UK windfall tax reprieve helps FTSE 100 pare back morning losses

Recession fears initially gripped London markets today, but traders perked up during the afternoon session to leave the capital’s main index unchanged.

The FTSE 100 was largely flat, closing at 7,196.59 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, fell 0.4 per cent to 18,836.98 points.

Investors were jittery during opening exchanges, fretting over downbeat US and UK economic data and the start of what is expected to be a weak corporate earnings season on Wall Street this week.

New US inflation figures released tomorrow are expected to show price pressures firming, likely prompting traders to reposition their portfolios ahead of a choppy week. Fresh UK GDP for May published on the same day are forecast to be soft.

The world’s largest economies are in danger of tipping into recession, caused by a combination of soaring prices chilling household spending and business activity and central banks raising interest rates.

Elevated inflation will drag on corporates’ bottom lines, leading to a muggy second quarter earnings’ season.

“Nerves are also frayed given that earnings season is also kicking off this week and US multinationals will be giving updates about how slowing consumer and businesses sentiment and rising costs may be affecting the bottom line,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.

However, confirmation from a government spokesperson that electricity providers will not be caught by the windfall tax that has snagged the likes of BP and Shell boosted the FTSE 100.

SSE and Centrica, both of which would have been subjected to the levy, ended the day as the two biggest risers.