Fiscal cliff overshadows FTSE; Melrose drops 11%

(16.55: Update) Britain’s markets closed lower on Friday as uncertainty dominated talks in the US about the fiscal cliff, and as politicians discussed how to make a series of tax rises and spending cuts that are due to hit at the start of next year.   

The FTSE 100 shed 1.27%, or 72 points, to 5,606 and the Mid-250 index fell 0.91%, or 107 points, to 11,577. Weaker sentiment has seen the FTSE 100 give up 2.6%, or 151 points and the Mid-250 index has lost 0.8%, or 95 points, since the start of the week.

Engineering buyout group Melrose (MRO.L) was the biggest faller on the FTSE 100, down 27p, or 11%, to 208p, as it predicted a slowdown in sales for 2013 due to ‘worsening economic conditions’.

However, engineering company IMI (IMI.L) took on 20p, or 2%, to 962p as it announced results in line with expectations despite the weaker profits in its Fluid Power division.

Pennon Group (PNN.L) fell 26.5p, or 4.2%, to 602p as analysts at Nomura cut their target price on the stock from 730p to 710p and analysts at UBS, JP Morgan Cazenove, Credit Suisse and Deutsche Bank also lowered their target prices.

Resources stocks were also out of favour as Eurasian Resources (ENRC.L) lost 14p, or 5%, to 259p, and Fresnillo (FRES.L) gave up 68p, or 3.5%, to £18.80.

(09:52 Update) Escalating tensions in the Middle East, alongside concern about the outcome of US budget talks between president Barack Obama and Republican lawmakers have dragged markets lower, showing how fragile investor sentiment is after this morning's quiet start to trading. See market report below.

The FTSE 100 is now down 0.5% to 5,647, heading towards a decline of more than 2% for the week. 

Melrose falls fast on flatlining FTSE

Engineering firm IMI (IMI.L) topped the FTSE 100, rising 32p or 3.4% to 974p after reporting that revenues for the four months to the end of October are 3% ahead of last year and 4% ahead for the 10 months year to date.