U.K. Stocks Drop for Fourth Day After Osborne’s Budget
U.K. stocks dropped for a fourth day, their longest losing streak in four months, as the government’s official budget watchdog cut its forecast for economic growth this year by half.
Eurasian Natural Resources Corp. slipped to a 10-week low after the commodity producer said it may sell shares. Asos Plc (ASC) rallied the most in six months after the U.K.’s biggest online- only fashion retailer said quarterly sales soared 37 percent. Barratt Developments Plc (BDEV) led housebuilders higher after Chancellor of the Exchequer George Osborne offered guarantees on purchases of new properties in his budget.
The FTSE 100 (UKX) lost 8.62 points, or 0.1 percent, to 6,432.7 at the close in London. The equity benchmark has still gained 9.1 percent this year as U.S. payrolls and Chinese exports bolstered confidence in the global economic recovery and central banks maintained their stimulus measures. The broader FTSE All- Share Index also retreated 0.1 percent today, while Ireland’s ISEQ Index rose 0.9 percent to a 4 1/2-year high.
“Osborne is limited: he has to take from one hand to give to the other,” Alan Higgins, who oversees about $44 billion as chief investment officer at Coutts & Co. in London, said. “Today’s statement is a small opening of the door for more monetary stimulus, though it’s mainly a confirmation of what had been happening already, so I see it as business as usual.”
Osborne said the the Office for Budget Responsibility has lowered its forecast for economic growth this year to 0.6 percent from a previous estimate of 1.2 percent.
The Chancellor also changed the Bank of England’s remit, asking policy makers to set out the arguments for allowing inflation to exceed the 2 percent target. Consumer prices rose 2.8 percent in February from a year earlier, the fastest pace since May, the Office for National Statistics said in a report yesterday. Osborne added that the Monetary Policy Committee can consider alternative stimulus measures to revive the economy.
“Given the ongoing exceptional challenges facing the U.K. economy, it is possible the committee may judge it necessary to deploy new unconventional policy instruments or approaches in future, including some of those deployed by other central banks in recent years,” Osborne said.
Still, BOE Governor Mervyn King was defeated for a second month in a vote on whether to expand stimulus, according to minutes from the MPC’s March meeting published by the central bank today. Six of the nine MPC members voted to leave the central bank’s target for bond purchases at 375 billion pounds ($567 billion). King, David Miles and Paul Fisher voted for a 25 billion-pound increase.
In Cyprus, party leaders meet today after lawmakers voted against a levy on bank deposits that the euro area had demanded in return for a bailout. The island nation’s banks and equity markets remain closed today.
Luxembourg’s Finance Minister, Luc Frieden, called for the 17 euro-area finance ministers to reconvene quickly to put together a new package for Cyprus.
ENRC slipped 1.9 percent to 306.9 pence after Chief Executive Officer Felix Vulis said the commodity producer remains committed to a share sale. ENRC also reported a full- year loss because of a $1.5 billion impairment charge and lower commodity prices.
Pearson Plc, a U.K.-based publisher which depends on the North America (PSON) region for more than half of its sales, lost 1.8 percent to 1,170 pence. The U.S. Supreme Court ruled late yesterday that publishers and manufacturers can’t block imports of cheaper copyrighted items made and sold abroad.
Asos surged 7.8 percent to 3,355 pence. Total retail sales rose 37 percent to 186.5 million pounds in the three months ended Feb. 28, the retailer said in a statement. That exceeded the median estimate of a 35 percent increase from five analysts surveyed by Bloomberg.
Countrywide Plc rallied 13 percent to 397 pence. The real estate agent raised 200 million pounds at its IPO, which was priced at 350 pence a share, according to a statement.
Barratt surged 6.6 percent to 255.6 pence as Osborne announced a program to help people buy new-build properties as part of today’s budget. Persimmon Plc (PSN), the U.K.’s largest housebuilder, rallied 4 percent to 1,010 pence, its highest price since November 2007. Taylor Wimpey Plc (TW/) advanced 6.1 percent to 90.85 pence.
“The bigger news is housing and the potential issue of U.S.-style mortgage bonds,” Coutts’s Higgins said. “Osborne explicitly said he’s going to take advantage of the low borrowing costs, so that seems to imply that they’re going to issue bonds which will use these mortgages as collateral.”
Royal Bank of Scotland Group Plc (RBS) added 2.3 percent to 300.2 pence. Liberum raised its recommendation on the stock to buy from hold, with analyst Cormac Leech predicting that Britain’s biggest government-owned lender will exceed its target for Tier 1 capital and complete its disposal plan by the end of 2014.
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