- FTSE 100 back below 7,000, down 169 points, oil price slips
- Sterling hits fresh 37 year low, yields on gilts jump
- Chancellor scraps planned corporation tax rise and cap on bankers bonuses
3.20pm: Oil prices fall 4%
Oil prices fell on Friday to trade at levels not seen since January as the dollar index hit its strongest level in two decades and on demand fears as rising interest rates risked tipping major economics into recession.
Brent crude futures fell $3.74, or 4.13%, to $86.72 a barrel by 1313 GMT. U.S. West Texas Intermediate (WTI) crude futures were also down by $3.98, or 4.77%, to $79.51 a barrel.
Front-month Brent and WTI contracts were down 5.28% and 6.80% respectively over the past week.
Shares in index heavyweights BP PLC (LON:BP) (down 6.25%) and Shell (LON:RDSa) PLC (SHEL, NYSE:SHEL) (5.73%) fell sharply
2.50pm: US markets in fresh falls
Shares in London have come off their worst levels for the day with the FTSE 100 down 129 points at 7,031 and the FTSE 250 down 360 points to 17,972.
Little in the way of support from the US where markets continue to head south.
Just after the open, the Dow Jones Industrial Average had shed 294 points or 1% at 29,783 points, the S&P 500 slipped 43 points or 1.1% at 3,715 points, and the Nasdaq Composite had lost 115 points or 1% at 10,952 points.
Stocks are set to continue to struggle, according to Goldman Sachs (NYSE:NYSE:GS) (Goldman Sachs (NYSE:GS)) analysts who have cut their year-end 2022 target for the S&P 500 by 16% to 3,600 points from their previous target of 4,300 points.
In a note released late on Thursday, analysts wrote that the Fed’s expected path of interest rate hikes was higher than they previously thought.
2.10pm: FTSE 100 recovers some ground
The FTSE 100 has stabilised for now, back above 7,000, down 137 points at 7,022.
More reaction to the Chancellor's statement today.
The Institute for Fiscal Studies, has looked at the Chancellor’s figures and said the government is on course to miss its two main targets – that debt should be falling as a percentage of GDP by year three of the forecast, and that the current account should be in balance by year three.
Ruth Gregory, senior UK economist at Capital Economics, says Kwasi Kwarteng is taking a gamble with his tax cuts.
“The Chancellor claimed that this was a plan for growth.”
“But unless the Chancellor’s gamble pays off and the government’s fiscal policy boosts GDP growth by 0.5-1.0ppts per annum, the risk is that once the near-term boost to GDP fades, the legacy of the government’s fiscal plans will be higher interest rates and a higher public debt burden.”
The Chancellor's massive package of tax cuts will boost growth in the short term but drive up interest rates and spark an additional £411bn of borrowing over five years.
That's according to the Resolution Foundation, which has analysed the numbers in the absence of an official OBR forecast.
The think tank said the deterioration of the economic outlook since March, as well as additional packages of energy support, are estimated to have increased borrowing by £265bn over the next five years.
12.50pm: "Fire sale of UK assets" continues
Share prices in London and the pound continue to tumble following the Chanellor’s statement today.
Neil Wilson of Markets.com said there is a “fire sale of UK assets” that is “absolutely horrible to watch”, as UK government bonds prices tumble too.
“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?”
The slide in the pound continued as well with sterling now trading below US$1.11 with analysts at Radobank describing it as a “battering.”
UPDATE: sterling now down well below $1.11 against dollar. Now closer to $1.10.When @KwasiKwarteng began his speech it was around $1.12. pic.twitter.com/yyy6E9QNQV
— Ed Conway (@EdConwaySky) September 23, 2022
“The UK is burdened with a record current account deficit/GDP ratio” and the broker said the markets are clearly very doubtful of the ability of this government to manage this debt.
“Concerns over the UK’s fiscal position combined with its recessionary outlook and extremely high level of inflation leave the pound extremely vulnerable.”
George Saravelos, an analyst at Deutsche Bank (ETR:DBKGn), said: "From our perspective, the UK’s immediate challenge is not low growth. It is an extremely negative external balance picture reliant on foreign funding.."
"The large fiscal spend announced may boost growth a little in the short-term. But the bigger question is this: who will pay for it?"
The markets seemed to agree with the FTSE 100 almost in freefal, now down 171 points to 6,989.
12.25pm: Business reacts to the Chancellor's statement
Business leaders gave their reaction to the Chancellor’s statement and it is fair to say it made more positive reading for the man in number 11 Downing Street than the market reaction.
