How the City slump will hit you

12 April 2012

THE London share market has crashed to its lowest level since 11 September, wiping more than £36bn off stocks - equal to more than £600 for every person in the country.

The blue-chip FTSE 100 slumped 96 points to 4989.1 as rattled investors returned from the four-day break to confront fresh fears of corporate scandals and tension surrounding the India-Pakistan stand-off.

The market's fall through the 5000-point barrier fuelled City concerns that investors may embark on panic selling which could see share prices return to the record lows of mid-September.

It also sparked renewed warnings about Britain's pensions crisis, with millions of workers already facing the prospect of having to rely on inadequate private funds. Pension funds depend heavily on rising share prices. The National Association of Pension Funds said the share losses could encourage more companies to abandon final salary schemes, which provide a guaranteed income, and adopt money purchase plans, under which a pensioner's income is determined by the vagaries of the stock market.

The London share market has now fallen 28% since the FTSE 100 peaked at 6930.2 on 30 December 1999, slicing about £280bn off share prices and ending the greatest stock market boom to date.

Analysts said the tax evasion charges laid overnight against Dennis Kozlowski, the former chief of US industrial giant Tyco, had combined with the Enron fallout to fuel concerns that there was more scandal waiting in Wall Street's wings. 'The 5000-point level has been a robust one since November and there are now worries that we could be looking at 11 September numbers,' said Deutsche Bank strategist Bob Semple. The FTSE plumbed a low of 4433.69 following the New York attacks but recovered to 5200 by mid-October.

However, Semple said the latest sell-off was not justified by the improving economic outlook, particularly in the US, and he believed the marker would rise to around 5600 by the end of the year.

America's Federal Reserve chairman Alan Greenspan said on Tuesday that, despite being in a 'soft spot', the world's biggest economy was in the throes of a recovery.

London's stock market tumble follows a dismal few days on Wall Street. The Dow Jones Industrial Average - Wall Street's index of blue chip shares - lost 170 points last week and on Monday fell a further 215 points. A 21-point slip on Tuesday worsened the decline.

Against this backdrop, the Bank of England today began its two-day meeting to set interest rates. The City expects the Bank to freeze the cost of borrowing at 4% for another month.

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