UK stocks sag after gloomy news from Bank of England

BRITAIN’S top share index fell sharply to a three-week low closing yesterday, with banks and commodity stocks leading a broad-based sell-off after US and UK central banks voiced concerns over the economic recovery.

Technology firm Smiths Group, however, topped the list of a handful of gainers, up 3.9 per cent as traders cited break-up hopes of the company after Tuesday’s UBS note.

UBS reiterated a “buy” rating on Smiths Group, saying after its successful restructuring the firm “will ultimately be broken up”.

The
FTSE 100 closed 131.20 points lower, or 2.4 per cent at 5,245.21 after falling 0.6 per cent in the previous session. It was the index’s biggest single-day percentage drop since 29 June. Other major European indexes also finished sharply lower.

The Bank of England said that economic prospects were “highly uncertain” and that more quantitative easing may be needed, while the Federal Reserve said on Tuesday it would reinvest the money from maturing mortgage bonds it holds into government debt to counter recent signs of economic weakness.

“Markets have been struggling to see the positives for the last few days and they have looked vulnerable. What we have seen in the last 24 hours has added to concerns that the stock market recovery has got ahead of the real recovery,” said David Jones, chief market strategist at IG Index.

The Office for National Statistics said yesterday the number of people claiming jobless benefit fell in July, though the pace of improvement is unlikely to be maintained once government spending cuts kick in, leading to public sector job losses tipped to exceed half a million.

Economy sensitive banks were among the top losing sectors in the UK, down 3.8 per cent. Lloyds Banking Group dropped 6.8 per cent, while Barclays, which also traded ex-dividend, fell 6 per cent.

“The whole point of quantitative easing is that it is trying to fix a very serious problem. There are two ways of looking at it: Is it a cure? Or does it reflect significant underlying problem?” said Geoff Wilkinson, head of investment research at Mint Securities.

Miners shed 3.8 per cent on concerns over global demand for raw materials, with Rio Tinto down 3.9 per cent, Vedanta Resources falling 5 per cent and Xstrata off 4.7 per cent.

TUI Travel plunged to a 20-month low after the tour operator warned that full-year results will be at the lower end of market forecasts, closing down 6.45 per cent at 190p.

The news weighed on travel peer Thomas Cook, down 2.0 per cent.

British 10-year gilt yields, however, hit a 16-month low below 3.12 per cent. That compared with a dividend of 3.4 per cent for the FTSE 100.

The handful of rising shares included Randgold, Serco, Imperial Tobacco and Segro, up between 0.04 and 0.46 per cent apiece. Volumes on the FTSE 100 were 91 per cent of the 90-day daily average, in a slight uptick on previous days.