Tony Danker, CBI Director-General, said:
“This is a turning point for our economy. Like Covid, the energy crisis has meant Government has had to spend massively to protect people and businesses. That means we have no choice but to go for growth to afford it.”
“Today is day one of a new UK growth approach. Fifteen years of anaemic growth cannot be repeated.”
“Taking action to get Britain’s economy moving again by beginning construction on transport and green infrastructure projects shows immediate delivery.”
“It’s not perfect - it’s just the beginning - but there’s plenty business can work with.”
Shevaun Havilland, director general of the British Chambers of Commerce said “Businesses across the UK will enthusiastically welcome the chancellor’s pledge to focus on economic growth and speed up new infrastructure development.”
Neil Carberry, chief executive of the Recruitment and Employment Confederation said: “Putting business at the heart of delivering prosperity for the UK is always the right call.”
“Reducing the counter-productive rise in employer National Insurance – a tax on creating jobs and paying people more, that falls heavily on the sectors most affected by the pandemic – is wise.”
“And ditching the botched changes to IR35 – the rules on how temporary contractors are paid - is also a huge help.”
Kitty Usher, chief economist at the Institute of Directors said “This is a good news day for British business. In a time of low confidence and economic uncertainty, the new chancellor’s emphasis on going for growth will be very welcome to firms of all sizes across the UK.”
“Taken together with the energy bills relief scheme, the package as whole will make it easier for businesses navigating a challenging economic environment in the coming months.”
12.00: US markets to add the markets glloom
US markets are unlikely to mprovide a lift to the gloomy mood with further falls expected on Friday as investors brace for a recession in the world’s biggest economy in the wake of the Federal Reserve’s steep interest rate hikes.
Futures for the Dow Jones Industrial Average were down 0.7% in pre-market trading, while those for the S&P 500 lost 0.8%, and contracts for the Nasdaq-100 were 1.0% lower.
In London, the FTSE 100 is testing its worst levels for the day down 124 points at 7,035.
11.30am: Borrowing costs to rise sharply
The UK’s Debt Management Office has confirmed that Britain’s borrowing needs will surge this year, to pay for the tax cuts announced today by the Chancellor.
The DMO, which is responsible for managing the government’s debt and cash needs, is raising its debt issuance plans by £72.4 billion to £234.1billion.
Those extra financing needs mean the DMO must issue an extra £62.4 billion of gilts – taking the total to be sold this year to £193.9 billion.
Borrowing this fiscal year (2022/23) up £72bn from £162bn to £234bn https://t.co/HTY1cjJrsz pic.twitter.com/SvP7F5OOv8— John Rentoul (@JohnRentoul) September 23, 2022
11.00am: Shares down, sterling down, yield on two-year gilts up - market reacts to mini budget
Reaction to the Chancellor’s mini budget statement is coming in thick and fast.
Market reaction has been negative to say the least.
The yield on two-year UK gilts has jumped to the highest level since 2008 rising to 3.76%, a jump of 25 basis points today, as have the yields on 10-year gilts.
This is what has happened to yields on 10 year UK gilts today. This scale of movement so fast is highly unusual. Looks like markets are a little spooked by scale of fiscal giveaway pic.twitter.com/hOXxXY64Lp— Paul Johnson (@PJTheEconomist) September 23, 2022
The FTSE 100 extended its falls, now over 115 points lower, at 7,044 and sterling has dropped further.
The pound is falling. Fast. pic.twitter.com/fc8RPGXN6R— Ed Conway (@EdConwaySky) September 23, 2022
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said “Collectively, these measures equate to a £26.7 billion giveaway in 2023/24, or approximately 1% of GDP.”
“But the support to GDP will be relatively modest, given that the biggest winners of these policies are high earners.”
“All told, we believe that the economic outlook has not been transformed by these tax cuts” and “the government will need to focus much more or policies to boost labour supply if it is to have any chance of hitting its target of raising the economy’s trend growth rate to 2.5% per year.”
Paul Johnson, Director of the Institute for Fiscal Studies, tweeted “£45 billion of tax cuts. This is biggest tax cutting event since 1972. Barber's "dash for growth" then ended in disaster.”
“That Budget is now known as the worst of modern times. Genuinely, I hope this one works very much better.”
Chris Sanger, EY’s Head of Tax Policy, said “As fiscal events go, this was a seismic one.”
He said beyond the headline announcements “it also triggers a change in mindset” with “the government doubling down on growth, providing tax cuts across the board.”
