FTSE 100 Drops To 3-Month Low Due To New Economic Plan
On Friday, the benchmark UK FTSE 100 index dropped to closing lows of three months, after the new finance minister of Britain Kwasi Kwarteng revealed historic spending plans and tax cuts for boosting the economy.
However, the economic plans ended up knocking market sentiment as investors became spooked due to a huge rise in borrowing.
The plan
The economic agenda that Kwarteng put forward is aimed at pulling the UK out of a cycle of stagnation and pushing it into economic growth, but it comes with a rather hefty bill.
There was a 2.0% drop in the export-focused FTSE 100 index, which brought it down to the lowest it has been since June 17th.
Earlier in the session, the blue-chip index had dropped as much as 2.5% to reach a six-month low. As for the domestically-focused FTSE 250, it also dropped by 2.0% to record lows of two years.
The economic plan included removing the top rate of income tax in the country and also scrapping the increase in corporate tax.
According to Kwarteng, about 60 billion pounds would be spent on subsidizing electricity and gas bills for businesses and households in the next six months.
Market analysts said that inflationary headwinds already existed and this plan would only worsen inflationary concerns.
It also means that the Bank of England (BoE) has a harder job when it comes to cooling prices, but it remains independent for now.
Business and markets
There was a 1.3% drop in UK homebuilder stocks after they had gotten a brief boost due to the government’s plan, which includes cutting stamp duty to assist families in buying homes.
It has turned out to be the worst performing sector of the UK this year because concerns about affordability have gone up due to increasing interest rates.
According to a survey, this month saw the downturn in UK businesses get worse, as they are putting up with faltering demand and rising costs, which only strengthens the possibility of an economic recession.
Market analysts said that they were concerned about cyclical equities. The PMI needs to reach trough levels instead of showing the downward trajectory that it is currently showing.
Earlier, data also showed that British consumer confidence had dropped to its lowest level this month since records were first maintained in the 1970s.
Individual stocks
The biggest drags on the FTSE 100 index were mining and oil majors because there was a drop in commodity prices against a stronger greenback.
As for individual stocks, there was a 4.6% drop in Burberry after the luxury group announced that April would see Julie Brown, its Chief Financial Officer, step down from her position.
There was a 1.3% rise in Smiths Group after an upbeat forecast for the full year in 2023 was provided by the industrial technology group.
A 20.0% drop was also seen on Made.com, after the announcement from the online furniture retailer about cutting options and exploring the option of a sale.
