UK stocks dive as tech bubble worries and Budget speculation mount

London’s FTSE 100 has tumbled as jitters about soaring tech valuations sparked a sell-off across global stock markets and reports of an autumn Budget U-turn spooked UK investors.

The index was losing around 140 points, or about 1.4%, on Friday morning.

Nearly all stocks prices were losing ground, with banks NatWest, Lloyds and Barclays among the biggest fallers.

It marks a sharp drop for the index which had enjoyed a rally earlier in the week and appeared to be edging closer to the record 10,000-point mark.

European markets were also in the red, with Germany’s Dax index down about 0.8%, and France’s Cac 40 falling 0.9%.

Dan Coatsworth, head of markets at AJ Bell, said: “Wall Street gloom has spread across European and Asian markets like a contagious disease.

“Markets are down across the board as investors fret about cracks in the narrative that’s driven the mother of all tech rallies over the past few years.

“Investors are worried about rich equity valuations and how billions of dollars are being spent on AI just at a time when the jobs market is looking fragile.”

The US’s S&P 500 and Dow Jones indexes both closed 1.7% lower on Thursday, while the tech-focused Nasdaq plunged by 2.3%.

Stocks weighing on the Nasdaq included Tesla, Nvidia, Alphabet and Arm.

Concerns about the soaring valuations of tech giants and big AI spending drives have heightened over recent months, raising questions about the potential for the bubble to burst.

Richard Hunter, head of markets at Interactive Investor, said it was a “bruising session” in the US with “emerging signs that the investor narrative is changing”.

“Two of the major drivers for this year’s rally have been a renewed appetite for the AI trade and anticipation of interest rate cuts.

“However, of late investors have been shuffling uncomfortably in their seats with AI spending going into overdrive, the success of which will not become apparent for some time, and the stretched valuations which have resulted from the relentless buying interest.”

He added that investors were also considering the likelihood that the US’s central bank, the Federal Reserve, may opt to keep interest rates on hold at its next meeting amid a lack of economic data to guide monetary policy.

Meanwhile, UK markets were also being rocked by speculation that Rachel Reeves has scrapped plans to raise income tax at the autumn Budget.

The potential policy U-turn sparked a sell-off in UK Government bonds on Friday.

“Investors in the UK have their own issues to process, let alone whether there is a potential AI bubble waiting to burst,” Mr Coatsworth said.

“Speculation that Chancellor Rachel Reeves has ripped up part of her Budget plan only days before the big event has spooked the bond market.”