London's FTSE 100 index suffered a significant setback yesterday, dropping more than one per cent as political turmoil surrounding the forthcoming Budget and disappointing economic data rattled investors.
Economic Stagnation and Corporate Gloom
The sell-off occurred against a backdrop of fresh official data showing the UK economy grew by a mere 0.1 per cent in the third quarter, a figure that fell short of the 0.2 per cent expansion economists had predicted. This sluggish growth compounded a series of gloomy corporate updates that have emerged from leading businesses in recent days.
While engine manufacturer Rolls-Royce and insurance giant Aviva provided the market with positive news, their updates were insufficient to lift the prevailing pessimistic sentiment. The downbeat mood was starkly illustrated by comments from top executives, including the boss of homebuilder Taylor Wimpey, who saw shares slump after blaming weak market conditions squarely on the uncertainty surrounding the forthcoming Budget.
Budget Jitters Grip the City
The anxiety is not confined to the construction sector. The head of one of Britain's largest pub chains also criticised the Chancellor for a "lack of a clear plan," with the hospitality industry bracing for potential tax increases. This widespread unease comes at a critical moment for the FTSE 100, which had earlier this week crept tantalisingly close to a major milestone, reaching a new intraday high of 9,930.09 points before retreating.
Dan Coatsworth, head of markets at AJ Bell, underscored the Budget's importance, stating: "Investor sentiment is still guided by what’s happening on these shores. The Budget will be the key test for the market. Anything deemed negative for the economy could weigh on shares in the retail, banking, construction, housebuilding and property sectors."
Market Milestone Hangs in the Balance
The question now preoccupying the City is whether the current political instability is the very factor preventing the blue-chip index from finally breaking the symbolic 10,000-point barrier. The combination of stalled economic growth, corporate caution, and income tax U-turns has created a perfect storm of uncertainty, throwing the government's Budget plans into chaos and leaving investors searching for clarity.
