Turmoil on the bond markets sparked heavy selling of UK stocks yesterday as investors, worried about the health of the economy under Labour, ran for the hills.
With UK gilt yields soaring and the pound sinking, the FTSE 100 inched up 0.1 per cent, or 5.75 points, to 8251.03 while the more domestically focused FTSE 250 tumbled 2 per cent, or 398.1 points, to 19,952.24.
Long gone are post-election hopes that a period of political stability would help revive the flagging London stock market.
Instead, investors see stagflation, as higher taxes, spending, borrowing and debt – part of a decisive shift from the private sector to the public sector – cripple the economy.
Donald Trump did little to help. Hot on the heels of his suggestion that he could use military force to seize the Panama Canal and Greenland, the president-elect was said to be prepared to declare an economic emergency in the US to justify new tariffs.
‘When you’re talking about an economy like the US, using language like that is unsettling,’ said Danni Hewson, head of financial analysis at AJ Bell.
‘Tariffs will cause pain to Europe as well as the global economy. It will cause trade friction and be inflationary, but also potentially inflationary across Europe.’
Sell-off: With UK gilt yields soaring and the pound sinking, the FTSE 100 inched up 0.1%, while the more domestically focused FTSE 250 tumbled 1.9%
It was not all doom and gloom on the London market, however, but gains by heavyweight defence and banking stocks were more than offset by selling elsewhere.
BAE Systems rose 3.1 per cent, or 36p, to 1190p after Trump called for higher defence spending by NATO allies while Rolls-Royce edged up 0.2 per cent, or 1.4p, to 578p.
Among the banking stocks, HSBC rose 2 per cent, or 15.2p, to 791.2p, its highest level since 2008, after Bank of America gave it a ‘buy’ rating.
And the London Stock Exchange Group hit a new record – up 1.7 per cent, or 190p, to 11,615p –after Bank of America named it among its ‘25 stocks for 2025’.
But the mood was bleak, with figures from Calastone showing another £9.6billion was pulled out of UK equity funds last year, taking outflows to £45billion since 2015.
‘UK equity valuations are clearly cheap, but investors are capitulating, seemingly giving up hope that a long-awaited re-rating will occur,’ said Calastone’s head of global markets Edward Glyn.
Fund manager Ashmore was down by 7.6 per cent, or 11.9p, to 143.9p after analysts at Jefferies downgraded the stock.
Flooring specialist Topps Tiles rose 1.6 per cent, or 0.6p, to 37.8p after it said chief executive Rob Parker was standing down after 18 years, and reported a 4.6 per cent rise in first-quarter sales.
Investor MS Galleon, which has a 29.9 per cent stake, welcomed the change, having called for a review of the leadership. Piotr Lipko, MS Galleon boss, said it was ‘a positive first step’.
Pots, pans, kettles and knives maker ProCook reported an 11.2 per cent rise in third-quarter revenues to £25.6million, boosted by Black Friday and Christmas sales, and rose 10.4 per cent, or 4p, to 42.5p.
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