Construction downturn leads to fall in London market

The London market was left languishing in the red amid mounting economic gloom after figures signalled the deepest construction downturn since 2009.

The top tier was 48.6 points lower at 6,645.4, with the latest Markit/CIPS UK purchasing managers' index (PMI) showing the ongoing fallout from the Brexit vote, with construction output shrinking at its fastest pace since June 2009.

It follows market declines on Monday after PMI figures showed the manufacturing sector, which accounts for about 10% of the UK economy, endured its sharpest fall for more than three years.

The data reinforce the case for interest rates to be slashed to a new historic low on Thursday, with economists widely expecting the Bank of England to deliver a cut to 0.25%.

The pound shrugged off the construction data on relief the decline in activity was not worse. Sterling edged 1.1% higher to 1.332 US dollars and climbed 0.5% at 1.186 euro.

European markets were heavily down, with Germany's Dax and the Cac 40 in France both falling 1.8%.

The price of oil took another tumble, dropping 1.1% to 41.66 US dollars (£31.26) a barrel amid investor concern over supply levels. 

Among stocks, housebuilders shrugged off falls in early trading to rally higher after the PMI update suggested the Brexit blow to the construction industry may not be as bad as initially feared.

Taylor Wimpey rose 3.9p to 151.6p while Charles Church builder Persimmon stepped up 42p to 1682p and Barratt Developments rose 4.4p to 428.5p. 

Travis Perkins was in the doldrums, off 11p to 1533p, after revealing weaker demand as a result of the EU referendum and warned over "significant uncertainty" following the Brexit vote.

The builders' merchant also reported results for the first half of the year, which saw sales rise 5.8% to £3.1 billion and pre-tax profits rise 10.7% to £176 million.

Direct Line Insurance Group was bucking the wider market falls after offering investors cheer with a special dividend payout despite posting a 5.2% drop in pre-tax profits to £298.5 million for the six months to the end of June.

It said motor insurance prices surged by 9.5% year on year in its second quarter as it looked to offset the higher cost of claims, with more expensive repairs and guaranteed car hire pushing up prices.

But the group said deflation was easing off in home insurance, with prices broadly stable, down 0.3% in the second quarter, against falls of 2.3% in the previous three months and 3% at the end of 2015.

Its shares leapt more than 12%, or 44.8p, to 399.9p. 

The biggest risers on the FTSE 100 Index were Direct Line Insurance Group up 44.8p to 399.9p, Intercontinental Hotels Group up 90p to 3104p, Admiral Group up 62p to 2211p and Taylor Wimpey up 3.9p to 151.6p. 

The biggest fallers were Rolls Royce down 31p to 760.5p, Barclays down 5.4p to 146p, Johnson Matthey down 108p to 3165p and BHP Billiton down 25.9p to 937.4p. 

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