By Sruthi Shankar
(Reuters) -UK’s main stock indexes fell on Tuesday, as global sentiment worsened amid fears of higher interest rates and geopolitical risks, with investors focussing on fresh measures by the Bank of England to limit the rout in government bonds.
The central bank, trying to stem a collapse in Britain’s 2.1 trillion pound ($2.31 trillion) bond market, said it would buy up to 5 billion pounds of inflation-linked debt per day, starting Tuesday, until the end of this week.
The pound extended recent declines, falling 0.3%, even as data showed Britain’s unemployment rate fell to 3.5% in the three months to August, the lowest since 1974.
The blue-chip FTSE 100 fell 1.1%, its fifth consecutive day of losses, with commodity-linked stocks such as Shell, Rio Tinto and BP dragging the index lower.
Meanwhile, shares of pension providers such as Legal & General, Prudential and Aviva fell between 2.3% and 3.3%.
“The stocks that are getting impacted the most are stocks that are priced off the bond market…the real estate companies, asset backed companies, where it’s clear that the cost of capital is going to go up,” said Roger Jones, head of equities at London & Capital.
“Normally, higher rates will be favourable for banks in terms of net interest margins, but the problem we have is the risk of default with the cost of borrowing going up, is having much more of a negative impact.”
UK’s banking index was down 1.6% at a one-week low despite prospects of a large rate hike by the BoE next month.
However, the internationally focussed FTSE 100 has outperformed UK’s domestically exposed FTSE 250 this year, as a weakening pound and strength in commodity prices boosted the former.
The FTSE 100 has shed 6.8% so in 2022, while the midcap index has lost about 28% – set for its worst annual performance since 2008.
Ukraine-focused miner Ferrexpo Plc fell 9.1%, as it temporarily suspended production after Russian missile attacks damaged state-owned electrical infrastructure.
Marston’s gained 4.8% after the pub operator said annual total retail sales came in higher than 2019 numbers, as people continued to splurge on drinks and food.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Savio D’Souza and Neha Arora)