“Whilst this may have been called a “mini” Budget, this was far more like a Rolls Royce (LON:RR).”
Olly Bartrum, senior economist at the Institute for Government said “This many tax cuts without an OBR forecast is extremely risky” adding “Frankly no idea how HM Treasury officials would sign off on this - don't understand how people that lend the UK money can be confident in the sustainability of our public finances.”
10.15am: Business activity slides further in September
UK business activity declines at quickest rate since January 2021, as cost pressures remain high and demand wanes.
The latest UK Flash PMI data, compiled by S&P Global on behalf of CIPS, pointed to a further decline in UK private sector output during September with the rate of contraction the quickest seen since January 2021, with businesses often commenting on the negative impacts of high costs and a weaker economic outlook on client spending and output.
Employment remained a bright spot, which continued to rise strongly overall in September, despite the rate of job creation being unchanged from August’s 17-month low.
However, signs of spare capacity became increasingly apparent, with backlogs of work falling at a quicker pace. Although both input costs and output charges rose at softer rates, the increases were still among the steepest seen in the survey’s history.
September data pointed to a quicker decline in business activity in the UK with the flash #PMI at a 20-month low of 48.4 (Aug: 49.6). High costs and a weaker economic outlook weighed on client spending and output. Read more: https://t.co/63XVhkn9Cx pic.twitter.com/k0pqK9B9kq— S&P Global PMI™ (@SPGlobalPMI) September 23, 2022
The headline numbers are as below.
Flash UK PMI composite output index for September was 48.4 (August: 49.6), a 20-month low.
Flash UK services PMI business activity index was 49.2 in September (August: 50.9), a 20-month low.
10.00am: More from the Chancellor
Kwarteng confirms the planned increase in corporation tax has been cancelled.
The planned increase in national insurance contributions has also been scrapped as confirmed yesterday.
The stamp duty threshold for house purchases has been doubled to £250,000.
Higher tax rate of 45% has been scrapped and the Chancellor brings forward the reduction in the basic rate of income tax to 18% to April 2023.
FTSE 100 is now down 60 points to 7,100, while the pound remained below US$1.12.
9.45am: Mini-budget underway
Confirms that cap on bankers' bonuses have been scrapped.
The Government wants to get the trend rate of growth up to 2.5%.
Measures to cut energy prices will reduce peak inflation by around 5 percentage points.
The Office for Budget Responsibility will publish an economic forecast before the end of the year.
9.25am: TheWorks on the move upwards
Shares in TheWorks.co.uk (LON:WRKS) soared 42% after reporting strong growth in revenue and profits which importantly came in above the reduced expectations the company had set in August.
Adjusted EBITDA increased to £16.6mln for the full year from £4.3mln last time ahead of the £16.5mln forecast in August when the company warned of a deteriorating market outlook, low consumer confidence and rising inflation.
Profit before tax of £10.2mln compared with a loss of £2.8m in full year 2021.
“Trading since the group's update on 8 August 2022 has remained resilient however the outlook for full year 2023 is unchanged, reflecting the board's desire to remain cautious in light of the uncertain economic conditions” the group said.
8.55am: FTSE dips ahead of mini-budget
London’s blue-chip index dipped ahead of the mini-budget at 9.30am and sterling hit a fresh 37 year low as the markets fretted about how the UK would pay for the tax cuts and spending measures that are likely to be unveiled.
Together with a survey showing a sharp fall in consumer confidence it showed the challenges facing the Government.
At 8.50am the FTSE 100 was down 21 points at 7,138.
Traders are expecting the Chancellor to slash taxes as part of the Government’s plan to boost growth amid a deepening cost-of-living crisis.
He has already confirmed that the recent increase in National Insurance will be reversed from November.
Further cuts could include scrapping the planned increase in corporation tax and slashing stamp duty.
A drop in oil prices hit index heavyweights BP PLC (LON:BP) (down 1.4%) and Shell (LON:RDSa) (down 1.9%) with Brent crude down 1.26% to US$88.48.
Smiths Group (LON:SMIN) PLC rose 2% as it reported its fastest revenue growth in a decade.
Prudential PLC (LON:PRU) advanced 2.2% after positive comments from broker JPMorgan (NYSE:JPM) Cazenove which raised its price target to 1450p from 1380p and reiterated its overweight rating.
But Made.com Group PLC (LSE:MADE) tumbled 32% after putting itself up for sale as part of a review of possible options to “maximise value for shareholders”, as it has been unable to attract investors to an equity fundraising.
