London open: Stocks slump, gilts rise as Reeves U-turns on income tax raid

London stocks fell sharply in early trade on Friday as hopes of a rate cut from the Federal Reserve faded, with gilts rising amid reports that Chancellor Reeves will ditch plans to raise income tax at the upcoming Budget.

At 0835 GMT, the FTSE 100 was 1% lower at 9,706.67, while sterling was down 0.5% against the dollar at 1.3125.

Sentiment soured amid the realisation that US economic data that was delayed due to the government shutdown may not be available before the Federal Reserve’s next policy announcement.

Richard Hunter, head of markets at Interactive Investor, said: "As such, investors considered that the Fed may therefore decide to play safe and stay put on interest rates until full visibility is restored.

"Comments from several Fed members that monetary policy should remain restrictive led to a dip in the market consensus for a cut, dropping to a 50/50 chance from what had been all but nailed on just two weeks ago."

Adding to the jittery mood were reports that Rachel Reeves has abandoned plans to raise income tax at the 26 November Budget.

According to the Financial Times, the plans have been shelved over fears they could anger both voters and backbench Labour MPs.

The U-turn hit the UK gilt market, with gilts surging at the open. Kathleen Brooks, research director at XTB, said: "We do not know if this will mean all bands of income tax will be left unchanged, or if it will only mean the basic rate of tax will be unchanged, however, either way, the Chancellor is now faced with finding an alternative plug to fill the estimated £30bn fiscal hole in less than two weeks.

"This also means that the Chancellor has signaled billions of unfunded spending pledges, which the bond market is not fond of. Hence why yields are rising sharply across the curve. The 10-year yield is higher by 10bps, while the 2-year yield is higher by 9bps at the open. 30-year yields are taking an even bigger hit and are higher by 12bps."

A raft of disappointing Chinese data also did nothing to lift the mood.

In equity markets, Land Securities was the worst performer on the FTSE 100 as it lifted its full-year earnings guidance but reported drop in half-year pretax profit to £98m from £243m.

Third Bridge analyst Max Harper said this was short of the £274.2m expected and mainly reflects capital recycling of low-return assets and losses on disposals.

Housebuilders and banks were under the cosh, with Persimmon, Berkeley, Barratt Redrow, NatWest, Lloyds and Barclays among the biggest losers.

SSE was also weaker after a downgrade to ‘sell’ at Citi.

On the upside, aerospace company Melrose Industries edged higher as it held annual guidance after "significantly higher" adjusted operating profit in the four months to 31 October on the back of a 14% rise in revenues, driven by engine aftermarket services.

PPHE Hotel Group surged after its two biggest shareholders confirmed they plan to hold "a small handful" of meetings with financial investors about a range of potential options which include contributing growth capital and a potential "partial monetisation" of their stakes.

In a brief statement in response to press speculation, Eli Papouchado and Boris Ivesha - who collectively own around 44% of the voting rights of PPHE - said they are not in talks with any parties, and are not in receipt of any offer for their collective stake in PPHE.

Market Movers

FTSE 100 (UKX) 9,706.67 -1.03%
FTSE 250 (MCX) 21,658.92 -1.53%
techMARK (TASX) 5,528.58 -1.01%

FTSE 100 - Risers

Burberry Group (BRBY) 1,237.00p 0.73%
BP (BP.) 462.45p 0.52%
Shell (SHEL) 2,872.50p 0.45%
Diageo (DGE) 1,823.00p 0.28%
AstraZeneca (AZN) 13,512.00p 0.13%
Melrose Industries (MRO) 629.40p 0.13%
RELX FINANCE BV 3.375% GTD NTS 20/03/33 (BW73) 98.64p 0.00%
Reckitt Benckiser Group (RKT) 5,834.00p -0.03%
DCC (CDI) (DCC) 4,936.00p -0.04%
3i Group (III) 3,355.00p -0.15%

FTSE 100 - Fallers

Land Securities Group (LAND) 617.00p -4.64%
Persimmon (PSN) 1,215.50p -4.59%
Berkeley Group Holdings (The) (BKG) 3,790.00p -4.39%
Barratt Redrow (BTRW) 371.30p -3.83%
St James's Place (STJ) 1,292.50p -3.65%
NATWEST GROUP (NWG) 601.20p -3.53%
Lloyds Banking Group (LLOY) 90.84p -3.48%
Barclays (BARC) 413.40p -3.24%
Metlen Energy & Metals (MTLN) 43.92p -2.82%
Phoenix Group Holdings (PHNX) 661.50p -2.79%

FTSE 250 - Risers

PPHE Hotel Group Ltd (PPH) 1,682.00p 12.13%
Aston Martin Lagonda Global Holdings (AML) 61.45p 2.76%
Petershill Partners (PHLL) 313.50p 0.48%
Wizz Air Holdings (WIZZ) 1,087.00p 0.46%
Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 295.00p 0.34%
JPMorgan Japanese Inv Trust (JFJ) 737.00p 0.27%
Oxford Instruments (OXIG) 2,095.00p 0.24%
Foresight Solar Fund Limited (FSFL) 69.70p 0.14%
Spectris (SXS) 4,116.00p 0.10%
ICG Enterprise Trust (ICGT) 1,490.00p 0.00%

FTSE 250 - Fallers

Ceres Power Holdings (CWR) 350.20p -5.61%
Bridgepoint Group (Reg S) (BPT) 279.80p -4.44%
RHI Magnesita N.V. (DI) (RHIM) 2,390.00p -4.40%
Bellway (BWY) 2,648.00p -3.85%
Marshalls (MSLH) 166.80p -3.70%
British Land Company (BLND) 383.40p -3.67%
Unite Group (UTG) 540.00p -3.57%
Vistry Group (VTY) 615.00p -3.45%
Trustpilot Group (TRST) 175.30p -3.31%
Oxford Nanopore Technologies (ONT) 130.00p -3.20%