London close: Stocks weaker after 'badly designed' Spring Statement

(Sharecast News) - London stocks turned negative to close below the waterline on Wednesday, after a much-anticipated Spring Statement from the Chancellor left many market watchers disappointed. The FTSE 100 ended the session down 0.22% at 7,460.63, and the FTSE 250 was off 0.52% at 21,001.62.

Sterling was also in the red, last falling 0.41% on the dollar to trade at $1.3207, and slipping 0.16% against the euro to change hands at €1.2006.

"A bearish streak has returned to the markets as the ongoing violence in Ukraine is chipping away at sentiment," said Equiti Capital market analyst David Madden.

"This morning, the FTSE 100 hit a four-week high, and the S&P 500 futures registered a fresh five-week peak, but the optimism has been replaced by a more cautious attitude.

"With the way political events are unfolding in Eastern Europe, it doesn't appear there will be a speedy end to the conflict anytime soon."

Madden said even though stocks were in the red on Wednesday afternoon, the declines needed to be put in the context of the rallies seen since the beginning of March.

"For example, on 7 March the FTSE 100 fell below 6,800, and this morning it traded above 7,500.

"In London, the stock market is experiencing a broad-based sell off, as the majority of sectors are down on the day - declines are seen in travel, household goods, electricity providers and utilities.

"The energy and mining sectors are outperforming thanks to the rally in oil and metals."

Rishi Sunak placed a long-term bet on the 2024 general election in his Spring Statement earlier in the afternoon, pledging a cut in income taxes while trying to ease the immediate financial pain of Britons with a reduction in fuel duty and a threshold rise for National Insurance contributions.

The millionaire Chancellor said the basic rate of income tax would be cut to 19p from 20p in 2024 - the year the next general election is due.

He also cut fuel duty by 5p a litre to combat runaway pump prices as the cost of crude oil remained well above $100 a barrel, on fears of supply disruption and a possible embargo on Ukraine's invader Russia.

Value added tax on energy efficiency such as solar panels, heat pumps and wind turbines was cut to zero from 5%.

Sunak also announced that from July, the rate at which people start paying National Insurance would be £12,570 - in line with the personal income tax allowance.

Economists, however, said the measure would do nothing for people on lower wages or those on means-tested benefits.

Paul Johnson, director of the highly-respected Institute for Fiscal Studies think tank, was also scathing at the tax cut announcement when people faced an increase in NI contributions

"Oh for goodness sake - what is the possible justification for cutting income tax rate while raising NI rate?

"It drives a further wedge between taxation of unearned income and earned income - yet again benefits pensioners and those living off rents at expense of workers," he wrote on social media.

Torsten Bell, chief executive of the Resolution Foundation think tank called Sunak's package "badly designed".

He said the finance minister had spent his fiscal headroom "on burnishing his credentials as a tax cutter- not on prioritising help for low and middle income households".

Bell quipped that it was "totally bonkers" to be raising National Insurance on earners while cutting income tax, benefitting people with other income sources such as pensions or property rents.

Elsewhere in the Spring Statement, the Chancellor said economic growth would be slower than forecast at last autumn's budget, blaming rising inflation and the invasion of Ukraine.

Sunak said growth was forecast to pick up in 2024, but for this year, growth was revised down to 3.8%, from a 6.0% growth forecast in last October's economic and fiscal outlook.

In 2023 it was now expected to be 1.8% from the 2.1% October forecast, before accelerating to 2.1% in 2024 - up from 1.3%.

Contextualising the Spring Statement was data released earlier showing UK inflation reaching a new 30-year high in February, as the cost of living crisis intensified.

According to the Office for National Statistics, consumer prices rose by 6.2% in the 12 months to February amid surging energy and fuel costs, up from 5.5% in January and marking the highest inflation reading since March 1992, when inflation was 7.1%.

Analysts had pencilled in price growth of 6%.

Prices were up 0.8% on a month-on-month basis, making for the biggest monthly CPI jump between January and February since 2009, while the retail price index came in at 31-year high of 8.2%.

"Inflation rose steeply in February as prices increased for a wide range of goods and services, for products as diverse as food to toys and games," said Grant Fitzner, chief economist at the ONS.

"Clothing and footwear saw a return to traditional February price rises after last year's falls when many shops were closed.

"Furniture and flooring also contributed to the rise in inflation as prices started to recover following new year sales."

Fitzner said the price of goods leaving UK factories had been rising substantially, and was now at its highest rate for 14 years.

Elsewhere on the economic front, strong growth in house prices continued at the start of 2022, with official data released on Wednesday showing a near-10% jump in prices in January.

According to the Office for National Statistics, UK average house prices increased 9.6% over the year to January, down from 10% in December.

