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FTSE 100 Live: Pound tumbles under $1.09 and investors dump government bonds after mini budget

·22 min read
FTSE 100 Live: Pound tumbles under $1.09 and investors dump government bonds after mini budget

The pound fell under $1.09 after Kwasi Kwarteng delivered his growth-focused mini-budget with consumer confidence at a record low and markets under pressure after more big interest rate rises.

Billions of pounds of increased spending and tax cuts came in the chancellor’s statement, but economists have warned the impact for inflation could result in rates having to stay higher for longer. Investors moved out of UK government debt after the speech, sending yields sharply higher, with two-year government borrowing costing it almost 4%.

Earlier today it emerged that GfK’s long-running consumer confidence index fell five points in September to minus 49, the worst score since records began in 1974.

Market records set as government plans stir up turmoil

16:35 , Simon Hunt

City traders were confronted with a series of eye-catching milestones on Friday as the government’s re-drawn tax and spending plans stirred up turmoil in UK assets. Here’s a look at some financial records set on a momentous day that may well have provided a watershed moment for British economic policy:

· Kwarteng set out the biggest package of tax cuts since 1972

· The top rate of income tax is the lowest since 2010

· Two-year gilt yields rose to the highest since October 2008

· 10-year yields went up over 30 basis points, the biggest rise in a day since 1998.

· The pound fell below $1.09, dropping to the lowest level seen since 1985.

· The FTSE 250 index reached its lowest in two years

· If the Bank of England lifts rates by 1%, as traders now expect, it will be the biggest move since the financial crisis in 2008

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “By throwing Rishi Sunak’s tax raising plans on a bonfire, the government is taking a big gamble that growth will be ignited, to help the economy grow.

“But confidence that these unfunded tax cuts are a coherent policy for today’s inflation laden times is going up in smoke.”

Sterling freefall continues, drops below $1.09

16:07 , Simon Hunt

Sterling is sliding yet further today after Kwasi Kwarteng’s mini budget, down 3.2% to $1.0897, lows not seen since the mid-1980s.

The pound has fallen 11% against the dollar in little over a month. The Euro, which hit parity with the dollar in August, is now trading at 97 cent.

FTSE 250 hits two-year low and FTSE 100 falls as mini-budget hits stocks while pound slumps

15:45 , Michael Hunter

London’s FTSE 250 has slumped to a two-year low as investors react to the biggest package of tax cuts since the 1970s in a big gamble from the government to kick-start economic growth with redrawn fiscal plans.

The second-tier index is home to a range of companies that earn their revenue within the domestic economy, which the Bank of England said this week could already be in a technical recession. Kwasi Kwarteng’s mini-budget was seen in the City as an all-out push for growth, but investors moved out of UK assets in droves after the measures were announced.

The FTSE 250 tumbled almost 370 points to 17,963.78, a fall of 2% taking it back to where it was in 2020. The FTSE 100 also fell by 2%, to 7010.0. a fall of around 150 points. It briefly lost the 7,000 point mark straight after Kwarteng’s speech. The prospect of higher government borrowing to make up the shortfall in its income after the tax cuts spooked investors. The Debt Management Office, which runs the sale of UK debt, said its issuance of gilts would rise by over £60 billion this year. Investors dumped gilts, sending yields on the bonds sharply higher on debt markets.

Michael Hewson, Chief Market Analyst at CMC Markets UK, said: “It is this extra borrowing that appears to be spooking bond markets, and while the Chancellor was at pains to insist that this would help to kick start a plan to achieve a 2.5% GDP target, markets aren’t buying it. Equity markets are also plunging on concerns that this package could further push inflation even higher, and thus make it more difficult to bring back down.”

The pound slumped 3% in afternoon trade to $1.0940, levels last touched in the mid 1980s. It also weakened by 1.5% against the euro, with a unit of the shared currency costing £0.8869.

Pound falls under $1.10

15:05 , Michael Hunter

The pound’s freefall after the UK’s mini-budget continued in afternoon trade, with sterling losing the $1.10-mark for the first time since the mid 1980s.

It hit a day-low of $1.0996 about half an hour after the start of full trading on Wall Street, a fall of 2.5 cents.

New York stocks fall on lingering fears over the impact of rising rates on global growth

14:37 , Michael Hunter

Wall Street’s S&P 500 fell in opening trade on Friday on stubborn fears about the impact on the global economy of the rising interest rates adopted by central banks in the fight against inflation.

