London’s FTSE 100 dropped sharply today as recession fears outweighed US lawmakers closing in a deal to end the debt ceiling deadlock.
The capital’s premier index slid 1.38 per cent to 7,522.08 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, was broadly flat, closing at 18,807.37 points.
Traders in the City were seemingly unmoved by Republicans and Democrats over the weekend reaching an agreement to raise the cap on the amount of cash the US can borrow, dropping the risk of the world’s largest economy defaulting.
Republicans agreed to vote through pushing the debt ceiling above its current level of just over $31 trillion in exchange for spending cuts by the Biden administration.
While such a move would help rebalance America’s public finances, it raises the risk of curbing economic growth at a time when the country is toying with slipping into recession.
‘’A deal may have been struck on the debt ceiling, but it’s not fully calmed nervousness on financial markets. Limits on spending are being imposed just as America looks set to head towards recession, which could make it harder for growth to snap back,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.
Instead, investors were more concerned with the growing threat of the UK slipping into a recession after all this year.
FTSE stocks dropped “on the back of weakness in the consumer staples and energy sector, as recession risks rise,” Michael Hewson, chief market analysts at CMC Markets UK, said.
Dominating investors’ minds is how high central banks will have to hike interest rates to tame inflation.
That overshoot has ratcheted up bets on where the Bank of England will eventually take interest rates. Markets now think Bank governor Andrew Bailey and co could kick them up to 5.5 per cent, threatening to push the UK back to the brink of a recession.
Online supermarket and middle-class favourite Ocado was the largest faller, down nearly four per cent.
Interest rate sensitive stocks like banks and house builders were also nursed tough losses today. HSBC, Barclays and NatWest all finished near the bottom of the index, while Persimmon shed just over one per cent.
British supermarket giant Asda today announced it is snapping up petrol station operator EG Group, which is already owned by the billionaire Issa brothers.
The pair also own the supermarket.
The pound was broadly flat against the US dollar.