14th Oct 2022 17:07
(Alliance News) - A tumultuous week in London came to a suitably dramatic close on Friday, as the UK's prime minister reversed a key aspect of the recent mini-budget and fired the chancellor.
Amid the swirling rumours in recent days, UK Prime Minister Liz Truss performed yet another U-turn, scrapping her plans to block a planned rise in corporation tax, and summarily dismissing Kwasi Kwarteng as chancellor.
"The [FTSE 100] did look as if it might be able to reverse most of this week's losses, however that prospect disappeared after the confirmation of the latest UK government U-turn. This week's volatility in UK bond markets has had a significant effect on the FTSE100 with wild swings in house builders, consumer staples and banks," said CMC Markets analyst Michael Hewson.
The FTSE 100 index closed up 8.52 points, 0.1%, at 6,858.79. The index closed the week down 1.9%.
The FTSE 250 ended up 103.56 points, 0.6%, at 17,032.82, losing 1.9% over the week. The AIM All-Share closed up 4.03 points, 0.5%, at 779.80. It lost 3.6% this week.
The Cboe UK 100 ended up 0.3% at 686.84, the Cboe UK 250 closed up 0.6% at 14,584.91, and the Cboe Small Companies ended up 1.1% at 12,275.66.
The pound was quoted at USD1.1235 at the London equities close Friday, lower compared to USD1.1340 at the close on Thursday.
Truss's government will hike corporation tax, raising GBP19 billion from UK companies after U-turning on a pledge made in the mini-budget.
After three weeks of pressure following Chancellor Kwarteng's fiscal statement, he was shown the door on Friday alongside one of the biggest tax cuts he announced.
It would have cancelled the plan, introduced by former chancellor Rishi Sunak, to bring the corporation tax rate to 25% in April next year from 19% currently.
The rate is levied on businesses with more than GBP250,000 in profit every year.
"As U-turn's go it's a doozy. The freeze in corporation tax wasn't something most households were talking about around the dinner table, but it was the jewel in the crown of the new PM's plans to supercharge UK economic growth," said AJ analyst Danni Hewson.
"It may have, temporarily, been an incentive for businesses to overlook the tangle of red tape and additional costs associated with trading in a post Brexit world. But at what cost? Companies had already priced in the new tax rates which had been well signposted and at 25% the UK will still be competitive," Hewson continued.
Truss has appointed former foreign secretary Jeremy Hunt as the new chancellor of the exchequer after Kwarteng's sacking.
The choice of Hunt, a prominent backer of her rival Sunak in the Tory leadership contest, will be seen as an attempt to restore stability after weeks of turmoil in the wake of Kwarteng's mini-budget.
"Liz Truss remains in charge for now, but there are rumours that her decision to reverse the corporation tax cut will do little to help her stay in the post much longer than Kwarteng," said IG's Joshua Mahony.
In European equities on Friday, the CAC 40 in Paris ended up 0.9%, while the DAX 40 in Frankfurt ended up 0.7%.
The euro stood at USD0.9758 at the European equities close Friday, down against USD0.9772 at the same time on Thursday.
Against the yen, the dollar was trading at JPY148.38, surging to the highest levels in decades, compared to JPY147.19 late Thursday.
Stocks in New York were lower at the London equities close, with the DJIA down 0.7%, the S&P 500 index down 1.4%, and the Nasdaq Composite down 1.8%.
Wall Street was pulled lower by the latest University of Michigan 1-year inflation expectations survey, which accelerated to 5.1% in October from 4.7% in September. Stagnant US retail sales figures did little to lift the mood, despite fairly solid quarterly banking earnings from Wells Fargo, Citigroup, and JPMorgan.
According to data from the Census Bureau, US retail sales in September remained unchanged from revised figures in August, which was below market consensus expecting monthly growth of 0.2%, according to FXstreet. September's flat figure slowed from August's 0.4% growth from July.
In London, Mondi closed up 2.0%.
The Weybridge, England-based paper and packaging firm said its performance in the third quarter was strong as high selling prices helped offset significant cost pressures, boosting profit.
However, Mondi warned that significant political and economic uncertainties remain, expecting inflationary pressures on its cost base to continue in the fourth quarter.
Underlying earnings before interest, tax, depreciation and amortisation from continuing operations, excluding those in Russia, jumped by 55% to EUR450 million for the third quarter to September 30 from EUR290 million a year before.
In the midcaps, International Distributions Services plunged 10%.
Formerly known as Royal Mail, the FTSE 250 firm warned of an interim loss as its UK arm - now called Royal Mail - and some 10,000 jobs cuts following strike action.
For the six months to September, Royal Mail suffered a GBP219 million adjusted operating loss, swinging from GBP235 million profit a year earlier. Revenue fell 11% to GBP3.65 billion from GBP4.07 billion. IDS reported a GBP70 million profit hit from industrial action.
There could be more strikes to come too. It has been threatened, but not yet "formally notified" of a further 16 days of industrial action in November and December, around the key Christmas period.
Based on current estimates, Royal Mail may need to undertake between 5,000 and 6,000 redundancies between now and August 2023. IDS explained Royal Mail's workforce will have roughly 10,000 fewer roles on August 2023 than it did a year earlier.
"With the company losing over GBP1 million a day and talks with the unions deadlocked, something had to give and with the disruption caused by strike action, job losses became almost inevitable. The sad thing is that today's job loss figure is higher than would have been the case if industrial relations were more cordial," said CMC's Hewson.
On AIM, Morses Club added 21%. The home-collected credit provider also is going through the process of a scheme of arrangement to deal with customer redress claims.
Brent oil was quoted at USD91.96 a barrel at the London equities close Friday, down sharply from USD94.07 late Thursday. Gold was quoted at USD1,648.48 an ounce, down against USD1,665.31.
On Monday, there will be third-quarter results from miner Rio Tinto, annual results from semiconductor designer EnSilica, and first-quarter results from City of London Investment Trust.
The economic calendar for Monday has Japan industrial production and retail sales, as well as UK house price index overnight. Of particular interest next week will be UK and EU consumer price inflation figures on Wednesday,
By Elizabeth Winter; [email protected]
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