The FTSE 100 was 8.5 points behind at 3848.5 while the FTSE 250 fell to 6229.3, down 17.5 points, at around 11.55 am.
Sentiment was weak as traders digested worse-than-feared jobless figures from the Office for National Statistics, which said UK unemployment had soared to above 2 million for the first time since the Labour party came to power.
Howard Archer, chief UK economist at IHS Global Insight, said the data was “truly awful, heightening fears about the potential depth and length of the recession”.
“Earnings growth seems likely to fall back significantly in 2009, given that unemployment is soaring, inflation is retreating sharply, inflation expectations have plunged and companies are desperate to keep down their costs,” he added,
“It [also] seems inevitable that sharply rising unemployment, along with slowing income growth, will increasingly weigh down on consumer spending over the coming months. Indeed, we expect consumer spending to contract by some 2.5 per cent in real terms this year as overall gross domestic product declines by around 3.5 per cent.”
Manoj Ladwa, senior trader at City spread betting firm ETX Capital, said that, “after the strong run in the FTSE 100 over the past 10 days, which has seen a rise of more than 10 per cent, this news comes as a sharp reminder of the weakness of our economy”.
“We are looking at a severe recession for the rest of this year at least and probably into 2010, with the IMF warning yesterday that Britain faces a deeper slump than other parts of the world,” he added, “This gloomy thinking could stop this bear market rally in its tracks.”
Old Mutual was the strongest of the blue chips this morning, rising by 5.7 per cent or 2.3p to 42.6p after announcing the closure of its troubled Bermuda-based US life insurance operation to new business.
Legal & General was just behind, gaining 5.3 per cent or 1.6p to 31.3p following some words of support from MF Global, which said the insurer did not need to undertake a rights issue.
“Given that the company raised capital at the bottom of the last equity market downturn, one can certainly see why the market is concerned,” the broker said,
“However, now is most definitely not the time to raise equity if you do not need to and we see it as far more likely that the company will simply adjust its business model and dividend to the current circumstances.”
Software group Autonomy was 32p behind at 1212p after Investec downgraded the stock to “hold” from “buy” on grounds of valuation.
“Our positive view on forecast momentum remains,” the broker said, adding:
“However, it is too early to use this scenario as a valuation base case, [and we prefer] to wait until we can gauge progress on the Interwoven integration and its trading outlook.”
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