Share prices slide as ICI forecasts are cut

THE STOCK market yesterday registered its largest fall since Britain pulled out of the exchange rate mechanism. Worries about Conservative splits over Europe and a savage downgrading of profit forecasts for Imperial Chemical Industries by its house broker hit share prices.

The FT-SE 100 index of leading companies closed down 41 points at 2,560 as dealers worried that the ICI downgrading meant that the recession showed no signs of ending.

Hoare Govett has cut its forecast of current-year pre-tax profits by a fifth from pounds 788m to pounds 620m and next year's from pounds 1bn to pounds 875m. Last year, ICI made pounds 843m.

Martin Evans, Hoare Govett's chemicals analyst, blamed the downgrade on worse-than-expected trading in all divisions in the third quarter. 'The previous numbers were based on the assumption that business would at least have stabilised,' he said. 'But there has been a deterioration in underlying trading.'

He expects third-quarter profits, due to be announced at the end of next month, to be about half the pounds 196m achieved last time. But he is confident that ICI will not repeat the dividend cut that shocked the market during the early Eighties recession. On his reduced forecast, the 55p payout should be just covered by earnings of 55.4p.

The downgrading was quickly followed by other brokers, with Kleinwort Benson reducing its expectations from pounds 800m to pounds 670m and Barclays de Zoete Wedd dropping to pounds 680m.

The fall in shares, coupled with concern about the emerging split on Europe in the Conservative Party and the lack of a coherent economic policy, also sent the pound to new lows.

Sterling dropped 2.45 pfennigs to close at DM2.5126.

The pound's devaluation again prompted concern over a fresh upsurge in retail price inflation. Geoffrey Mulcahy, chairman and chief executive of Kingfisher, said retail prices could rise as a result of the fall in the pound.

Urging a return to stable exchange rates, Mr Mulcahy warned that he did not foresee a return to booming consumer spending for years, if at all. 'Consumers have changed, and changed for good,' he said. In the next 10 years, spending would be restrained by lack of confidence, fear of unemployment and the need to curtail debt, Mr Mulcahy said.

Elsewhere in the currency markets, subsiding tension in the ERM swung the spotlight back on to the dollar, which fell to new lows against the Japanese yen and sank further against the German mark. In London, the US currency closed at DM1.4545, down 2.40 pfennigs and at Y119.75, almost one yen lower.

The dollar is expected to remain under pressure for the rest of the presidential election campaign as fears mount that Bill Clinton, the Democratic contender who is thought to be contemplating increases in federal spending, may win the race.

Moreover, US economic news this week is expected to confirm fears that the recovery has petered out.