LONDON, Oct 11 — UK’s main stock indexes fell today, as global sentiment worsened amid fears of higher interest rates and geopolitical risks, with investors focussing on fresh measures by the Bank of England to limit the rout in government bonds.
The central bank, trying to stem a collapse in Britain’s £2.1 trillion (RM10 trillion) bond market, said it would buy up to £5 billion of inflation-linked debt per day, starting today, until the end of this week.
The pound extended recent declines, falling 0.3 per cent, even as data showed Britain’s unemployment rate fell to 3.5 per cent in the three months to August, the lowest since 1974.
The blue-chip FTSE 100 fell 1.1 per cent, its fifth consecutive day of losses, with commodity-linked stocks such as Shell, Rio Tinto and BP dragging the index lower.
Meanwhile, shares of pension providers such as Legal & General, Prudential and Aviva fell between 2.3 per cent and 3.3 per cent.
“The stocks that are getting impacted the most are stocks that are priced off the bond market...the real estate companies, asset backed companies, where it’s clear that the cost of capital is going to go up,” said Roger Jones, head of equities at London & Capital.
“Normally, higher rates will be favourable for banks in terms of net interest margins, but the problem we have is the risk of default with the cost of borrowing going up, is having much more of a negative impact.”
UK’s banking index was down 1.6 per cent at a one-week low despite prospects of a large rate hike by the BoE next month.
However, the internationally focussed FTSE 100 has outperformed UK’s domestically exposed FTSE 250 this year, as a weakening pound and strength in commodity prices boosted the former.
The FTSE 100 has shed 6.8 per cent so in 2022, while the midcap index has lost about 28 per cent — set for its worst annual performance since 2008.
Ukraine-focused miner Ferrexpo Plc fell 9.1 per cent, as it temporarily suspended production after Russian missile attacks damaged state-owned electrical infrastructure.
Marston’s gained 4.8 per cent after the pub operator said annual total retail sales came in higher than 2019 numbers, as people continued to splurge on drinks and food. — Reuters
