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(Alliance News) - Stocks in London were in the red at the close on Tuesday as investors digested a gloomy forecast for the UK economy and looked nervously ahead to a trio of interest rate decisions on Wednesday and Thursday.
The FTSE 100 index closed down 13.17 points, or 0.2% at 7,771.70 on Tuesday. The FTSE 250 ended down 83.75 points, or 0.4%, at 19,853.45. The AIM All-Share closed down 1.34 points, or 0.2%, at 867.82.
The Cboe UK 100 ended down 0.2% at 777.54, the Cboe UK 250 closed down 0.5% at 17,317.69, and the Cboe Small Companies ended down 0.2% at 13,642.60.
The US Federal Reserve will kick off the interest rate decision announcements on Wednesday at around 1900 GMT. The day after, the Bank of England and the European Central Bank will reveal their own respective decisions.
Markets are expecting a 25 basis point hike from the US central bank. In contrast, half a percent hikes are expected from the BoE and the ECB.
Russ Mould at AJ warned that there could "easily" be "a sea of red on the markets" on Wednesday if the Fed says rates are going to keep going up for some time.
"But if the Fed acknowledges inflation is cooling and notes signs of demand weakness linked to the economy, then the market might take that to mean the scale and pace of rate hikes could become more muted," he added.
The pound was quoted at USD1.2314 at the London equities close on Tuesday, down from USD1.2375 at the close on Monday.
In addition to pre-Fed nerves, a gloomy outlook for the UK economy was also weighing on the pound on Tuesday.
The International Monetary Fund warned that Britain's economy will slam into reverse this year as the cost-of-living crisis hits households hard and will see the worst performance of all the advanced nations.
In its latest World Economic Outlook update, the IMF downgraded its UK gross domestic product forecast once again, predicting a contraction of 0.6% against the 0.3% growth pencilled in last October as Britain looks set to suffer more than most from soaring inflation and higher interest rates.
The grim outlook for the year ahead puts the UK far behind its counterparts in the G7 group of advanced nations and the only country – across advanced and emerging economies – expected by the IMF to suffer a year of declining GDP.
In the FTSE 100, Johnson Matthey finished the day as the best blue-chip performer, finishing 4.5% higher after the speciality chemicals company said it has agreed a long-term strategic partnership with Plug Power for hydrogen fuel cells.
The supply and joint development agreement will last until at least 2030, covering both existing products and new generations of technology for fuel cells and electrolysers.
The two partners will co-invest in new manufacturing capacity in the US, which is expected to begin production in 2025.
British American Tobacco closed up 1.0% as it announced senior management changes and a new regional structure, with the cigarette maker streamlining its business as part of its push into 'New Categories' of smoking products.
As part of changes, the number of geographical business regions will be reduced to three from four, and the number of business units will be trimmed to 12 from 16.
"The new structure will increase the efficiency of BAT's geographical footprint, optimise market prioritisation and will be based on fewer, larger business units, enabling even greater collaboration and accelerated decision-making across BAT," it said.
In the FTSE 250, Pets at Home climbed 6.3% after it raised its annual profit guidance and reported a quarterly profit hike on "record" consumer numbers.
The pet supplies retailer said that consumer-facing revenue in its financial third quarter to January 5 climbed 9% year-on-year, with growth underpinned by a record number of consumers and volume growth. Consumer revenue was up 30% compared to pre-pandemic levels.
Total revenue increased by 8.8% in the quarter to GBP347.5 million from GBP319.4 million a year ago, with like-for-like revenue up 8.3%.
Looking ahead, the pet supplies retailer now expects pretax profit to be at the upper end of the current market consensus range of between GBP126 million and GBP136 million.
Previously, the company had guided pretax profit of around GBP131 million.
AG Barr rose 4.4%. The Iru-Bru maker said it expects annual profit to beat market expectations, though warned of a margin hit due to inflationary pressure in its new financial year.
AG Barr added that its plans for new regulatory rules in Scotland on single-use containers are "well-advanced", though it noted consumer behaviour may be impacted.
Elsewhere in London, Hochschild Mining plunged 14% as it missed its 2022 targets.
The Americas-focused silver and gold miner produced 358,826 gold equivalent ounces in 2022, falling short of full-year guidance of 360,000 ounces to 375,000 ounces.
In European equities on Tuesday, the CAC 40 in Paris and the DAX 40 in Frankfurt both ended very marginally higher.
The euro stood at USD1.0861 at the European equities close on Tuesday, lower against USD1.0867 at the same time on Monday. Against the yen, the dollar was trading at JPY130.17, lower compared to JPY130.35 late Monday.
Commerzbank analyst Antje Praefcke said that everything points towards this week becoming "yet another bad one for the dollar", unless the Fed sounds "surprisingly hawkish to the market".
"If the data shows the slowing effect of the rate hikes implemented so far, the dollar might get into trouble if the Fed sounds more moderate regarding wage growth and inflation tomorrow evening, as the market is then likely to become even more set on its rate cut expectations," Praefcke explained.
Stocks in New York were firmly in the green at the London equities close, with the Dow Jones Industrial Average up 0.3%, the S&P 500 index up 0.6%, and the Nasdaq Composite up 1.0%.
Brent oil was quoted at USD85.27 a barrel at the London equities close on Tuesday, down from USD85.93 late Monday. Gold was quoted at USD1,927.04 an ounce, higher against USD1,923.73 at the close on Monday.
In Wednesday's UK corporate calendar, there are trading statements from Entain and Glencore, as well as full-year results from GSK.
In addition to the Fed's interest rate announcement, the economic calendar on Wednesday also has a slew of PMI readings and a CPI print from the EU at 1000 GMT.
By Heather Rydings, Alliance News senior economics reporter
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