Housebuilders take a hit over economic slowdown worries following tax hike

The stock market took a tumble on Wednesday as investors started to digest the implications of the recently announced tax rises by the UK Government.

Some are worried that the rises could lead to a slowdown in economic activity, with the FTSE 100’s housebuilders facing the brunt.

The four biggest fallers on the leading index – Taylor Wimpey, Persimmon, Land Securities and Barratt Developments – were all in the building sector and helped drag the premier index down 53.84 points, or 0.75%, at 7095.53.

But the pain was felt across Europe, with all eyes on the European Central Bank, which is hinting that financial support could start to taper off.

Michael Hewson, chief markets analyst at CMC Markets UK, said: “It’s been a uniformly negative day for European stocks, as concerns over slowing economic activity weigh on sentiment against a backdrop of rising prices and chatter that central banks are looking at paring back the amount of stimulus in the weeks and months ahead.

“Tomorrow’s European Central Bank rate meeting could well be an interesting affair given comments released earlier today from Austrian governing council member Robert Holzmann who warned that the central bank might normalise policy sooner than markets expect.”

The French Cac closed down 0.75% and the German Dax was down 1.32%.

The pound was up 0.13% against the dollar as markets closed at 1.376 and up 0.1% against the euro at 1.164.

In company news, Morrisons announced it expects an auction to kick off to finally end the relentless bidding by private equity groups Fortress and CD&R. Shareholders still remain convinced a new bid is on its way, with shares closing up 1.3p at 292.4p, above the 285p-a-share bid on the table from CD&R currently.

Staying in the crosshairs of M&A, engineering firm Smiths Group said it has agreed to sell its medical division to ICU Medical for up to 2.8 billion US dollars (£2.03 billion) after the suitor trumped a previous private equity offer.

Smiths said the terms of the new deal are “superior” to the agreed sale to US buyout firm TA Associates, which was announced on August 2, and has therefore withdrawn its backing for the previous bid.

Shareholders appeared to agree, with shares closing up 36.5p at 1,459p.

B&M Bargains saw its shares jump nearly 7%, up 37.4p at 578p, as the company issued an unannounced profit upgrade.

Bosses said sales have been in line with expectations, but, profits will be ahead as less markdowns were needed in stores.

And homewares retailer Dunelm also enjoyed a boost in shares, closing up 165p, or 12.8%, at 1,451p as the company announced its own profit upgrade and revealed it will pay a £132 million special dividend, partly funded by the £22 million business rates holiday savings.

Elsewhere, waste collection giant Biffa said it is “working hard” to lessen the impact of the nationwide lorry driver shortage on its services, which includes 30 councils, but shareholders were less optimistic. Shares closed down 23p, or 5.7%, at 381p

And Avon Protection announced it has won a contract worth up to 87.6 million dollars (£63.8 million) to develop and supply the US army with new helmets. Shares closed up 24p at 1,800p.

The biggest risers on the FTSE 100 were B&M up 37.4p at 578p; Smiths Group up 36.5p at 1,459p; National Grid up 17.6p at 948.1p; Severn Trent up 34p at 2,840p.

The biggest fallers were Persimmon down 114p at 2,717p; Taylor Wimpey down 6.75p at 169.3p; Land Sec down 25.8p at 708p; Barratt Developments down 24.4p at 684.2p and Berkeley Group down 130.5p at 4,527.5p.