Stocks dive as Fitch frets over 'formidable' fiscal challenge

UK stocks and sterling tumbled this morning after Fitch labelled Britain’s fiscal challenge “formidable”.

At 10:50am, the FTSE 100 was 66.92 lower, or 1.32%, to 5,002.14. Lloyds Banking Group and Barclays were among the casualties, down 3.17% and 2.87% respectively.

Tesco was also in decline, falling 2.94% on news its chief executive Sir Terry Leahy will retire after 14 years at the helm.

Fitch Ratings said in a special report that "following an unprecedented economic and financial shock, the scale of the UK's AAA/stable outlook fiscal challenge is formidable and warrants a strong medium-term consolidation strategy - including a faster pace of deficit reduction than set out in the April 2010 budget".

Sterling was also counting the costs of the report, with the pound down 0.54% against the US dollar to $1.4394 and 0.33% against the euro to 1.2086.

Across Europe, the German Dax was 1.37% lower and the French CAC 40 fell 1.61%.

Investors are once again looking for safety in sovereign bond markets, with the UK 10-year gilt yield down 0.02% to 3.47%. The 10-year German bund yield has fallen 0.04% to 2.51%.

The investor pressure on troubled eurozone nations continues, with Italian and Spanish bonds once again in decline. The Spanish 10-year bond yield is 0.07% higher and the Italian equivalent has advanced 0.02%.

Meanwhile, the price of gold also rose to an all-time high this morning, above $1,250 an ounce, as nervous investors flocked to the safe haven asset.