London close: Stocks fall after weak construction PMI

London stocks dropped on Tuesday as weak construction data added to bets of an interest rate cut by the Bank of England later in the week.

UK construction output continued to fall in July as activity dropped by the fastest rate in seven years.

The Markit/CIPS construction industry purchasing mangers’ index (PMI) slid to 45.9 in July from 46.0 the month before, which was not as bad as the consensus 44.0 feared by economists but still was the second successive sharp fall and the biggest decline since June 2009. A level below 50 signals a contraction in sector activity while a reading above that indicates an expansion.

“UK construction activity fell sharply for a second successive month in July, pointing to an ongoing impact of Brexit-related worries on the economy that raises the risk of a recession," said Markit's chief economist Chris Williamson.

It follows Monday’s Markit/CIPS UK manufacturing PMI which fell to 48.2 from 52.4 in June and came in weaker than the flash estimate of 49.1, marking the lowest level since February 2013.

The dismal set of PMIs come ahead of the Bank of England’s policy decision on Thursday. The BoE is widely expected to cut interest rates to cushion the blow following the UK’s vote to leave the European Union.

Elsewhere, producer prices in the eurozone rose more than expected in June, driven by increases in the energy sector, according to the latest data from Eurostat. Prices were up 0.7% on the month versus economists’ expectations for a 0.4% increase and a 0.6% rise in May.

Stateside, the personal consumption expenditure index - the Federal Reserve’s preferred inflation barometer - increased 0.9% year-on-year in June, unchanged from in the prior month and in line with expectations. The annual rate of core inflation was flat at 1.6%, as expected. The Federal Reserve is targeting 2% inflation.

Personal spending rose 0.4% in June, beating estimates of 0.4% growth, while personal incomes climbed 0.2%, missing forecasts for a 0.3% increase.

The data comes ahead of Friday’s all-important non-farm payrolls report. Analysts believe the Fed needs to see a strong jobs report and upbeat economic data before raising interest rates.

Dallas Federal Reserve Bank President Robert Kaplan on Tuesday urged caution on trying to increase rates amid global risks that could affect the US.

"I am closely monitoring how slowing growth, high levels of overcapacity and high levels of debt to GDP in major economies outside the US might be impacting economic conditions in the US," Kaplan said at an event in Beijing.

In company news, Royal Bank of Scotland, Barclays and Lloyds Banking Group slumped ahead of the BoE’s policy decision. RBS and Barclays were also lower on Monday after EU-wide stress test results showed a drop in the lenders’ capital ratio.

Intertek was under the cosh after Societe Generale downgraded the stock to ‘sell’ from ‘hold’ on valuation grounds.

Travis Perkins declined as it said like-for-like sales in July had been below normal levels in the wake of the UK's decision to leave the European Union as it posted a 10.7% rise in interim profits to £176m.

Direct Line Group rallied as the insurance company delivered a chunky special interim dividend alongside its half year report for the six months to 30 June, where gross written premiums for ongoing operations were 3.9% higher, driven by strong growth in motor in-force policies - up 2.5% - and a 9.5% increase in premium rates.

InterContinental Hotels advanced as the Holiday Inn operator said it remains confident in the outlook for the rest of the year.

Pharma company Shire jumped after upgrading its earnings guidance for 2016. The company raised its expected cost saving target for its £24.17bn acquisition of Baxalta and beat forecasts for the second-quarter.

Market Movers

FTSE 100 (UKX) 6,645.71 -0.72%
FTSE 250 (MCX) 17,077.11 -0.36%
techMARK (TASX) 3,450.48 -0.55%

FTSE 100 - Risers

Direct Line Insurance Group (DLG) 399.90p 12.62%
InterContinental Hotels Group (IHG) 3,104.00p 2.99%
Admiral Group (ADM) 2,211.00p 2.89%
Taylor Wimpey (TW.) 151.60p 2.64%
Persimmon (PSN) 1,682.00p 2.56%
Shire Plc (SHP) 5,045.00p 2.44%
Next (NXT) 5,130.00p 2.09%
Imperial Brands (IMB) 4,048.00p 1.73%
Fresnillo (FRES) 1,955.00p 1.66%
Randgold Resources Ltd. (RRS) 9,025.00p 1.29%

FTSE 100 - Fallers

Rolls-Royce Holdings (RR.) 760.50p -3.92%
Barclays (BARC) 146.00p -3.57%
Johnson Matthey (JMAT) 3,165.00p -3.30%
BHP Billiton (BLT) 937.40p -2.69%
easyJet (EZJ) 1,014.00p -2.59%
Carnival (CCL) 3,555.00p -2.34%
Centrica (CNA) 233.90p -2.30%
Paddy Power Betfair (PPB) 8,555.00p -2.12%
International Consolidated Airlines Group SA (CDI) (IAG) 392.20p -2.10%
Royal Dutch Shell 'A' (RDSA) 1,849.00p -2.09%

FTSE 250 - Risers

BBA Aviation (BBA) 256.10p 8.98%
Hochschild Mining (HOC) 287.60p 4.35%
Centamin (DI) (CEY) 169.10p 3.68%
Beazley (BEZ) 400.80p 3.19%
Spire Healthcare Group (SPI) 331.50p 3.11%
esure Group (ESUR) 270.90p 3.04%
Hiscox Limited (DI) (HSX) 1,086.00p 2.84%
Genus (GNS) 1,841.00p 2.56%
Clarkson (CKN) 1,883.00p 2.45%
NCC Group (NCC) 330.90p 2.45%

FTSE 250 - Fallers

Keller Group (KLR) 831.00p -8.68%
Rotork (ROR) 196.80p -7.87%
Ascential (ASCL) 250.00p -5.80%
Rank Group (RNK) 218.10p -5.17%
Elementis (ELM) 209.70p -4.46%
Barr (A.G.) (BAG) 514.50p -4.01%
IMI (IMI) 1,023.00p -3.67%
Aggreko (AGK) 1,231.00p -3.60%
Amec Foster Wheeler (AMFW) 422.60p -3.30%
Grafton Group Units (GFTU) 536.00p -3.07%