London close: Stocks weaker as Johnson confirms tax hike
London stocks closed in the red on Tuesday, following gains in the previous session, as investors mulled Boris Johnson’s announcement of £12bn in tax hikes.
The FTSE 100 ended the session down 0.53% at 7,149.37, and the FTSE 250 was 0.62% weaker at 24,097.48.
Sterling was weaker as well, last trading down 0.33% on the dollar at $1.3792, and losing 0.15% against the euro to €1.1640.
“It has been a relatively subdued day in the markets even though we saw some interesting economic announcements,” said Equiti Capital market analyst David Madden.
“US traders returned to work following their long weekend, and it seemed as if their European counterparts were content to sit on their hands this morning as they waited for the Americans to get involved.
“European indices are a little lower as stocks handed back some of the solid gains that were posted yesterday.”
The prime minister announced a £12bn annual tax increase earlier in the afternoon, to fund higher health and social care spending that his critics said was unfair and inadequate.
Most of the money will be raised by a 1.25 percentage point increase in national insurance contributions for employers and employees.
The plan broke Johnson's election pledge to fix Britain's long-running social care crisis without increasing taxes.
“I accept this breaks a manifesto commitment, which is not something I take lightly,” Johnson told the House of Commons.
“But a global pandemic was in no one's manifesto.”
Additionally, the increase would be paid by pensioners who work, and there would be an equivalent 1.25 point increase in the taxation of dividends to place some of the burden on the better off.
The plan to raise national insurance was trailed in recent weeks, prompting criticism from some of Johnson's Tory backbenchers that it would force young working people to pay for often affluent pensioners' social care.
“This is not a plan to fix the crisis in social care,” said Angela Rayner, deputy leader of the opposition Labour party.
“A care worker on the minimum wage will pay more tax for the care they are providing every day without a penny more in their pay packet or a secure contract.
“A super-rich landlord won’t pay a penny more, but their tenants will.”
UK retail sales growth, meanwhile, slowed in August as demand unleashed after the end of lockdowns began to fizzle out.
Total sales rose 3% compared with 3.9% a year earlier and less than half the 6.9% rate over the past three months, according to a British Retail Consortium/KPMG survey.
Compared with August 2019 total sales rose 8.9%.
In-store on-food sales rose 23.7% in the three months to August but sales were down 3.5% from two years earlier.
Sales of clothing rose strongly as people returned to offices and went to social events.
“As post-lockdown pent-up demand has softened, the growth in retail sales we have seen over the past few months slowed for August,” said Helen Dickinson, chief executive of the BRC.
“Nonetheless, we still saw growth above pre-pandemic levels, as people returned to stores in greater numbers.
“With wedding season in full swing and workers gradually returning to the office, formalwear was a strong performer.”
Still on data, house prices hit a record high in August, although the pace of annual growth slowed, according to the latest survey from Halifax.
The cost of a property increased 7.1% on the year to £262,954 - the highest level on record.
That was still down from a 7.6% jump in July and marked the slowest growth in five months.
Still, compared to June 2020, when the housing market began to reopen from the first lockdown, prices remained more than £23,600 higher, or +9.9%.
“Much of the impact from the stamp duty holiday has now left the market, as highlighted by the drop in industry transaction numbers compared to a year ago,” said Halifax managing director Russell Galley/
“However, while such Government schemes have provided vital stimulus, there have also been other significant drivers of house price inflation.”
Elsewhere, economic growth and employment in the single currency bloc rebounded more strongly than first thought over the three months to June.
According to Eurostat, in seasonally adjusted terms, second quarter euro area gross domestic product expanded at a quarter-on-quarter pace of 2.2%.
That was up from a preliminary estimate of 2.0% and followed a 0.3% contraction in GDP during the first quarter of 2021.
Finally, China's trade surplus rose unexpectedly in August as exports surged despite Covid-19 shutdowns.
The unadjusted trade surplus rose to $58.3bn from $56.6bn a month earlier, beating market expectations for a decline to $53.2bn.
Analysts had on average expected exports to slow but growth picked up to 25.6% from a year earlier from 19.3% in July.
Imports also improved, growing by a third from 28.1% in July and beating a consensus estimate of 26.9% growth.
