London close: Stocks finish higher despite 30-year inflation record

London stocks managed a positive finish on Wednesday, lifted by well-received updates from the likes of Pearson and Burberry, as data showed UK inflation surging to its highest level in nearly three decades in December.

The FTSE 100 ended the session up 0.35% at 7,589.66, and the FTSE 250 eked out gains of 0.01%, or just 2.31 points, to close at 22,655.02.

Sterling was mixed on its major trading pairs, last moving 0.26% stronger on the dollar to $1.3631, while it was flat against the euro at €1.2005.

“After a big sell-off in Asia markets, European markets initially started the day on the back foot,” said CMC Markets chief market analyst Michael Hewson.

“However, as the day progressed the early losses dissipated, helped by a slew of decent trading updates, and a rebound in the basic resources sector, helped by rising metals prices.

“This has seen the FTSE 100 recover back towards the 7,600 level, and back towards where it finished on Monday, despite UK inflation hitting its highest level since 1992.”

On the economic front, UK inflation jumped to its highest level in nearly three decades in December, making a rate hike in February increasingly likely.

According to figures from the Office National Statistics, consumer price inflation rose to 5.4% from 5.1% in November, coming in above consensus expectations of 5.2% and well above the BoE's 2% target.

The last time inflation was higher was in March 1992, when it was 7.1%.

Core CPI inflation - which strips out volatile elements such as food and fuel - increased to 4.2% in December from 4.0% the month before, coming in above consensus expectations of 3.9%.

The retail price index, meanwhile, rose to 7.5% from 7.1% in November - its highest level since 1991.

Analysts had been expecting 7.1%.

“Food prices again grew strongly while increases in furniture and clothing also pushed up annual inflation,” said Grant Fitzner, chief economist at the ONS.

“These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year.

“The closures in the economy last year have impacted some items but, overall, this effect on the headline rate of inflation is negligible.”

The Bank of England’s policymakers are due to next meet on 3 February.

At the last meeting in December, they raised rates for the first time since the onset of the Covid-19 pandemic, by 15 basis points.

“It’s no secret that inflation is going to rise even further,” noted Capital Economics.

“The increases in producer prices already seen have yet to fully filter through into consumer prices.

“And the surge in wholesale gas and electricity prices could result in an increase in utility prices on 1 April in the region of 50%.”

Those effects, Capital said, would be enough to push CPI inflation to 7.0% in April.

“That would be higher than the peak of 6% that the Bank of England was forecasting when it raised rates in December.”

Elsewhere, official data showed house prices jumping in November, as growth picked up again following the end of the stamp duty holiday.

The ONS said UK house prices increased 10.0% in the year to November, up from 9.8% in October and in line with consensus.

On a non-seasonally adjusted basis, the House Price Index increased 1.2% between October and November, compared to a rise of 1.0% during the same period a year previously.

“This divergence largely reflects a continued shift in demand for outdoor space caused by the pandemic, and the adverse impact on the price of flats due to cladding-related issues,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.

“House prices rose again in November, after dipping in October following the full reversal of the Stamp Duty Land Tax threshold back to £125,000 at the end of the third quarter.

“Growth, however, looks set to slow over the next 12 months.”

Finally, it was announced during the afternoon that the latest Covid-19 restrictions will end in England from 26 January.

Addressing MPs in the House of Commons, Prime Minister Boris Johnson said scientists now believed the Omicron wave had peaked nationally, while hospital admissions had stabilised.

As a result, the so-called ‘Plan B’ restrictions would not be renewed when they are reviewed on 26 January.

The rules, which were brought in late last year to tackle the surge in Omicron cases, include working from home if possible, the mandatory wearing of face coverings and the use of Covid-19 passes.

There would still be a legal requirement to self-isolate if someone tested positive, but Johnson said there would "soon be a time" when that would also be removed.

In equity markets, education publisher Pearson jumped 4.36% after it raised annual profits guidance, driven by its assessment and qualification business.

High-end fashion retailer Burberry Group gained 6.32% after it reported a 5% rise in third-quarter revenues driven by an acceleration in full price sales.

