London stocks declined on Tuesday as risk appetite was dampened by concerns about impending central bank tightening to support a depreciating pound. The mid-cap index sank 2.4%, marking the fourth straight session of falls.
According to Bank of England’s Chief Economist Huw Pill on Tuesday, the BoE is likely to make a “major policy reaction” to Kwasi Kwarteng’s announcement of significant tax cuts from last week, but it should hold off until its next meeting in November.
However, expectations of a central bank emergency intervention increased as the pound hit historic lows on Monday.
Moreover, the blue-chip FTSE 100 fell 0.5% as the pound strengthened, and the domestically focused midcap index, the FTSE 250, touched its lowest level since November 2020.
Furthermore, the gains in the energy and mining sectors, which followed the rise in the price of oil and metals, were offset by declines in the banking and defense sectors.
“Clearly suffering due to its exposure to the domestic economy is the FTSE 250 index. You may observe how stocks that are domestically profitable in sterling suffer from the circumstance of rising interest rates “Forte Securities sales trader Keith Temperton stated.
Temperton added that if sterling didn’t continue to see a significant downturn, he wouldn’t anticipate the BoE to make an emergency raise.
“When a government wants to spend money and cut taxes”, he explained, “It’s very tough to contain inflation.” Also, he cited a steeper inversion curve in the UK bond markets as a symptom of long-term inflation issues.
After deciding to be acquired by private equity firm Energy Capital Partners in a 1.3 billion pound ($1.41 billion) agreement, waste management company Biffa Plc saw a 27.8% increase.
When rating agency Moody’s upgraded the firm from a “stable” outlook to “positive,” Burberry Group marked a 1.7% increase.
Having lowered its full-year profit prediction and disclosing a first-half deficit, Saga Plc experienced a 24.1% decline.