In equity markets, Ocado slid 2.58% after UBS cut its price target to 2,100p from 2,300p as it said the company remains "the most credible online grocery solution provider" but challenges are growing.
TP ICAP tumbled 10.69% after it said annual revenue at constant currency would be broadly unchanged despite falling profit and income in the first half of the year.
Pre-tax profit declined to £28m in the six months to the end of June from £78m a year earlier as revenue dropped to £936m from £990m.
Integrafin slumped 5.25% after founder Michael Howard sold a 1.1% stake in the company.
Meggitt was 12.08% weaker after US aerospace manufacturer TransDigm said it did not plan to make an offer for the London-listed defence and aerospace engineer following "quite limited" due diligence information, clearing the way for Parker-Hannifin.
The company announced last month that it had received an unsolicited takeover approach from TransDigm at 900p a share.
That came just a week after the company agreed to be bought by US rival Parker-Hannifin for £6.3bn, or 800p a share.
On the upside, packaging group DS Smith gained 2.8% after it said trading was continuing to strengthen due to high demand for its boxes despite rising transportation and energy costs.
Vistry managed gains of 0.08% after the housebuilder lifted its full-year profit expectations as it posted a rise in first-half profit and revenue, hailing a better-than-expected performance amid "positive" demand.
Marks and Spencer was boosted 3.34% by an upgrade to ‘buy’ from ‘neutral’ at UBS, which said its analysis suggests further earnings upside.
Market Movers
FTSE 100 (UKX) 7,149.37 -0.53%
FTSE 250 (MCX) 24,097.48 -0.62%
techMARK (TASX) 4,811.11 -1.38%
FTSE 100 - Risers
Smith (DS) (SMDS) 462.30p 2.80%
Whitbread (WTB) 3,261.00p 2.39%
Reckitt Benckiser Group (RKT) 5,844.00p 2.17%
Flutter Entertainment (CDI) (FLTR) 14,780.00p 1.23%
Rightmove (RMV) 744.20p 1.20%
Phoenix Group Holdings (PHNX) 636.80p 1.08%
Bunzl (BNZL) 2,618.00p 0.69%
Smurfit Kappa Group (CDI) (SKG) 4,305.00p 0.68%
Mondi (MNDI) 2,066.00p 0.63%
Anglo American (AAL) 3,096.00p 0.57%
FTSE 100 - Fallers
Berkeley Group Holdings (The) (BKG) 4,658.00p -2.96%
Ocado Group (OCDO) 1,963.00p -2.58%
Weir Group (WEIR) 1,723.00p -2.46%
Legal & General Group (LGEN) 276.60p -2.40%
Smiths Group (SMIN) 1,422.50p -2.23%
AstraZeneca (AZN) 8,470.00p -2.02%
Polymetal International (POLY) 1,440.50p -1.94%
Coca-Cola HBC AG (CDI) (CCH) 2,589.00p -1.75%
St James's Place (STJ) 1,663.00p -1.71%
Persimmon (PSN) 2,831.00p -1.63%
FTSE 250 - Risers
Marks & Spencer Group (MKS) 187.10p 3.34%
AO World (AO.) 233.60p 2.55%
Apax Global Alpha Limited (APAX) 217.00p 2.36%
Harbour Energy (HBR) 385.20p 2.34%
Homeserve (HSV) 1,011.00p 2.22%
Reach (RCH) 416.00p 2.09%
888 Holdings (888) 414.00p 1.82%
SSP Group (SSPG) 265.90p 1.80%
Rotork (ROR) 356.20p 1.66%
Coats Group (COA) 79.40p 1.53%
FTSE 250 - Fallers
Meggitt (MGGT) 737.20p -12.08%
TP Icap Group (TCAP) 176.00p -10.69%
IntegraFin Holding (IHP) 559.00p -5.25%
Centamin (DI) (CEY) 95.10p -3.51%
National Express Group (NEX) 241.40p -3.44%
Bytes Technology Group (BYIT) 540.00p -3.40%
Petropavlovsk (POG) 20.62p -3.28%
Elementis (ELM) 152.70p -2.92%
Biffa (BIFF) 404.00p -2.88%
Synthomer (SYNT) 530.00p -2.66%