Sterling strengthens but London markets take fresh blow

The FTSE 100 took a further hit on Tuesday after the Bank of England stepped in for the second day running to prop up the troublesome gilt market.

The Bank said it would be widening the scope of its emergency bond-buying programme to include purchases of index-linked gilts, just a day after doubling its daily purchase limit to £10 billion.

This week, gilt yields have jumped back up and nearly reached the levels seen two weeks ago when the Bank was first forced to step in.

It means that the interest that the Government pays on its loans has risen, signalling investor concern over the UK’s economic policies and debt-funded tax cuts.

The Bank’s fresh attempt to soothe markets seemed to have a positive effect on the pound which strengthened against the US dollar on Tuesday.

In early trading it had plunged to about 1.1004 dollars but by the end of the day it was up nearly 1% to 1.1163 dollars.

The FTSE 100 was dragged down by losses for insurance giants Legal & General and Aviva in the wake of turbulence in the gilt market.

The index dropped 1.06%, or 74.08 points, to 6,885.23.

Joshua Mahony, senior market analyst at online trading platform IG, said: “The Bank of England has once again interjected in the gilts market, with the extension and expansion of last week’s ‘temporary’ intervention signalling the fact that the problems facing the pensions market is far from a simple fix.

“While the Bank is expected to end its support on Friday, comments from the Pensions and Lifetime Savings Association (PLSA) highlight a feeling that the Bank may need to push its policy through into November if it is to adequately prop up an industry that continues to struggle under the weight of a highly volatile gilts market.

“For the pound, the Bank’s action highlights both the fragility of the financial system and the potential for additional inflation thanks to this fresh bout of quantitative easing.”

Elsewhere in Europe, the German Dax was down 0.43% after the International Monetary Fund (IMF) warned that the country could see its economy shrink in the new year. The French Cac had also dipped by 0.13%.

In the US, both its top indices had made gains when European markets closed. The S&P 500 was up 0.17% while Dow Jones was 0.88% higher.

Sterling had also strengthened by 0.57% to around 1.1444 against the euro.

In company news, pub group Marston’s reassured investors that it has not seen any change in behaviour from punters against cost-of-living pressures, suggesting that people will be more likely to ditch big-ticket purchases before sacrificing social trips.

The company’s boss, Andrew Andrea, said that it is looking forward to stronger sales during the 2022 World Cup.

Marston’s share price was up 5.79% at the end of the day.

Sofa seller ScS also saw its share price edge up by 3.29% after announcing a strong performance in the latest financial year.

Its revenues jumped by more than 8% but the retailer warned that its order book had begun to shrink as household incomes are increasingly squeezed.

Meanwhile, shares in publisher Reach dipped on Tuesday after the group said it took a financial hit from the Queen’s death as many advertisers suspended national campaigns during the mourning period.

Its total revenue was down by nearly 2% during the latest quarter compared with the year before, driven by a fall in print revenue.

Reach’s share price was 1% lower when markets closed.

The biggest risers on the FTSE 100 were Rentokil, up 8.4p to 473.5p, Haleon, up 4.45p to 275.6p, Sainsbury’s, up 2.25p to 175.25p, Imperial Brands, up 21p to 2,027p, and Unilever, up 35.5p to 3,945.5p.

The biggest fallers on the FTSE 100 were Ocado, down 23.3p to 414.5p, Legal & General, down 11.6p to 212.3p, Hargreaves Lansdown, down 43p to 826.6p, Harbour Energy, down 19p to 423.4p, and Aviva, down 17p to 383.7p.