London open: FTSE falls, sterling gains as govt ditches plan to scrap 45p tax rate

At 0825 BST, the FTSE 100 was down 0.8% at 6,838.36, while sterling was off earlier highs but still 0.3% firmer against the dollar at 1.1200. Chancellor Kwasi Kwarteng has scrapped controversial plans to abolish the top rate of tax following days of market turmoil and increasingly vocal opposition across the Conservative party.

Kwarteng said earlier: "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."

The U-turn came just 24 hours after prime minister Liz Truss insisted that the tax cut would go-ahead, telling Sunday with Laura Kuenssberg on the BBC: "I do stand by the package we announced."

But she also said the tax cut came from Kwarteng, and that the cabinet had not discussed it. "It was a decision the chancellor made," she said.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "The great Truss retreat on tax saw the pound surge briefly in value, jumping above $1.12, up by round 1% in a matter of minutes just after rumours swirled about the move. It’s lost some of its bounce though as the financial markets digest the latest political turmoil to beset the UK.

"The Prime Minister was hoping to carve out a reputation as the new Iron Lady, instead she will be seen as highly malleable. She has been manipulated into this U-turn after senior conservatives yesterday coming out in open revolt at the Treasury’s decision to scrap the 45p tax band for the wealthy while refusing to rule out cuts to welfare for the poorest.

"Admitting to a communication mistake rather than a serious policy mishap didn’t cut it. Now this embarrassing climb down, taking unfunded tax cuts off the table, which Chancellor Kwasi Kwarteng has called a distraction, will help reassure the markets a little that the more reckless nature of this new administration can be reined in by the Conservative party."

In 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 lost ground, along with easyJet and Wizz Air.

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

Essentra rose as it announced the appointment of a new chief executive officer and the sale of its filters business.

Music investment company Hipgnosis Songs Fund was trading up after saying it had refinanced its debt facilities with a new revolving credit facility.

Market Movers

FTSE 100 (UKX) 6,838.36 -0.80%
FTSE 250 (MCX) 17,070.81 -0.57%
techMARK (TASX) 4,089.89 -0.68%

FTSE 100 - Risers

Lloyds Banking Group (LLOY) 42.07p 1.63%
B&M European Value Retail S.A. (DI) (BME) 310.90p 1.57%
BP (BP.) 438.60p 1.27%
SSE (SSE) 1,545.00p 1.15%
Unite Group (UTG) 867.50p 1.05%
Shell (SHEL) 2,269.00p 1.00%
Barratt Developments (BDEV) 345.60p 0.99%
Pearson (PSON) 874.00p 0.83%
Hargreaves Lansdown (HL.) 873.20p 0.69%
Centrica (CNA) 71.24p 0.56%

FTSE 100 - Fallers

Scottish Mortgage Inv Trust (SMT) 757.20p -3.22%
Coca-Cola HBC AG (CDI) (CCH) 1,841.00p -2.80%
Ocado Group (OCDO) 460.60p -2.52%
Melrose Industries (MRO) 99.66p -2.49%
Entain (ENT) 1,059.50p -2.44%
Anglo American (AAL) 2,671.50p -2.34%
Spirax-Sarco Engineering (SPX) 10,175.00p -2.16%
RS Group (RS1) 949.00p -2.06%
Next (NXT) 4,706.00p -1.98%
CRH (CDI) (CRH) 2,854.00p -1.92%

FTSE 250 - Risers

Telecom Plus (TEP) 2,095.00p 21.38%
Essentra (ESNT) 201.50p 10.35%
Hipgnosis Songs Fund Limited NPV (SONG) 93.00p 4.38%
Morgan Sindall Group (MGNS) 1,518.00p 2.71%
Crest Nicholson Holdings (CRST) 187.70p 2.46%
Energean (ENOG) 1,365.00p 2.32%
888 Holdings (DI) (888) 95.45p 1.98%
Redrow (RDW) 406.20p 1.75%
Bellway (BWY) 1,730.00p 1.59%
Countryside Partnerships (CSP) 202.40p 1.40%

FTSE 250 - Fallers

Carnival (CCL) 548.00p -5.81%
TUI AG Reg Shs (DI) (TUI) 103.40p -4.39%
easyJet (EZJ) 283.60p -4.32%
Wizz Air Holdings (WIZZ) 1,517.00p -4.26%
Kainos Group (KNOS) 1,233.00p -4.20%
JPMorgan European Discovery Trust (JEDT) 342.00p -3.80%
Aston Martin Lagonda Global Holdings (AML) 115.00p -3.77%
Vietnam Enterprise Investments (DI) (VEIL) 615.00p -3.30%
Allianz Technology Trust (ATT) 215.50p -3.15%
The Global Smaller Companies Trust (GSCT) 123.00p -3.00%