3.45pm BST update
* Graeme Wearden and Kathryn Hopkins
* guardian.co.uk,
* Tuesday July 8, 2008
* Article history
The London stock market plunged into bear market territory today following a grim warning that the UK economy is sliding into recession and more job losses in the troubled housing market.
The FTSE 100 index shed 154 points in morning trading, falling as low as 5358.7 as gloom hit the financial sector again. Stock markets across Europe and Asia were also bathed in red.
Although London shares later came off their worst, with the FTSE showing a loss of 78.6 points at 3pm, there were renewed jitters in afternoon trading on the back of further gloomy news on the crisis-hit US housing market.
Pending home sales across the Atlantic tumbled by 4.7% in May, a far steeper decline than analysts had expected, sending shares on Wall Street into reverse. They had gained at the start of the session on news that Federal Reserve chairman Ben Bernanke may extend emergency lending for Wall Street investment banks.
The FTSE's retreat into bear territory followed a grim warning from the British Chambers of Commerce that the UK is in serious danger of recession, as companies are battered by rising inflation and the ongoing credit crunch.
In its latest survey of the UK economy, the BCC reported that sales, orders and confidence have all fallen sharply — bad news for businesses and consumers.
"The outlook is grim, and we believe that the correction period is likely to be longer and nastier than anticipated," said the BCC's economic adviser, David Kern.
Manoj Ladwa, a senior trader at TradIndex, said the BCC's recession warning "confirms the City's view that the economy is going to get a lot worse before it gets better". And David Frost, head of the BCC, warned the government could hit companies with a rise in business taxes, which he said would be "catastrophic".
Analysts warned that the FTSE 100 index could fall below 5000 before the crisis is over, meaning further losses for financial institutions and small investors alike.
David Buik of BGC Partners warned that confidence on the markets was "shot to ribbons".
"Over the last three months, when you got out of bed and read the papers or watched TV, you would have seen nothing but bad news," Buik said.
If the FTSE 100 closes below 5386, then it will have lost more than 20% since its peak in June 2007 — the definition of a bear market.
Britain's battered housebuilders suffered again today, after Persimmon, the biggest company in the sector, announced it was cutting 2,000 jobs after sales dropped by over 30% this year. They have been pleading for a cut in interest rates to encourage people back into the housing market, but there is little optimism that the Bank of England will reduce rates at its meeting later this week.
"In normal circumstances, the case for the Bank of England to cut rates this Thursday at its regular monthly meeting would be cut and dried. But the price of oil and food means that the threat of inflation remains severe, and most analysts expect rates to remain unchanged," said Ladwa.
The rising cost of raw materials and fuel has forced companies to reduce new investment and is likely to push retail prices higher, the BCC warned.
Banks were also among the biggest fallers worldwide today, thanks to speculation that there could soon be yet another round of writedowns.
Citigroup, UBS and others have already wiped off billions of pounds, having invested in mortgage-backed securities whose value has now slumped thanks to the sub-prime mortgage crisis.
Shares in America's two biggest mortgage providers, Freddie Mac and Fannie Mae, fell 18% and 16% respectively amid speculation that they may announce new losses. This sparked losses in Asia, where Japan's Nikkei closed 2.45% lower and the Hong Kong Hang Seng shed 3.1%.
More woe for banks as market enters bear territory
There was more pain in the banking sector today as part of a wider market slide that saw the FTSE 100 index fall to its lowest level since November 2005.
The FTSE fell to 5379.6, down 133.1 and more than 20% below its peak of 6732.4 last June, pushing the index into official bear market territory.
Bradford & Bingley has fallen to a fresh low this morning, further below the 55p level at which it is seeking to raise funds through a rights issue.
The stock was down 23% to a record low of 32.25p, as investors continued to fear for the buy-to-let lender's future. This follows a 16% plunge yeterday.
Concerns around Bradford & Bingley brought down Alliance & Leicester, which was down 9% at 225.5p.
Analysts at Panmure said they now expected the firm - which unlike many of its rivals has announced no plans to raise fresh funds - to report losses in 2008 and 2009, and cut their price target from 450p to 180p.
Others in the sector to suffer included Bank of Ireland, down 11% to 4.45 euros, after a trading update in which the company warned that some customers were struggling to repay loans.
Royal Bank of Scotland was down 5% to 191p, putting it among the FTSE 100's five biggest fallers.
The woes in the banking sector came against a backdrop of global unease, with US banking stocks falling to their lowest level for a decade yesterday and European banks such as Credit Suisse and Credit Agricole falling todaay.
The FTSE 100's biggest faller was the London Stock Exchange, down 9% to 657p on fears of competition from new trading platforms.
Building materials group Wolseley fell 6% to 292.25p, as Panmure cut its price target fom 400p to 280p.
Retail group Kingfisher was another heavy faller, down 5% to 93p.
Ailing broadcaster ITV fell through the 40p mark to put it among the FTSE 100's top ten fallers. The stock has been declining for months and recorded a previous closing low of 40p last Wednesday. Today it stood at 39.7p, down 5% on last night's close of 41.6p.
Also in the media sector, Trinity Mirror continued to suffer, down another 9% to 76.75p, following a week of price falls since the newspaper publisher put out profit warning last Monday.
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