The FTSE 100 was dragged by selling in UK domestic facing stocks including housebuilders and banks after the Bank of England said support for the bond market would end on Friday and the Prime Minister said there would be no spending cuts alongside their radical tax changes.
The FTSE 100 closed down 0.86% at 6,826.
Although the Bank of England’s comments suggested Friday could mark severe volatility in markets, UK bonds and the pound were surprisingly calm on Wednesday. GBP/USD was 0.9% higher at 1.1070 at the time of writing.
The pound had quickly priced in the uncertainty after the BoE’s initial announcement on Tuesday falling sharply, and this weakness in the pound provided support for the FTSE 100 early in Tuesdays session. However this support had quickly evaporated by the end of trade on Wednesday.
The FTSE 100 was also hit by weaker than expected UK GDP data that showed the economy contracted 0.3% in August. With July’s GDP reading being revised down to 0.1% alongside the Augusts contraction, many economist are predicting we are already in a recession.
“A plethora of unhelpful external headwinds are blowing, holding back the UK’s ability to grow its economy. At the same time, the UK consumer base is utterly bone-tired with political uncertainty, concerns about higher-for-longer inflation and the government’s ability to get things under control, following a public berating of government policies by the IMF,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.
The broader FTSE 100 index is a poor reflection of the UK economy, however a look at domestic facing constituents highlighted concerns about the immediate outlook.
UK banks, housebuilders and consumer facing companies were major casualties on Wednesday. The bottom end of the FTSE 100 was dominated by those companies reliant on UK consumers.
Barratt Developments provided a gloomy outlook and saw their shares fall 7% while Persimmon shed nearly 8% of their value. JD Sports was down 9% and the FTSE’s biggest faller after news their Chief Financial Officer would relinquish his position next year.
Lloyds dived 6% and Natwest dropped 4% as investors fretted about the market impact of the BoE’s bond purchases coming to an end on Friday. Increased volatility could see additional mortgage market disruption and put further pressure on their customers.
AstraZeneca, British American Tobacco and Diageo among the FTSE 100 top risers on Wednesday as their defensive attributes attracted buyers.