The company said revenue for the 13 weeks to 25 December came in at £723m, up from £688m.

Segro was boosted 1.97% by an upgrade to ‘overweight’ from ‘neutral’ at JPMorgan, which said recent underperformance was a buying opportunity.

Crest Nicholson and WH Smith were also higher, by 2.36% and 7.09% respectively, after well-received trading updates, while pub chain JD Wetherspoon rose 1.77% despite warning it would swing to an interim loss.

Chilean copper miner Antofagasta was in the black by 3.02% after a production update.

Watches of Switzerland Group was ahead 5.76% after an upbeat update from French luxury goods group Richemont, which posted a jump in sales at its jewellery brands.

Johnson Matthey was boosted 3.48% by a rating upgrade at Panmure Gordon, but Liontrust Asset Management fell 3.12% even after it reported a rise in third-quarter assets under management.

Elsewhere on the downside, equipment rental firm Ashtead was down 4.36% and plumbing and heating distributor Ferguson fell 1.81% , with traders pointing to the fact the Empire State manufacturing index in the US turned negative in January for the first time in 20 months.

British Airways and Iberia owner IAG descended 3.4%, after the airline group cancelled a string of flights to the US amid fears over the switching-on of certain 5G frequencies stateside.

Market Movers

FTSE 100 (UKX) 7,589.66 0.35%
FTSE 250 (MCX) 22,655.02 0.01%
techMARK (TASX) 4,493.61 -0.12%

FTSE 100 - Risers

Polymetal International (POLY) 1,214.50p 7.24%
Burberry Group (BRBY) 1,866.00p 6.29%
Fresnillo (FRES) 839.20p 4.90%
Unilever (ULVR) 3,675.50p 4.52%
Pearson (PSON) 660.00p 4.36%
Anglo American (AAL) 3,517.50p 4.19%
Rio Tinto (RIO) 5,654.00p 3.88%
Antofagasta (ANTO) 1,482.50p 3.02%
Flutter Entertainment (CDI) (FLTR) 11,155.00p 2.62%
BHP Group (BHP) 2,473.00p 2.40%

FTSE 100 - Fallers

Ashtead Group (AHT) 5,216.00p -4.36%
International Consolidated Airlines Group SA (CDI) (IAG) 159.76p -3.55%
DCC (CDI) (DCC) 6,306.00p -2.72%
Sainsbury (J) (SBRY) 292.10p -2.21%
Melrose Industries (MRO) 162.90p -2.02%
Rolls-Royce Holdings (RR.) 123.14p -2.01%
Ferguson (FERG) 11,890.00p -1.94%
GlaxoSmithKline (GSK) 1,672.60p -1.68%
Barclays (BARC) 206.95p -1.36%
Lloyds Banking Group (LLOY) 53.68p -1.27%

FTSE 250 - Risers

WH Smith (SMWH) 1,662.50p 7.09%
Watches of Switzerland Group (WOSG) 1,292.00p 6.25%
Hochschild Mining (HOC) 124.00p 5.62%
Petropavlovsk (POG) 15.52p 5.15%
Endeavour Mining (EDV) 1,700.00p 4.62%
BlackRock World Mining Trust (BRWM) 676.00p 4.16%
Johnson Matthey (JMAT) 2,006.00p 3.48%
Games Workshop Group (GAW) 8,275.00p 2.92%
Cineworld Group (CINE) 43.49p 2.89%
Ferrexpo (FXPO) 261.20p 2.67%

FTSE 250 - Fallers

Wood Group (John) (WG.) 229.20p -4.70%
TUI AG Reg Shs (DI) (TUI) 243.50p -4.13%
Darktrace (DARK) 417.00p -3.87%
Baillie Gifford Japan Trust (BGFD) 875.00p -3.42%
Baltic Classifieds Group (BCG) 226.00p -3.42%
Harbour Energy (HBR) 364.40p -3.39%
PureTech Health (PRTC) 280.00p -3.11%
Carnival (CCL) 1,445.80p -3.10%
Countryside Properties (CSP) 328.60p -3.01%
Clarkson (CKN) 3,710.00p -3.01%