New York’s broad stock index was down over 47 points at 3714.0, a fall of over 1%. It came the start of the last trading day of the week in which the Federal Reserve lifted US interest rates by 0.75% and there were hikes from the central banks of the UK, Norway, Sweden and Switzerland.

The selling kept the S&P 500 heading back toward its June lows. It also came after international investment bank Goldman Sachs cut its target for the index’s year-end reading for 2022 to 3600 from 4300 after the Fed’s repeated pledges of agressive rate hikes.

Government debt sell off sends 10-year yields on their biggest one-day rise since 1998

14:08 , Michael Hunter

The prospect of a sharp fall in government revenue after the biggest package of tax cuts since the 1970s and higher borrowing to plug the gap has prompted investors to run from UK sovereign bonds.

A sharp sell off across the Gilt market has sent the return investors demand to hold the debt sharply higher, with the rise in the yield on benchmark 10-year debt on course for its biggest one-day advance since 1998, up by over 30 basis points to 3.842%.

The agency responsible for selling bonds -- the Debt Management Office -- includes an extra £72 billion of borrowing, not all of it via Gilts.

Antoine Bouvet, Senior Rates Strategist at ING said: “Price action in UK Gilts is going from bad to worse. A daunting list of challenges has arisen for sterling-denominated bond investors, and the Treasury’s mini-budget has done little to shore up confidence.

“The cost of the newly-announced measures [in the mini-budget] is reported to be £160 billion over five years but, with the cost of the energy price guarantee highly dependent on wholesale energy prices, investors are worried the Treasury has effectively committed to open-ended borrowing.”

Brewers welcome Kwarteng move to scrap beer duty increase

13:46 , Simon Hunt

Kwasi Kwarteng’s decision to scrap the planned duty increase for beer and wine has been welcomed by the British Beer and Pub Association.

Under plans laid out by former chancellor Rishi Sunak, drinks would be taxed based on their alcohol strength with duty rises being linked to the Retail Price Index.

Emma McClarkin, Chief Executive of the British Beer and Pub Association said: “We welcome the steps taken by the Government in the Chancellor’s fiscal statement. The measures announced today will mean a boost of £500m for our sector, enabling growth following successive crises and allowing us to thrive in the future. Coupled with this week’s intervention on energy bills, these commitments will make a significant difference to our pubs and brewers at an acutely difficult time.

“The Chancellor’s plans show that the Government recognises how extreme the cost of doing business has become and the enormous investment our sector makes, not only in the economy, but to the social fabric of communities across the breadth of the UK and why it must be protected.”

West End bosses give warm welcome to return of VAT shopping perk for foreign tourists

13:29 , Simon Hunt

West End business leaders on Friday hailed the return of VAT free shopping for foreign visitors as “a great victory” for London.

Kwasi Kwarteng told MPs that he would reverse the axeing of the perk which had made shopping in the capital 20 per cent cheaper for overseas tourists.

It was scrapped by ex-Chancellor Rishi Sunak at the start of last year in part because the Treasury claimed it was a tax giveaway that only benefitted London.

But critics said it would drive tourists to rival centres such as Paris and Milan where they can still claim back VAT.

read more here

FTSE 100 loses 7,000 point level as investors dump UK assets after mini budget

12:40 , Michael Hunter

London’s main stock index has surrendered the 7,000-point mark for the first time since March amid a wider, sharp sell-off of UK assets after the government outlined its radical overhaul of tax and spending plans, including the biggest package of tax cuts since the 1970s.

After what City experts have called a gamble on growth, the FTSE 100 fell 160 points to 6,999.9, a loss of over 2%. It came alongside a sell off which sent benchmark government debt yields to their highest in a decade and the pound to lows against the dollar not seen since the mid-1980s.

The drop for top-tier stocks is all the more eye-catching since a weaker pound can often help shares in multinationals which earn revenue in foreign currency and book it in sterling.

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. We must now use this opportunity to make it count and bring growth to every corner of the UK. Fifteen years of anaemic growth cannot be repeated.”

Kwasi Kwarteng speech: ‘gamble on growth’, ; City experts react

12:19 , Michael Hunter

UK asset markets have been stirred hard by Kwasi Kwarteng’s revelations on the government’a tax and spending plans, including the biggest package of tax cuts since the early 1970s.

