The FTSE 100 was down 85.5 points at 5776.4 at 11.21am on Wednesday. The FTSE 250 was also weak, losing 200.7 points to 9523.2.
Housing stocks were weak as the market studied minutes from the last Bank of England Monetary Policy Committee meeting, which revealed that members vote 8 to 1 to keep UK interest rates on hold.
Reacting to the news, Howard Archer, Chief European & UK economist at Global Insight, said the minutes "are more hawkish overall". "On balance, the MPC minutes reinforce our belief that interest rates will not be coming down further any time soon and that if the Bank of England does act in the near term, it will be to raise interest rates," Mr. Archer added.
Housing stocks were also hit by some bad broker comment – Goldman Sachs revisited the sector and proclaimed that, despite the recent re-rating of leading shares, the housing market "is only at the start of a deep downturn, which could last up to three years". "We believe that falling profitability and cash generation should continue to place pressure on balance sheets, resulting in higher sub-sector leverage. If this persists, we believe highly leveraged companies might need to raise fresh equity to recapitalise their balance sheets," the broker said.
Beside the Goldman note, Redrow, which was down 15.57 per cent or 26p at 141p, was also hit by some bearish commentary from UBS. "Industry data remains tough and Redrow's last announcement (13/05/08) pointed to reservations down 65 per cent in the 5-6 weeks to that statement. We suspect not much has changed in the month since this update," the broker said, adding:
"Though Redrow is focusing on cash generation, an equity issue cannot be ruled out in our view."
Taylor Wimpey lost 16.61 per cent or 12.25p to 61.5p, Barratt Developments was weaker by 13.26 per cent or 12p to 78.5p and Bellway was down 10.65 per cent or 56.25p at 471.75p.
Smith & Nephew was among the few stocks in the black on the FTSE 100. The company's share price climbed by 6p to 585p and claimed second place on the benchmark leader board thanks to UBS, whose analysts moved the stock to "buy" from "neutral".
Retailers were weak after Woolworths, which lost 0.59p to 9.19p, and Sainsbury's, which was down 8.25p at 327.75p, failed to impress with their trading updates.
The Woolworths update also bore a surprise for the markets – the company announced the departure of Trevor Bish Jones, the chief executive officer.
"Overall we believe this statement is negative. The departure of Trevor Bish Jones may be seen by some as ‘not before time' but we construe his leaving as negative: can this business be turned around by anyone? Both Retail and EUK have performed below our expectation and, although both are skewed to Christmas, we are now more concerned about how they are likely to perform in the festive period. This we need to understand but, ahead of the conference call, our sense is that forecasts are coming down," said KBC Peel Hunt.
The banks were also low as the market awaited details of Barclays' capital raising.
Barclays was down 9.5p at 331p, Alliance & Leicester lost 10p to 326.75p, HBOS was down 3.5p at 323.25p and Lloyds TSB lost 9.75p to 346.5p.
Elsewhere, British Airways lost 4.2 per cent or 10p to 228p after Morgan Stanley lowered its price target for the stock to 149p from 160p. The broker also lowered its target for Easyjet, to 259p from 310p, and sent the discount carrier down by3.08 per cent or 9.5p to 298.5p.Reuse content