The FTSE 100 bounce since the decisive General Election victory for the Conservatives last month was wiped out on Thursday as fears over the coronavirus spread.
Shares on the blue-chip index closed the day down 101.61 points, off 1.36%, at 7381.96 – the lowest level since polling day on December 12.
Traders were also not helped by the Bank of England’s decision to hold interest rates at 0.75% – sending the pound up 0.65% to 1.311 dollars. It was also up against the euro by 0.5% to 1.188 euros.
Typically, when the pound strengthens, the FTSE 100 falls, due to the majority of companies on the index operating in dollars. Shares also appear more “expensive” to investors who trade in dollars.
David Madden, market analyst at CMC Markets, said: “Coronavirus fears are back at the forefront of traders’ minds, hence why stocks have fallen.
“The health crisis in China is deepening as the number of confirmed cases as increased, and so has the number of fatalities.
“Stocks that have exposure to China are bearing the brunt of the sell-off. Commodity, consumer as well as travel stocks are lower.”
European indexes suffered equally hard, with the German Dax and French Cac both down by 1.4%.
Traders also appeared to be unconcerned with the Bank of England’s other notice, which saw the central bank revise GDP down from 1.2% to 0.8% this year and 1.8% to 1.4% for 2021.
Fiona Cincotta, financial analyst at CityIndex, said: “Whilst the Bank of England are cautiously optimistic over the state of the UK economy currently, there are still fears over how the UK will leave the EU.
“At the end of this year higher trade tariffs could cause a disruption to the economy. Brexit uncertainty dragged on the UK economy across the past year and could potentially continue to do so this year.”
In company news, BT spooked investors after revealing it will cost £500 million to adhere to the Government’s new plans to allow Huawei access to 35% of the UK’s 5G rollout. Shares closed down 12.94p, or 7.4%, at 162.4p.
Vodafone also suffered by association, down 5.2p at 150.4p, as investors worry the 5G costs could also hit BT’s rival.
British Airways confirmed it would ground flights serving mainland China until at least the end of next month due to the Government’s coronavirus travel advice. Shares closed down 19.6p, or 3.3%, to 572.4p.
Cruise operator Carnival also suffered a fall in shares, down 170p to 3,168p, as reports suggested passengers on one of its ships in Italy may have the virus.
At Unilever, investors were pleased with plans from the company to look at selling its PG Tips brand, despite reporting a 33% drop in pre-tax profits. Shares closed up 89.5p, or 2%, at 4,527.5p.
Spirits giant Diageo was forced to temper expectations for the current year, warning global “uncertainty” remains. The Gordon’s gin and Captain Morgan rum maker warned that full-year sales are expected to be at the lower end of forecasts, sending shares down 81p, or 2.6%, to 3,029p.
The biggest risers on the FTSE 100 were Unilever up 89.5p at 4,527.5p; Whitbread up 82p at 4,553p; Polymetal up 21p at 1,266p; St James’s Place up 18.5p at 1,160p; and United Utilities up 13.5p at 1,028p.
The biggest fallers were BT down 12.94p at 162.4p; Carnival down 170p at 3,168p; Royal Dutch Shell ‘A’ shares down 93p at 2,038p; Hikma down 79p at 1,835p and Royal Dutch Shell ‘B’ shares down 78.5p at 2,046p.