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UK stocks hit by global gloom, windfall tax threat for utilities

Published by Wanda Rich

Posted on May 24, 2022

Featured image for article about Top Stories

By Sruthi Shankar

(Reuters) -UK’s FTSE 100 fell on Tuesday, as the global mood soured after bleak results from social media firm Snap Inc and shares of British utilities slumped after a media report fuelled speculation of windfall tax.

UK power generating companies Drax, Centrica and SSE plunged between 10.9% and 17.5% after the Financial Times reported that the British government planning a possible windfall tax on more than 10 billion pounds ($12.48 billion) of excess profits by electricity generators.

The wider utilities index dropped 2.3%.

“The expectation is that this would be linked to the amount of cash poured into ESG initiatives to power the energy transition but also potentially in terms of measures taken by companies to ease the burden of high bills for cash strapped customers,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.

“However, we will have to wait for any detail of any plan to establish how much of a hit such a levy, if it is introduced, could have to the bottom line.”

The benchmark FTSE 100 fell 0.6%, while the midcap FTSE 250 dipped 0.9%.

The tech-heavy Nasdaq’s futures tumbled 2%, pointing to sharp opening losses for Wall Street, after Snap said the economy had worsened faster than expected in the last month and slashed its quarterly forecast. The Snapchat owner’s shares lost almost 30% in premarket trading.

Advertising group WPP tumbled 3.5% and broadcaster ITV dropped 4.0%.

A business survey showed Britain’s economic momentum slowed much more than expected this month, adding to recession worries as inflation pressures mount.

Royal Mail slid 3.4% after Peel Hunt downgraded the stock to “sell” from “buy”, saying it now assumes no dividends or buybacks.

Restaurant Group Plc slipped 1.2% despite saying strong sales at Wagamama and its Frankie & Benny’s chain of restaurants were helping offset the impact of inflation on expenses.

($1 = 0.8012 pounds)

(Reporting by Sruthi Shankar in Bengaluru; editing by Uttaresh.V and Rashmi Aich)