High street gloom over the City

LONDON FTSE 100 CLOSE 5,423.14 -85.88

RETAILERS bore the brunt of the market sell off yesterday as a string of trading updates pointed to a tough Christmas ahead for the high street.

Official data on the UK’s retail sales showed a surprise rise in October but economists warned that the underlying picture was much tougher, with accountancy firm Deloitte predicting little let up in the grim outlook until 2013 at the earliest.

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Dire updates from Mothercare and French Connection sparked the sell-off.

Mothercare slumped to a loss of £81.4 million in the 28 weeks to 8 October, compared with profits of £300,000 the previous year, after a poor sales performance and a write-down for the value of its UK business. The group, with 350-odd UK stores and 969 overseas, has already announced it is cutting 110 UK stores but said it will look to adjust its business in line with current conditions. Its shares fell 18 per cent, or 27.7p to 127.3p, on the FTSE 250 index.

French Connection revealed profits for the third quarter of its financial year were £1.8m below last year after revenues in its UK and Europe retail business slumped by 9.5 per cent in the three months. Shares fell 16 per cent or 11.4p to 62p. Other retail stocks on the back foot included Next, which fell 34p to 2,776p and Marks & Spencer, which was 5.6p lower at 319.4p

The broader FTSE 100 index dropped 85.88 points or almost 1.6 per cent to close at 5,423.14 as further fears over the future of the eurozone dented confidence.

Spain was forced to pay nearly 7 per cent to borrow €3.56 billion (£3bn), its highest since 1997 and the same level that left Ireland and Portugal in need of bail-outs.

The pound was up against the dollar at $1.58. It was flat against the euro at €1.17 after recent gains.

Italy’s borrowing costs were also hovering around the critical 7 per cent level amid doubts new boss Mario Monti’s government of technocrats will be able to beat the country’s finances back into shape.

Fears over the future of the eurozone are rife because Italy and Spain are too big to bail out and have the potential to sink the currency bloc.

Banks and miners led the market lower as investors shunned risk. Taxpayer backed Lloyds was down 5 per cent, or 1.2p at 25.7p, while miner Vedanta Resources was off 75p at 1,014p.

Scottish Gas owner Centrica recovered most of its earlier falls after a profits warning.

The energy supplier fell 0.2p to 294.6p after it said the impact of recent warm weather and economic conditions on consumption would result in it falling short of the City’s expectations for operating profits of £2.6bn.

Meanwhile, Pace shares were 24 per cent lower or 14.8p to 45.6p after it said the floods which have shut down a key supplier in Thailand will continue to impact its profits in 2012.

Fred Moore, manager of the Newton European Higher Income Fund, said despite the gloomy macro outlook there were still pockets of value for investors to boost there returns.

He said: “The eurozone crisis remains unresolved but we maintain that this creates even more investment opportunities as stocks were sold indiscriminately over the summer.”