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(Alliance News) - Stocks in London ended lower on Wednesday unmoved by the Budget and the Bank of England interest rate cut, as the World Health Organization declared the coronavirus crisis as a pandemic.
In a bid to combat the growing threat of the coronavirus, new UK Chancellor of the Exchequer Rishi Sunak unveiled a GBP30 billion package to help boost the economy.
The chancellor, in his maiden Budget statement, warned of a "significant" but "temporary" disruption to the UK economy, as he suspended rates for small businesses, extended sick pay and pledged extra funding for the National Health Service.
Within the GBP30 billion, GBP12 billion would be used for fighting the coronavirus outbreak and its economic effect, including at least GBP5 billion for the NHS and GBP7 billion for business and workers.
Further, Sunak scrapped a planned cut in UK corporation tax which is expected to raise around GBP6 billion. The chancellor indicated funds could be spent on hospitals and doctors across the UK.
In a move to boost the hospitality sector, Sunak froze duties on beer, cider and wine and announced a GBP5,000 business rates discount for pubs.
However, the scale of the challenge facing the economy was underlined by the Office for Budget Responsibility in forecasts prepared before the full impact of the virus could be known.
Growth is expected to fall to 1.1% in 2020, down from 1.2% last year.
The 2020 forecast is dramatically lower than the OBR's previous estimate of 1.4% and marks the weakest expansion since the 2009 recession. The OBR outlined a raft of possible impacts on the economy, from slowing exports to supply chain disruption and a slowdown in spending by firms and consumers due to uncertainty as well as likely workforce quarantine action.
In addition, the government will now borrow 2.4% of GDP in 2020-21, compared to the 1.8% forecast a year ago. The figure will rise to 2.5% in 2022-23 compared to the previous estimate of 1.5%.
"At present, the Chancellor envisages a renewed fiscal tightening from 2022/23, designed to ensure that a current budget surplus is achieved in three years' time, thus still meeting his predecessor's main fiscal rule. But as the three-year horizon for the rule rolls forwards every year, it is highly likely that the Chancellor will not tighten policy as currently planned. The chancellor's willingness to fund infrastructure projects and to generally 'get it done' suggests that public borrowing likely will trend at about 3.0% of GDP, once the virus hit has faded," said Pantheon Economics.
The FTSE 100 closed down 83.71 points, or 1.4%, at 5,876.52.
The FTSE 250 ended 207.82 down points, or 1.2% at 17,339.23, and the AIM All-Share closed down 8.49 points, or 1.1%, at 797.66.
The Cboe UK 100 ended down 2.0% at 9,930.10, the Cboe UK 250 closed down 1.8% at 15,323.91, and the Cboe Small Companies ended down 2.0% at 10,601.69.
In Paris the CAC 40 ended down 0.6%, while the DAX 30 in Frankfurt ended down 0.4%.
Tedros Adhanom Ghebreyesus, who heads the UN agency, said the WHO is "deeply concerned by the alarming levels of spread and severity" of the outbreak. "We have, therefore, made the assessment that Covid-19 can be characterised as a pandemic", he said at a briefing in Geneva, Switzerland.
CMC Markets analyst David Madden said: "Its Deja vu for European equity markets as they started out strong but as we approach the close of business they are firmly in the red. The same old health fears are doing the rounds, and that is driving the bearish sentiment.
The pound was quoted at USD1.2880 at the London equities close, down from USD1.2942 at the close Tuesday after the Bank of England delivered its first emergency interest rate cut since the financial crisis to combat the threat of coronavirus.
The BoE followed its major central bank counterparts as its Monetary Policy Committee voted unanimously to reduce Bank Rate by 50 basis points to 0.25% from 0.75%.
The central bank "will take all necessary further steps to support the UK economy and financial system" from the coronavirus fallout, outgoing Governor Mark Carney said in a press conference.
Commerzbank economist Peter Dixon said: "The simple truth is that nobody knows what impact the coronavirus will have on UK activity. Our currently published forecast suggests that quarterly GDP growth will remain positive throughout 2020 but some of our simulation exercises suggest that we could see at least one negative quarter, which would reduce 2020 growth from the currently-published 0.9% to something around 0.5%.
"Monetary measures will have little impact on preventing any supply-side shock as people fall ill and are unable to work, but the measures are designed to reduce the pressure on corporates by ensuring the continued provision of low cost liquidity and to ensure that banks are able to increase their lending as much as possible."
On the London Stock Exchange, Prudential closed down 3.2%. The 332-year old insurer said it is planning a minority initial public offering for its US insurance unit Jackson National Life, as it also recorded a rise in operating profit and annual premium equivalents ahead of market consensus.
Jackson provides annuities in the US. Prudential had been under pressure to demerge the unit from activist fund Third Point.
Turning to its 2019 results, Prudential's pretax profit attributable to shareholders fell 44% to USD1.92 billion from USD3.45 billion in 2018. Profit from continuing operations was down 25% to USD4.16 billion from USD5.58 billion in 2018.
Total revenue almost tripled to USD93.74 billion from USD35.85 billion in 2018 as the company recorded a USD49.56 billion investment return compared to a USD9.12 billion loss the year before.
At the other end of the large cap index, travel stocks remained under pressure amid coronavirus fears.
easyJet closed down 7.6%, International Consolidated Airlines Group, down 5.5% and TUI down 4.7%.
The euro stood at USD1.1264 at the European equities close, down from USD1.1342 late Tuesday.
Against the yen, the dollar was trading at JPY104.94, up from JPY103.94 late Tuesday.
Stocks in New York were sharply lower at the London equities close amid fears the coronavirus outbreak could slow the US economy and pose a significant recession risk.
The DJIA was down 4.3%, the S&P 500 index down 3.7% and the Nasdaq Composite down 3.5%.
US Treasury Secretary Steven Mnuchin told a congressional panel the administration was "working full time" on a package to boost the economy, although there were indications that an idea to cut payroll taxes faced opposition on Capitol Hill.
Goldman Sachs again slashed its 2020 earnings forecasts for US companies, saying in a note both the real economy and financial economy were showing "acute signs of stress" as travel slows to a trickle and the oil industry reels in the face of lower prices.
Brent oil was quoted at USD36.02 a barrel at the London equities close, lower than USD36.63 at the close Tuesday.
The North Sea benchmark touched a high of USD39.50 overnight but fell sharply after Saudi Arabia and the UAE vowed to pump millions more barrels of crude as they stepped up a price war with Russia.
The Middle East oil heavyweights said they would together boost production by at least 3.5 million barrels per day to 16.3 million barrels from April. Riyadh and Abu Dhabi, which rely heavily on oil revenues, also unveiled plans to raise their production capacities by one million barrels per day each.
In addition, state-owned oil producer Saudi Aramco said it plans to raise its crude production capacity by one million barrels per day.
Gold was quoted at USD1,649.40 an ounce at the London close, down from USD1,655.61 late Tuesday.
The economic events calendar on Thursday has eurozone industrial production figures at 1000 GMT and US producer prices at 1230 GMT.
The UK corporate calendar on Thursday has annual results from transport operator Go-Ahead Group, retirement specialist Just Group and movie theatre operator Cineworld Group. There are also interim results from construction firm Galliford Try.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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