London stocks were in the red by midday on Friday as weak data and worries about the effect of prolonged lockdowns and travel restrictions knocked sentiment.
The mood was downbeat after Prime Minister Boris Johnson said on Thursday that it was “too early to say” whether restrictions could be lifted by spring.
The FTSE 100 was 0.8% lower at 6,658.83, while the pound was down 0.5% against the dollar at 1.3665, having hit its best level a day earlier since spring 2008, and weighed down by disappointing data.
IG market analyst Chris Beauchamp said: “The optimism of earlier in the week has evaporated, and indices across Europe are suffering losses this morning. Weaker services PMI readings and the prospect of a total UK travel ban have seen the leisure and travel sectors hit, as the outlook for the global economy continues to darken.
“Optimism about the way ahead has diminished as concerns grow regarding the potential for virus mutations to derail vaccination programmes and put reopening plans back by several months. Notably even Boris Johnson was unwilling to provide a too-optimistic forecast on when lockdowns will be lifted, a sign that the situation remains serious despite signs of hope with regard to a drop-off in UK case numbers.”
A survey released earlier showed that business activity tumbled in January as the third lockdown took its toll, putting the UK on course for a double-dip recession.
The IHS Markit/CIPS flash UK composite purchasing managers’ index – which measures activity in both the services and manufacturing sectors – fell to 40.6 from 50.4 in December. This was below economists’ expectations for a reading of 45.5 and below the 50.0 mark that separates contraction from expansion. Still, it remained well above the all-time low of 13.8 reached in April.
The flash PMI for the services sector came in at 38.8 in January from 49.4 the month before, marking its lowest level since May and missing expectations for a reading of 45.0 as the industry was hit hard by Covid-19 restrictions.
Meanwhile, the manufacturing PMI declined to 52.9 from 57.5, versus expectations of 53.6.
Chris Williamson, chief business economist at IHS Markit, said: “A steep slump in business activity in January puts the locked-down UK economy on course to contract sharply in the first quarter of 2021, meaning a double-dip recession is on the cards.
“Services have once again been especially hard hit, but manufacturing has seen growth almost stall, blamed on a cocktail of Covid-19 and Brexit, which has led to increasingly widespread supply delays, rising costs and falling exports.”
Williamson also pointed to the fact that companies reduced headcounts at an increased rate again in January, albeit less so than what was seen between March and November.
Market participants were also mulling over the latest figures from the Office for National Statistics, which showed retail sales suffered their biggest year-on-year fall ever in 2020 as the Covid-19 pandemic took its toll.
Sales declined 1.9% last year compared with 2019. Clothing retailers in particular fared badly, with a record annual fall of more than 25%, while restrictions on movement led to a record year-on-year decline for fuel sales.
Lockdowns and restrictions boosted online sales, however, which surged 46.1% on the year in 2020 – the highest annual growth reported since 2008.
In December, sales rose 0.3% on the month, which was an improvement on the 4.1% drop seen in November but undershot expectations for a 1.2% jump. This left sales up 2.7% compared with February’s pre-lockdown level.
Separate data showed the UK borrowed £34.1bn in December, exceeding forecasts and recording the highest level for that month on record as Covid-19 forced the government to issue more debt.
Public sector net borrowing was £28.2bn more than a year earlier, the third-highest month on record and the highest December figure since records began in 1993, the ONS said. Economists had on average expected borrowing of £32bn.
In equity markets, travel and leisure stocks with big exposure to the Covid-19 pandemic and related restrictions took a hit. British Airways parent IAG, Premier Inn owner Whitbread, WH Smith, travel company Tui, Upper Crust owner SSP, budget airline easyJet and Cineworld were all weaker.
Travel stocks were hit not just by worries about a prolonged lockdown but also by news that the EU is considering creating new “dark red zones” which would be subject to tight travel restrictions. Europeans have also been “strongly discouraged” from all but essential travel within the EU amid rising Covid infections.
On the upside, Kainos surged after the IT provider lifted full-year guidance as it reported strong trading momentum towards the end of 2020.
Computacenter gained as it lifted its full-year profit guidance after trading continued strongly until the end of the year.
FTSE 100 (UKX) 6,658.83 -0.84%
FTSE 250 (MCX) 20,571.00 -1.07%
techMARK (TASX) 4,158.65 -0.44%
FTSE 100 – Risers
Ashtead Group (AHT) 3,833.00p 1.94%
Relx plc (REL) 1,852.00p 1.79%
SSE (SSE) 1,529.50p 1.39%
Halma (HLMA) 2,590.00p 1.13%
Smith & Nephew (SN.) 1,641.00p 1.02%
B&M European Value Retail S.A. (DI) (BME) 519.20p 0.97%
Pershing Square Holdings Ltd NPV (PSH) 2,690.00p 0.94%
National Grid (NG.) 874.40p 0.64%
SEGRO (SGRO) 965.00p 0.54%
Croda International (CRDA) 6,404.00p 0.50%
FTSE 100 – Fallers
International Consolidated Airlines Group SA (CDI) (IAG) 149.45p -4.78%
InterContinental Hotels Group (IHG) 4,690.00p -2.80%
Next (NXT) 7,932.00p -2.77%
Associated British Foods (ABF) 2,256.00p -2.72%
Melrose Industries (MRO) 175.70p -2.69%
Antofagasta (ANTO) 1,498.50p -2.66%
BP (BP.) 285.65p -2.62%
Standard Chartered (STAN) 459.70p -2.50%
Legal & General Group (LGEN) 262.40p -2.42%
Prudential (PRU) 1,392.50p -2.35%
FTSE 250 – Risers
Kainos Group (KNOS) 1,348.00p 18.66%
Pets at Home Group (PETS) 422.60p 2.57%
ICG Enterprise Trust (ICGT) 946.00p 1.50%
JTC (JTC) 578.00p 1.40%
JPMorgan Japanese Inv Trust (JFJ) 723.00p 1.12%
QinetiQ Group (QQ.) 319.20p 1.08%
Airtel Africa (AAF) 75.40p 1.07%
Foresight Solar Fund Limited (FSFL) 102.00p 0.99%
NextEnergy Solar Fund Limited Red (NESF) 104.40p 0.97%
Worldwide Healthcare Trust (WWH) 3,890.00p 0.91%
FTSE 250 – Fallers
TUI AG Reg Shs (DI) (TUI) 354.00p -16.23%
WH Smith (SMWH) 1,660.00p -6.90%
Provident Financial (PFG) 248.60p -5.55%
AO World (AO.) 335.50p -5.23%
easyJet (EZJ) 768.00p -4.86%
Trainline (TRN) 427.20p -4.64%
Hammerson (HMSO) 20.74p -4.42%
Capita (CPI) 35.09p -4.33%
Cineworld Group (CINE) 66.40p -4.30%
IG Group Holdings (IGG) 794.00p -3.99%