (888) 97.15p 3.79%
Watches of Switzerland Group (WOSG) 697.50p 3.49%
Energean (ENOG) 1,377.00p 3.22%
Bellway (BWY) 1,751.00p 2.82%
Hilton Food Group (HFG) 550.00p 2.80%
Great Portland Estates (GPE) 452.00p 2.73%

FTSE 250 - Fallers

Carnival (CCL) 526.00p -9.59%
Wizz Air Holdings (WIZZ) 1,457.00p -8.05%
Aston Martin Lagonda Global Holdings (AML) 111.05p -7.07%
easyJet (EZJ) 281.50p -5.03%
Vietnam Enterprise Investments (DI) (VEIL) 606.00p -4.72%
TUI AG Reg Shs (DI) (TUI) 103.20p -4.58%
VinaCapital Vietnam Opportunity Fund Ltd. (VOF) 455.00p -3.60%
Bank of Georgia Group (BGEO) 1,922.00p -3.32%
Allianz Technology Trust (ATT) 215.50p -3.15%
Wetherspoon (J.D.) (JDW) 392.60p -2.97%