Sterling is at its lowest level against the dollar since the mid-1980s and investors are selling off government debt, sending benchmark yields to levels not seen in a decade.

Here’s what City experts think:

Guy Foster, chief strategist at wealth manager Brewin Dolphin: “With a lot of the measures in this budget boosting demand the risk is that interest rates will have to rise further to offset them. The chancellor seems to be pushing the accelerator while the MPC is pushing the brakes.”

James Hughes, analyst at Scope Markets: “Global financial markets are far from giving any sort of ringing endorsement with the Pound and FTSE both squeezed and the price the government now needs to pay to borrow the money needed to fund this budget soaring. Yields on UK 10 year treasuries have advanced to levels not seen in a decade, underlining just how high risk this gambit is.

Danni Hewson, AJ Bell financial analyst: “The new Chancellor barely had time to draw breath as he dragged rabbit after rabbit from his newly acquired hat. The big question troubling markets is how on earth he’s going to pay for all these long-eared prizes. The new government is gambling on growth, but markets aren’t overly keen on a gamble if they don’t know they odds.”

Tom Hopkins, Portfolio Manager at BRI Wealth Management: “This mini budget has already received a lot of criticism, with many accusing Kwarteng of ramping up borrowing just when doing so becomes expensive, when coupled with permanent tax cuts, many have criticised that this budget will push borrowing to unsustainable levels. It’s important to remember these sorts of measures do take time to bear fruit, they’re no quick fix.”

Howard Wheeldon, the long-standing City strategist and market commentator: “Rarely if ever has a Conservative Government gone this far in attempting to incentivise economic growth ... the bottom line remains that if the Bank of England keeps moving interest rates up in order to fight inflation, to protect the value of sterling and compete with rising interest rates in the US and elsewhere ... much of the benefit announced today might well be lost.”

Kwasi Kwarteng speech: Pound in freefall, Gilts hit hard and stocks fall back

11:48 , Michael Hunter

UK assets are taking a hit across the board after the government’s mini budget slashed taxes to stimulate growth but in a move that has immediate consequences for the government’s finances.

The pound slumped to fresh lows against the dollar not seen since the mid 1980s, a sell-off in UK government debt sent benchmark yields to a ten-year high and London stocks fell fast. Here is a summary of the main market action:

  • Sterling fell 1.9% against the dollar to $1.1039, its weakest since 1985. It was 0.8% weaker against the euro, with a unit of the shared currency costing £0.88

  • UK sovereign bonds were being dumped as the tax cuts made more borrowing likely, reducing government income before the measures generate growth. The selling sent the yield on benchmark 10-year Gilts up to 3.746% -- the highest since 2011 -- from 3.487% before Kwasi Kwarteng spoke. The two-year Gilt yield reached 3.820%, up from 3.691% before the speech.

  • London stock markets also looked unsettled. The FTSE 250, which is usually more sensitive to the domestic UK economy, was down 1.5% at 18102.5. The FTSE 100 fell 1.9% to 7024.60.

  • Odds on a super-sized base rate hike of 1% from the Bank of England also spiked, hitting 80% for its next meeting, due in November, according to the Bloomberg news agency

Kwasi Kwarteng speech: main points

11:10 , Simon Hunt

With the scrapping of both the banker bonus cap, the top rate of income tax and the planned corporation tax rise, Kwasi Kwarteng’s ‘mini’ budget speech has been anything but mini.

Read more here on some of the key announcements.

Pound slumps as mini-budget tax cuts take a toll

10:53 , Michael Hunter

The pound is falling heavily on currencies markets as investors measure the impact of Kwasi Kwarteng’s package of tax cuts, which are designed to boost growth but will put pressure on the government’s finances under immediate pressure.

Sterling was already trading at some of its lowest levels since the mid-1980s under $1.13 and extended that trend after the mini-budget, slumping by 1.3% to $1.113. That takes its tumble for the year to almost 18%.

Pound slumps and investors dump UK government debt after Kwarteng speech

10:51 , Simon Hunt

An hour on from Kwasi Kwarteng’s mini budget speech, here’s where the market stands:

City Comment: Chancellors optimism not widely shared

10:45 , Simon English

Some warm words today from our new chancellor. Kwasi Kwarteng wants to “turn the vicious cycle of stagnation into a virtuous cycle of growth”, something he believes can be achieved by a bunch of supposedly City-pleasing tax cuts.