The average UK house price reached £274,000 in January - £24,000 higher than the same time last year - with the average house price in England rising 9.4% to £292,000.

In equity markets, oil giants BP and Shell gushed higher, rising a respective 4.47% and 3.86% as oil prices rallied.

Brent crude futures were last up 4.68% on ICE at $120.88 per barrel, while West Texas Intermediate's NYMEX quote was 4.2% higher at $113.86.

BP was also in focus after it announced a partnership with Japan's Marubeni to explore an offshore wind development opportunity, potentially putting the energy outfit further on track to meet its target in the renewables space.

The shares got an added boost from an upgrade to 'overweight' at Morgan Stanley.

Elsewhere, Watches of Switzerland Group gained 1.92% after an initiation at 'buy' at Societe Generale.

TP ICAP racked up gains of 12.53%, rising strongly for the second consecutive day after an upgrade by Shore Capital on Tuesday to 'buy' from 'hold'.

On the downside, Reckitt slid 4.46% after a downgrade to 'underperform' at Jefferies, while Beazley was off 0.88% after a downgrade to 'hold' at HSBC.

Safety equipment company Halma reversed earlier gains to close down 0.52%, even after reporting "good progress" so far in the second half of its trading year.

Housebuilders were also under pressure, with Persimmon down 2.45%, Barratt Developments losing 4.11% and Taylor Wimpey 3.95% weaker.

"It has been a depressing day for housebuilders, and indeed other stocks connected to consumer spending in the UK," said IG analyst Chris Beauchamp.

"Today's CPI figures confirm that the squeeze on household incomes is here to stay, with the Chancellor's measures providing only a limited boost.

"Whether the recent bounce for stocks can withstand this gloomier outlook remains to be seen."

Essentra fell 1.59% even after Berenberg upped its price target on the stock to 370p from 360p.

It said raw materials inflation and supply chain issues are affecting the packaging division, which continued to disappoint.

The bank - which rated the shares at 'buy'- said it still saw an upside of around 20% to current prices.

Market Movers

FTSE 100 (UKX) 7,460.63 -0.22% FTSE 250 (MCX) 21,001.62 -0.53% techMARK (TASX) 4,330.84 -0.49%

FTSE 100 - Risers

BP (BP.) 387.90p 4.47% Shell (SHEL) 2,079.45p 3.86% Ocado Group (OCDO) 1,124.00p 3.50% Electrocomponents (ECM) 1,060.00p 2.81% Endeavour Mining (EDV) 1,900.00p 1.88% Glencore (GLEN) 511.20p 1.79% AstraZeneca (AZN) 9,730.00p 1.63% Rio Tinto (RIO) 5,800.00p 1.59% Fresnillo (FRES) 726.00p 0.97% Airtel Africa (AAF) 151.00p 0.80%

FTSE 100 - Fallers

Reckitt Benckiser Group (RKT) 5,619.00p -4.46% Royal Mail (RMG) 354.60p -4.39% Kingfisher (KGF) 261.20p -4.14% Barratt Developments (BDEV) 536.60p -4.11% Taylor Wimpey (TW.) 138.55p -3.95% Melrose Industries (MRO) 128.65p -3.85% WPP (WPP) 1,031.00p -3.82% Whitbread (WTB) 2,689.00p -3.79% United Utilities Group (UU.) 1,049.00p -3.46% Mondi (MNDI) 1,501.50p -3.19%

FTSE 250 - Risers

TP Icap Group (TCAP) 150.00p 12.53% Polymetal International (POLY) 131.00p 9.13% Harbour Energy (HBR) 474.40p 5.24% PureTech Health (PRTC) 215.00p 5.13% Tullow Oil (TLW) 53.20p 4.44% Energean (ENOG) 1,132.00p 4.14% Trustpilot Group (TRST) 142.90p 3.70% Hochschild Mining (HOC) 129.40p 3.44% FDM Group (Holdings) (FDM) 1,038.00p 3.20% Clarkson (CKN) 3,760.00p 3.01%

FTSE 250 - Fallers

Safestore Holdings (SAFE) 1,264.00p -4.31% Hammerson (HMSO) 30.65p -4.22% TR Property Inv Trust (TRY) 442.50p -4.04% Aston Martin Lagonda Global Holdings (AML) 908.20p -3.98% XP Power Ltd. (DI) (XPP) 3,640.00p -3.70% Tyman (TYMN) 329.00p -3.52% Moonpig Group (MOON) 220.40p -3.33% TUI AG Reg Shs (DI) (TUI) 224.00p -3.28% SSP Group (SSPG) 237.00p -3.23% Bellway (BWY) 2,782.00p -3.22%