London close: Stocks slide as inflation fears fuel bond selloff

(Sharecast News) - London stocks fell sharply on Thursday as worries about inflation fuelled a selloff in bond markets, with UK long-term borrowing costs hitting their highest level in 28 years, and as oil prices rose.

The FTSE 100 closed down 1.7% at 10,428.27, after the UK 30-year gilt yield hit 6% for the first time since 1998. Meanwhile, Brent crude was up 3.8% at $101.75 a barrel, while West Texas Intermediate was 2.8% higher at $92.93.

Dan Coatsworth, head of markets at AJ Bell, said the jump in the 30-year gilt yield above 6% "is a clear sign bond investors are demanding greater compensation for lending money to the UK government".

"While some investors have focused on comments made at the Labour Party conference about policy plans, the gilt sell-off reflects broader global forces," he said.

"On one level, gilt yields breaking through the 6% barrier implies bond markets are unhappy at Prime Minister Andy Burnham's plans, and they want a higher reward for the risk of lending money to the government for long periods.

"There is more at play. Inflation fears are the predominant driver for the bond sell-off, and that's why US government bonds are also experiencing a rout. The US 10-year Treasury yield just hit 5.34%, the highest level since 2002.

"The biggest concern is that higher oil prices reignite inflation just as central banks appeared to be bringing price pressures under control. Energy costs ripple through the economy via transport, manufacturing and logistics, raising the risk that inflation proves more persistent than expected.

"If inflation remains elevated, central banks may need to keep interest rates higher for longer, pushing up borrowing costs for households, businesses and governments alike."

Meanwhile, a survey out earlier showed that UK factory output growth eased again in September, although overall activity across the manufacturing sector grew a little.

The S&P Global manufacturing purchasing managers' index rose to 51.9 from 51.7 in August. A reading above 50.0 indicates expansion, while a reading below signals contraction. The PMI has now signalled expansion in each of the past 11 months.

Output growth, however, was the weakest in six months, with orders and exports growing only modestly. Rob Dobson, director at S&P Global Market Intelligence, said slower demand growth was to be expected given the higher energy prices seen during the month.

S&P said supply chains remained under "noticeable" stress in September, with a marked increase in average vendor delivery times. Supplier performance deteriorated to the greatest extent since June, reflecting the impacts of port congestion - both domestic and international - shipping delays, geopolitical tensions and the resulting raw material shortages.

Stretched supply chains also exerted upward pressure on purchasing costs, with the rate of input price inflation accelerating for the first time in four months amid reports of higher costs for chemicals, electronics, energy and food stuffs.

Dobson said: "The big shift in September was in the survey's price measures, which switched from signalling a decline in inflationary pressures to a renewed uplift. After hitting conflict-driven highs earlier in the year, rates of increase in both input costs and factory gate selling prices accelerated for the first time since May. Energy and electronics prices remain especially elevated, while supply disruptions and rising diesel prices are now hitting transportation costs across industry. These price moves will be closely watched by the Bank of England for any signs of a more sustained and broader price uplift potentially taking hold.

"There are still some positive shoots of growth looking ahead, however, as manufacturers remain generally positive about the outlook. Almost half expect output to rise over the coming year. "Confidence nevertheless remains subdued compared to that seen prior to the outbreak of the war in the Middle East, dampened not only by geopolitical issues but also reflecting uncertainty over policy direction at home. The upcoming Budget will therefore likely prove material in steering confidence."

Elsewhere, figures from Nationwide showed that house price growth slowed sharply in September amid mounting economic and geopolitical tensions.

In equity markets, ex-dividend stocks proved a drag, with Weir, British American Tobacco, Breedon and TP ICAP all weaker. Breedon was also in focus as it announced the appointment of James Brotherton as its new chief executive with effect from 1 January 2027.

SSE edged down as it reiterated its guidance, while Landsec slumped, reversing earlier gains, as it agreed to buy the Metrocentre shopping centre near Newcastle for £516m.

In broker note action, Babcock was downgraded to 'neutral' at Bank of America, while Greggs was upgraded to 'buy' from 'hold' at Panmure. Berenberg downgraded Irn-Bru maker AG Barr to 'hold' from 'buy'.

Market Movers

FTSE 100 (UKX) 10,428.27 -1.68%

FTSE 250 (MCX) 24,143.21 -1.62%

techMARK (TASX) 6,134.68 -0.70%

FTSE 100 - Risers

WPP (WPP) 382.90p 1.81%

Autotrader Group (AUTO) 460.40p 1.52%

BP (BP.) 557.10p 1.40%

Airtel Africa (AAF) 304.60p 1.33%

Tesco (TSCO) 474.80p 1.28%

Computacenter (CCC) 5,470.00p 1.20%

Vodafone Group (VOD) 124.10p 1.14%

The Sage Group (SGE) 979.20p 0.80%

Rolls-Royce Holdings (RR.) 1,471.80p 0.70%

Pearson (PSON) 1,223.50p 0.62%

FTSE 100 - Fallers

Games Workshop Group (GAW) 16,870.00p -5.96%

Lion Finance Group (BGEO) 13,540.00p -5.78%

NATWEST GROUP (NWG) 651.40p -5.37%

Weir (WEIR) 2,574.00p -4.74%

LondonMetric Property (LMP) 171.30p -4.52%

Lloyds Banking Group (LLOY) 102.10p -4.49%

Barratt Redrow (BTRW) 317.70p -4.42%

British Land Company (BLND) 381.20p -4.32%

Barclays (BARC) 438.95p -4.07%

HSBC Holdings (HSBA) 1,437.00p -4.05%

FTSE 250 - Risers

Harbour Energy (HBR) 276.20p 5.02%

Foresight Group Holdings Limited NPV (FSG) 464.00p 3.34%

Globaldata (DATA) 60.10p 2.47%

Seraphim Space Investment Trust (SSIT) 195.40p 2.41%

Ocado Group (OCDO) 258.40p 1.57%

Pan African Resources (PAF) 120.20p 1.52%

Volex (VLX) 657.00p 1.39%

Ceres Power Holdings (CWR) 412.60p 1.23%

Renishaw (RSW) 5,855.00p 1.21%

Baltic Classifieds Group (BCG) 2.04p 1.19%

FTSE 250 - Fallers

TP Icap Group (TCAP) 321.40p -6.02%

Barr (A.G.) (BAG) 547.00p -5.03%

Taylor Wimpey (TW.) 81.30p -5.02%

WH Smith (SMWH) 371.20p -4.92%

Bellway (BWY) 2,094.00p -4.90%

CVS Group (CVSG) 1,160.00p -4.84%

Persimmon (PSN) 1,248.00p -4.81%

Savills (SVS) 987.00p -4.73%

Berkeley Group Holdings (The) (BKG) 3,190.00p -4.55%

Close Brothers Group (CBG) 397.80p -4.47%