How did the actual City react?

Well, the pound fell below $1.12, the lowest since 1985, on fears in the Square Mile and beyond that the extra borrowing needed to fund the cuts will just further undermine the currency.

Beyond that, few of the optics look good.

Consumer confidence is plunging, with the closely watched GfK survey saying UK households are “buckling under the pressure” of inflation.

Various measures of growth suggest the UK is already in recession. Indeed, in City circles the talk is of how deep that recession will be, rather than whether it will happen or not.

In that context, talk of unleashing the power of the financial services sector might look askew.

“We cannot allow,” think tank Parliament Street says today, “to allow excessive paperwork and compliance rules to suffocate its growth”.

Sadly, the supposed excess regulation in the City has nothing to do with inflation, the energy crisis, mad Vlad Putin or rocketing interest rates.

A really brave politician might have said there’s very little he can do about any of those things. Instead the Chancellor offered us words like “bold and unashamed” as if tax cuts to people who already vote for you are a radical new idea.

There’s a lot to be said for optimism. Gloomsters predicting the end of the world tomorrow have been wrong every day so far.

But reality bites and it is far from clear that today’s proposals will do anything except give already reasonably comfortable people a short-term lift.

Investors dump UK government debt after chancellor’s ‘mini-budget’, sending yields up

10:29 , Michael Hunter

Investors moved out of UK government debt, sending yields on gilts higher, as the government’s revised tax and spending plans included cuts to National Insurance and income tax.

The yield on benchmark 10-year gilts rose to 3.676%, up from 3.487% before Kwasi Kwarteng spoke in the House of Commons. The yield on short-term, two-year debt rose to 3.691%, up from 3.486%, a notably sharp response.

London’s FTSE 250 share index moved up off day-lows but did not turn positive, trading down 20 points overall at 18311.36, down 0.2%. The index is home to some of the biggest names that earn the bulk of their revenue from the UK economy, and while City expert welcomed some measures, there was concern that more action will be needed as the economy slows

Mike McCudden, the chief executive of CrowdX, said: “This government has some major issues to tackle right now and it was great to hear of the extension to the Enterprise Investment Scheme, which was due to expire in 2025, but deploying more nuanced fiscal policies – not just broad-based, headline grabbing slogans - will be critical if the worst is to be avoided.”

City reacts to Kwarteng’s mini-budget

10:15 , Simon Hunt

The City had a mixed reaction to Kwasi Kwarteng’s budget speech, with the chancellor’s focus on growth welcome but the credibility of his plans under close scrutiny.

Tim Mills, Managing Partner at ACF Investors, said: “In a statement with a very welcome focus on growth and the future of UK economic success, the chancellor has given UK startups a major boost by guaranteeing the future of the EIS scheme, which provides £1.7bn a year in funding for some of the UK’s highest-growth businesses.

“Besides funding, fast-growing companies and their investors need one thing above all else – a consistent landscape of support. By providing clarity around this vital source of funding, UK startups have a much clearer runway for growth over the coming years. At a time of economic turmoil, the impact of that assurance cannot be understated.”

But Roger Clarke, CEO of Real Estate Stock Exchange, IPSX, said “In the absence of cheap credit, the government is attempting to pull all levers at its disposal to support household finances and consumer spending.

“It’s hoped that the widespread deregulation and cuts to headline tax rates will release a wave of investment and consumption, although there is much debate around the credibility of this loose fiscal approach,” he said.

Andrew Aldridge, Partner at Deepbridge Capital, said: “The new Chancellor’s overt commitment to the Enterprise Investment Scheme and Seed Enterprise Investment Scheme could well be the single most important decision he takes during his time at 11 Downing Street. These world-class propositions are fundamental to the creation of the innovative companies of tomorrow.”

Top rate of tax scrapped, stamp duty threshold increased

10:03 , Simon Hunt

The 45% top rate of income tax has been scrapped, Kwasi Kwarteng has confirmed, meaning the highest rate of income tax is now 40%.

A planned cut in the basic rate of income tax to 19% has been brought forward.

Meanwhile, the £500,000 stamp duty threshold for first time buyers has been increased to £625,00, taking an estimated 200,000 home owners out of paying stamp duty altogether, Kwateng said.

“For too long in this country we have indulged in a fight over redistribution. Now we need to focus on growth,” Kwarteng said.

