FTSE falls 1% after chancellor underlines lockdown gloom

(Update) A warning from chancellor Rishi Sunak that UK economy will ‘get worse before it gets better’ increased investors’ caution after last week’s rally.

(Update) A warning from chancellor Rishi Sunak that the UK economy will ‘get worse before it gets better’ increased investors’ caution this afternoon with the FTSE 100 closing down 1% after notching up over 6% in last week’s rally.

Not even a 0.4% decline in the pound to $1.3512 against the dollar could prop up the blue-chip index. The more domestically-exposed mid-cap FTSE 250 retreated 1.3% after also making big advances since the New Year.

In Europe French and German stock markets slid 0.8% while on Wall Street the US S&P 5oo traded 0.4% lower in morning trade.

10:03am: FTSE slips on lockdown fears

Concerns that the worst of the pandemic is yet to come and the country will be placed under even tighter restrictions weighed on UK equities this morning, dragging down coronavirus bellwethers such as travel and leisure stocks.

The FTSE 100 edged 0.4%, or 30 points, lower to 6,842 after Britain’s chief medical adviser Chris Whitty warned the coming weeks will be the worst of the Covid-19 pandemic due to the highly infectious new strain.

‘The next few weeks are going to be the worst weeks of this pandemic in terms of numbers in the NHS,’ he told the BBC.

He warned the country will have to ‘double down’ on its efforts to stop the spread of the virus until the vaccines that are being administered have a chance to take effect.

In a bid to stymie the spread of the new variant, ministers are considering imposing even tougher lockdown restrictions that would include a ban on exercising with another person outside and compulsory masks in offices.

Connor Campbell, analyst at Spreadex, said: ‘Practically, any further measures the government could implement should have minimal impact on the blue chip index’s individual components.

‘Symbolically, however, the shift towards harsher constraints may undermine the FTSE’s recent growth.’

Covid-19 bellwethers were the biggest fallers on the blue chip index, with Smith & Nephew (SN) falling to the bottom of the index, shedding 3%, or 49p, to trade at £15.70 after the upsurge of coronavirus cancelled swathes of operations and reduced demand for its medical instruments.

Underlying sales fell 7% in the fourth quarter compared to 4.2% in the previous three months.

British Airways owner International Consolidated Airlines (IAG) fell 2.6%, or 4p, to 152p and the world’s largest catering group Compass (CPG) dropped 2.1%, or 3p, to £14.42 as any new restrictions will delay recovery at both businesses.

It was a similar story on the FTSE 250, which was down 23 points, or 0.1%, at 21,040. Holiday operator Tui (TUI) led the mid-caps lower, slumping 6.3%, or 24p, to 356p. It was followed by cinema chain Cineworld (CINE), which fell 4.9%, or 3p, to 65p, while shopping centre owner Hammerson (HMSO) – which owns the Bullring in Birmingham – lost 2.9%, or 0.7p, to hit 23p.

Signature Aviation (SIG) was the bright spot in markets, soaring 8.4%, or 34p, to 440p after the aviation support services group, previously known as BBA Aviation, agreed a $4.6bn takeover bid from Gatwick airport owner Global Infrastructure Partners.

In trust news, Ground Rents Income (GRIO ) fell 2.3%, or 1.5p, to 63.5p, after a government update on leasehold reform proposals that will provide new rights for owners of leasehold properties, of which the fund’s portfolio is comprised.

PRS Reit (PRSR ), a government-backed real estate investment trust that invests in homes in the private rented sector, gained 1.5%, or 1.2p, to trade at 78p following a positive quarterly update and a move to the premium segment of the market.

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