London close: Stocks fall on inflation data, debt ceiling standstill

London's main stock gauges closed in negative territory on Wednesday, after a higher-than-expected UK inflation report and as concerns over the unresolved US federal debt ceiling issue continued.

The FTSE 100 ended the session down 1.75% at 7,627.10, and the FTSE 250 was off 1.44% at 18,931.16.

On the currency front, sterling was last down 0.39% on the dollar to trade at $1.2365, while it weakened 0.29% against the euro to change hands at €1.1493.

“If concerns about the global outlook weren’t sufficient with the China recovery story looking increasingly flaky, we now have the increasingly loud sound of the debt ceiling deadline clock, and the continuing impasse between US policymakers finally attracting the attention of financial markets,” said CMC Markets chief market analyst Michael Hewson.

“The modest declines of the last two days have accelerated today, with sharp falls across the board, as sentiment continues to deteriorate, raising the question as to whether this is the beginning of a market puke that gets US lawmakers attention and generates the urgency required to preserve the fiscal integrity of the US government.”

Inflation cools, but not as much as expected

In economic news, the UK's inflation rate saw a decrease in April, although it did not dip as much as forecast, with food costs holding near all-time peaks according to the Office for National Statistics (ONS).

Annual consumer price index (CPI) inflation lessened to 8.7% in April from 10.1% in the prior month, against predictions for a fall to 8.2%.

It made for the first instance of headline inflation falling below double-digits since August last year, thanks in part to subsiding energy costs.

Consumer price rises now stood at their most moderate levels since March 2022.

According to the ONS, electricity and gas costs were a significant factor in the decline, contributing 1.42 percentage points.

However, food inflation lingered near its 45-year record, dropping marginally from 19.2% to 19.1% in April.

Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco, climbed to a 31-year high of 6.8% in April from 6.2% in March.

According to Capital Economics, the smaller-than-expected fall in CPI inflation “means it is now very hard to imagine the Bank of England not raising interest rates from 4.50% to 4.75% in June”.

Meanwhile, UK housing prices decreased for the fourth consecutive month in March, based on ONS data.

Prices experienced a 1.2% drop following a 0.1% reduction in February.

The annual growth rate cooled to 4.1% in March from a revised 5.8% in the prior month, falling short of the consensus forecast for 4.5% growth.

It meant the average house price in the UK in March cost £285,000, reflecting a yearly increase of £11,000, but down £8,000 from the recent November peak.

“The housing market continued to struggle in March, as affordability issues dampened buyer demand,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.

“The official measure of house prices fell for the fourth month in a row, leaving prices 2.6% below their November peak.

“The data showed that house prices have tended to fall the most in regions that have seen the sharpest increases over the past three years.”

Elsewhere, manufacturers' inflation expectations for selling prices hit a more than two-year low in May, according to survey data from the Confederation of British Industry (CBI).

The index of manufacturers' average selling price expectations decreased to 21 in May from 23 in April - its lowest point since March 2021, although still well above the long-term average of 6.

At the same time, the total orders balance improved slightly, exceeding consensus forecasts by reaching -17 in May from -20 in the prior month.

“Our latest survey suggests the recent pressures on manufacturing activity have so far persisted through the second quarter,” said CBI deputy chief economist Anna Leach.

“Sentiment continues to deteriorate and expectations for output growth in the coming three months have turned negative, which doesn’t suggest UK manufacturing is poised to recover any significant momentum in the near-term.

“With demand subdued and the outlook for costs improving, manufacturers expect growth in their selling prices to slow, which should feed through to measures of inflation over time.”

In international news, German business morale took a downturn in May according to data from the Ifo Institute.

The business climate index slipped to 91.7 from 93.4 in April, underperforming the consensus expectation of 93.0.

Additionally, the expectations index fell to 88.6 from 91.7, and the current situation index registered at 94.8, a slight decrease from the previous month's 95.1.

Housebuilders take a dip, M&S surges on strong profits

On London’s equity markets, housebuilders recorded significant losses amidst growing concerns over the potential negative impact of higher interest rates on the housing market.

Persimmon registered a 5.52% decrease, followed by Taylor Wimpey and Barratt Developments, which were down 4.55% and 3.56% respectively.

Berkeley Group, Vistry Group, Redrow, Crest Nicholson, and Bellway all followed the downward trend, with their shares dipping by a respective 4.28%, 4.87%, 5.27%, 3.89%, and 4.04%.

In other sectors, promotional products maker 4imprint Group fell 8.36% despite reporting that it was trading in line with expectations.

The company cautioned that the rate of increase in order activity might slow down during the remainder of the year.

C&C Group, the owner of cider brands Bulmers and Magners, saw its shares fall 1.02% even after an increase in full-year profit and revenue.

The firm also announced the reinstatement of its dividend.

Shares in insurance giant Aviva declined 5.88% following its first-quarter update, as well as news that activist investor Cevian Capital had reportedly sold almost all of its stake in the firm.

Elsewhere, despite reporting an increase in its annual net rental income, LondonMetric Property fell 5.05% by the end of trading.

The company reported a net rental income of £146.8m for the 12 months ended 31 March, compared to £133.1m in the previous year.

On the upside, Intertek Group was up 3.36% after it held its annual guidance as revenues rose 11% in the first four months of the year.

Energy firm SSE added 1.63% after announcing a rise in full-year profit, as well as plans to invest up to £40bn in clean energy projects over the next decade.

In the retail sector, Marks & Spencer leapt 12.93% after it reported better-than-expected annual profits, driven by significant improvements in its food division.

The high-street stalwart also announced plans to reinstate a “modest” dividend in November.

Reporting by Josh White for Sharecast.com.

FTSE 100 -135.85 (-1.75%) 7,627.10

RISERS
Intertek Group +3.36% 4,333p
Ocado Group +2.29% 411.8p
SSE +1.63% 1,900p
Fresnillo +0.79% 661.2p
Airtel Africa +0.34% 117.6p
J Sainsbury +0.32% 278.9p
Bunzl +0.26% 3,114p
BT Group +0.2% 148.8p
British American Tobacco -0.07% 2,736.5p
Melrose Industries -0.08% 477.5p

FALLERS
Prudential -5.94% 1,101.5p
Aviva -5.88% 398.9p
Persimmon -5.52% 1,215p
Phoenix Group Holdings -4.57% 555p
Taylor Wimpey -4.55% 117.5p
Informa -4.51% 694.4p
Abrdn -4.45% 201.7p
Flutter Entertainment -4.29% 15,600p
Berkeley Group Holdings -4.28% 4,025p
Rolls-Royce Holdings -4.14% 146.85p

FTSE 250 -277.15 (-1.44%) 18,931.16

RISERS
Marks & Spencer Group +12.93% 184.75p
PureTech Health +2.29% 223.5p
Bakkavor Group +2.16% 94.4p
Syncona +2.01% 162.2p
TBC Bank Group +1.82% 2,485p
Abrdn Private Equity Opportunities Trust +1.82% 444.5p
Tullow Oil +1.6% 25.4p
ICG Enterprise Trust +1.57% 1,164p
Network International Holdings +1.39% 366p
Premier Foods +1.38% 132.6p

FALLERS
4imprint Group -8.36% 4,495p
Carnival -6.94% 743.2p
Redrow -5.27% 497.8p
IWG -5.16% 145.2p
LondonMetric Property -5.05% 178.5p
Vistry Group -4.87% 751.5p
Petershill Partners -4.83% 142p
Marshalls -4.45% 300.4p
Travis Perkins -4.39% 880.8p
Asos -4.13% 436p