Planned corporation tax hike scrapped, Kwarteng confirms

09:58 , Simon Hunt

A planned hike in the rate of corporation tax is to be scrapped, chancellor Kwasi Kwarteng has said, keeping the rate at 19%, the lowest rate in the G-20.

A planned drop in the Annual Investment Allowance tax relief to £200,000 will also be scrapped, while increase to tax-advantaged share schemes, including the Company Share Option Plan, will increase.

Kwarteng said the move was “a crucial step to make this a nation of entrepreneurs.”

Kwarteng drops banker bonus cap

09:50 , Simon Hunt

Chancellor Kwasi Kwarteng has confimed the government will scrap the banker bonus cap.

The cap restricts bonus pay to a maximum of 200% of base pay. Kwarteng said the existing rules never set a maximum cap on total banker pay.

“A strong UK economy has always depended on a strong financial services sector,” he said.

Energy plan will reduce inflation by 5%, says Kwarteng

09:45 , Simon Hunt

The government’s energy plan will bring inflation down by 5%, Kwasi Kwarteng said in his budget speech.

The total cost of the scheme, which will subsidise enegy bills for six months from October, is set to reach £60 billion, Kwarteng said.

“The heavy price of inaction would have been far greater than the cost of these schemes,” he added.

Market recap as Kwasi Kwarteng takes to the dispatch box

09:40 , Simon Hunt

Here’s where the market stands as chancellor Kwasi Kwarteng begins his mini budget speech.

FTSE 100: 7,097.81 -61.71 (-0.86%)

FTSE 250: 18,254.69 -77.00 ( -0.42%)

GBP/USD — $1.115 -0.009 (-0.87%)

30- year gilts yield: 3,760

10-year gilts yield: 3,487

2-year gilts yeild: 3,486

FTSE 100 steady, Smiths Group up 3%

08:33 , Graeme Evans

The FTSE 100 index is near to its opening mark, despite weaker oil stocks BP and Shell and declines of 1% for Lloyds and NatWest.

The top flight, which retreated 1% yesterday following the Federal Reserve interest rates decision, stood 8.82 points lower at 7150.70.

Smiths Group, the industrial conglomerate, led the risers board after full-year results featured a 5% increase in dividend and forecast for revenues to grow by more than 4% this year. Shares lifted 3% or 37.5p to 1508p.

Other stocks up by more than 1% included GSK and the drugs giant’s former consumer healthcare division, Haleon.

Marks & Spencer shares rose 1.9p to 112.3p but the wider FTSE 250 index dipped 15.51 points to 18,316,18.

Consumer confidence at record low

08:18 , Graeme Evans

GfK’s consumer confidence index today posted its worst reading since records began in 1974 as the cost of living crisis continues to bite.

The headline figure fell five points in September to minus 49, the fourth time in the last five months it has been at an all-time low.

Confidence in personal finances over the coming year fell nine points to minus 40 and confidence in the economy over the next 12 months by eight points to minus 68. The major purchase index, an indicator of confidence in buying big ticket items, was unchanged at minus 38.

GfK director Joe Staton 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. They are asking themselves when and how the situation will improve.

“Today’s mini-budget, and the longer-term agenda to drive the economy and help rebalance household finances, will be the first major opportunity to deliver that improvement.”

Wall Street fall adds to FTSE 100 pressure

07:51 , Graeme Evans

Fears over the impact of more big interest rate hikes in the US continue to dominate markets after another big fall for Wall Street last night.

The S&P 500 index declined 0.8% and the Nasdaq lost 1.4%, with dealings in futures markets pointing to another negative session when trading resumes this afternoon.

The potential for a hard landing in the US economy has increased after Federal Reserve chair Jerome Powell vowed to do everything possible to tackle inflation. Traders now see a Fed funds rate of 4.5%-4.75% by early 2023.

European markets were also impacted yesterday as the FTSE 100 index closed at its lowest level in two months after losing 1.1% at below the 7200 mark. The FTSE 250 index, which is already in bear market territory, fell 2%.

Sterling weakened to $1.12 following this week’s flurry of central bank meetings, which saw the Federal Reserve increase by 0.75% and the Bank of England by 0.5% to 2.25%.

There had been speculation that the Bank might increase by 0.75%, but economists think such a move could still happen in November if today’s mini-budget makes it more likely inflation stays higher for longer.

CMC Markets expects an unchanged start for the FTSE 100 index today.