The struggling online furniture retailer, which floated last year and has seen its shares almost wiped out since, said “unexpected events” this month in the UK have seen trading and its financial position both deteriorate further.
Due to the continued uncertainty, directors have withdrawn full-year financial guidance.
8.25am: Sterling under pressure
The pound has plunged again this morning as traders gear up for Kwasi Kwarteng's tax cuts.
The pound dropped below $1.12 for the first time since 1985, extending its recent run of losses.
Meanwhile, the euro also dropped to its lowest against the dollar since 2002.
8.10am: FTSE little changed, consumer confidence hits new low - GfK
FTSE 100 in subdued mood at the open hovering around opening levels ahead of the mini-budget at 9.30am.
At 8.10am London’s blue chip index was trading down 4 points at 7,155.
The impact of the cost of living crisis was seen in GfK’s long-running consumer confidence Index decreased five points in September to -49, setting yet another record low.
Four measures were down in comparison to the August 19th announcement, and one was flat.
September’s Consumer Confidence Barometer sees the Index dive to a new low of -49. Two key future-facing indicators for the coming 12 months fell sharply: personal finances (down 9 points to -40) and the economy (down 8 to -68). https://t.co/CQSkABJBe5 #CCBUK pic.twitter.com/rOz81LCYpS— GfK (@GfK) September 23, 2022
Joe Staton, client strategy director, GfK said: “UK consumer confidence tumbled in September to a new low of -49, the worst overall index score since records began in 1974.”
“There have been new lows in four out of the last five months and all measures are once again severely depressed.”
“Especially worrying are the two key future-facing indicators on personal finances in the coming year (down nine points to -40) and the economy in the next 12 months (down eight to -68)” he said.
“Consumers are buckling under the pressure of the UK’s growing cost-of-living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments.”
7.50am: Smiths' delivers fastest revenue growth in a decade
Smiths Group (LON:SMIN) PLC reported its fastest revenue growth in nearly a decade as it unveiled full year results to the end of July, 2022.
Revenue of £2,566mln, rose +3.8% on an organic basis and ahead of expectations it said, with operating profits up 1.7% to £417mln, again on an organic basis.
Return on capital employed rose 30 basis points (bps) to 14.2% although organic operating margins dipped 30bps to 16.3%.
The FTSE 100 listed engineering group reported high demand across most end markets with strong order growth of +11% and rewarded shareholders with a 5% increase in the total dividend to 39.6p.
The group said pricing actions were offsetting inflation and mitigating other supply chain impacts.
Looking ahead Smiths’ forecast 4.0%-4.5% organic revenue growth with moderate margin improvement with strong order books and leading market positions to support sustained momentum.
7.30am: Chancellor to focus on growth
Kwasi Kwarteng will promise a "new era for Britain" with a major package of measures to "turn the vicious cycle of stagnation into a virtuous cycle of growth" Sky News reports.
The chancellor is set to announce tens of billions of pounds both of increased spending and of tax cuts when he delivers his mini-budget at around 9.30am on Friday.
The statement is expected to include details of how the government will fund the energy price cap for households and businesses, and put into practice many of Prime Minister Liz Truss's tax-slashing promises.
The government is dubbing it a "growth plan" at a time when the UK faces a cost of living crisis, soaring inflation and climbing interest rates.
Speaking about his priorities in a speech to the House of Commons, the chancellor is expected to say: "Growth is not as high as it needs to be, which has made it harder to pay for public services, requiring taxes to rise.
"This cycle of stagnation has led to the tax burden being forecast to reach the highest levels since the late 1940s."
"We are determined to break that cycle. We need a new approach for a new era focused on growth.
7.00am: FTSE 100 set to open higher
FTSE 100 expected to open higher this morning, looking to end the week on a brighter note after heavy losses yesterday, with attention in London focused on the mini budget due at 9.30am.
Chancellor of the Exchequer Kwasi Karteng has also announced a reversal in the national insurance increase made by his predecessor while the corporation tax rise that was due to take effect next year may also be cancelled.
Ahead of this spread betting companies are calling London’s blue-chip index up by around 20 points.
In the US, markets endured another down day.
The Dow closed Thursday down 108 points, 0.4%, at 30,076, the Nasdaq Composite lost 153 points, 1.4%, to 11.067 and the S&P 500 declined 32 points, 0.8%, to 3,758.
The Dow nearly salvaged a winning day, flashing into the green in the afternoon, but ultimately the benchmarks each declined for the third consecutive session.