London close: Stocks lower despite inflation slowdown

London stocks closed below the waterline on Wednesday amid continued consternation over a hotter-than-expected US inflation print, with the latest UK CPI data also in focus.

The FTSE 100 ended the session down 1.47% at 7,277.30, and the FTSE 250 was off 1.66% at 18,849.20.

Sterling was in the green, meanwhile, to last trade up 0.78% on the dollar at $1.1583, as it gained 0.45% against the euro to €1.1581.

“US markets might have managed a little rebound, but European markets haven’t even managed that,” said IG chief market analyst Chris Beauchamp.

“Even a bounce in oil hasn’t done much for the FTSE 100, as fears of a global recession and concerns about the overall weaker outlook for Europe mean that investors are even less keen to buy the dip here than they are in the US.”

Stocks on Wall Street tumbled on Tuesday after figures released from the US Labor Department showed that inflation eased to 8.3% on the year in August from 8.5% in July, but came in above consensus forecasts of 8.1%.

The data fuelled expectations of another big rate hike from the Federal Reserve.

In economic news at home, UK inflation eased in August but remained close to a 40-year high according to figures from the Office for National Statistics.

Consumer price inflation slowed to 9.9% from 10.1% in July, coming in below consensus expectations for an increase to 10.2%.

Most of the decline was down to a drop in fuel inflation to 32.1% from 43.7%.

"A fall in the price of motor fuels made the largest downward contribution to the change in both the CPIH and CPI annual inflation rates between July and August 2022," the ONS said.

"Rising food prices made the largest, partially offsetting, upward contribution to the change in the rates."

The figures also showed that food price inflation rose to 13.4% in August from 12.8% the month before, while clothing price inflation edged up to 7.9% from 6.9% to 7.9%.

Core inflation - which strips out food, alcohol and tobacco and energy - ticked up to 6.3% on the year, from 6.2%.

Paul Dales, chief UK economist at Capital Economics, described the easing in CPI inflation as “a bit of a relief” after Tuesday’s US CPI surprise, but added that both overall and core UK consumer inflation had not yet peaked.

As such, he reckoned the Bank of England would “have to continue turning the screws".

“Overall, we think CPI inflation will peak around 11.0% just before the end of the year and that core inflation will continue to edge higher too.

“That means the Bank will have to continue raising interest rates, from 1.75% now to 3.00%, if not higher.”

Elsewhere, UK house prices rose in the year to July at their highest annual rate since May 2003 according to fresh ONS figures, with average prices increasing 15.5%, up from 7.8% in June.

The ONS attributed the jump in annual inflation to a base effect from the falls in prices seen this time last year, as a result of changes in the stamp duty holiday.

Average house prices rose by £6,000 between June and July this year, compared with a £13,000 decline between the same months last year.

The average house price was £292,000 in July, up £39,000 from the same month a year earlier.

“House price growth has doubled in a month, growing faster than for 19 years, but all is not what it seems,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

“This is the latest step in a house price ‘hokey cokey’, and is the result of changes to the stamp duty holiday last summer.

“It doesn’t affect the outlook for the market, which is facing real challenges.”

On the continent, industrial output in the eurozone fell more than expected in July, as a plunge in Ireland dragged on broader weakness across the common currency area.

According to Eurostat, industrial production in the euro area, excluding construction, fell 2.3% month-to-month in July, after a 0.7% increase in June.

That was below consensus expectations for a fall of 1.0%.

The year-on-year rate slipped to -2.4%, from +2.4% in June, and also below the +0.4% pencilled in by economists.

Finally across the pond, US producer prices declined again in August as fuel costs continued to fall, according to the US Department of Labor.

The producer price index for final demand fell 0.1% from July, in line with consensus expectations.

Compared to August last year, the PPI was up 8.7%, marking the lowest increase since then.

Excluding food and energy, the producer price index rose 0.4% in August and was 7.3% higher than a year earlier.

“While today's PPI report suggests inflation is decelerating in parts of the economy, broad-based increases in yesterday's CPI show that consumer inflation remains stubbornly persistent,” said Matthew Martin, US economist at Oxford Economics.

On London’s equity markets, Abrdn slumped 4.62% after a downgrade to ‘sell’ at Deutsche Bank, while budget airline easyJet descended 1.89% after a downgrade to ‘sell’ at Stifel.

Auto Trader Group was also in the red, losing 3.14% after a downgrade to ‘equalweight’ at Morgan Stanley.

Aston Martin Lagonda slid 2.26% after the Financial Times reported it was facing a lawsuit from two former dealers, claiming they were owed around £150m for underwriting the development of its Valkyrie hypercar.

C&C Group was 8.11% weaker after the Bulmers maker said it expected to deliver a 35% jump in first-half net revenues, but warned of a slowdown in on-trade momentum over the second quarter.

Croda International reversed earlier gains to be down 1.09% by the close, despite an upgrade to ‘buy’ at Jefferies.

Ocado Group tumbled for the second day in a row, falling 8.24% after warning on Tuesday of an expected fall in annual sales, as customers started to tighten their belts amid the cost-of-living crisis.

Its equal partner in the Ocado UK online grocery venture, Marks and Spencer Group, was 1.39% lower by the end of trading.

On the upside, homeware retailer Dunelm Group jumped 3.46% after it reported record full-year results in a "challenging" environment.

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk.

Market Movers

FTSE 100 (UKX) 7,277.30 -1.47%
FTSE 250 (MCX) 18,849.20 -1.66%
techMARK (TASX) 4,240.59 -1.70%

FTSE 100 - Risers

Scottish Mortgage Inv Trust (SMT) 826.80p 2.43%
Pershing Square Holdings Ltd NPV (PSH) 2,825.00p 1.99%
Haleon (HLN) 270.30p 1.39%
Harbour Energy (HBR) 496.90p 1.26%
Shell (SHEL) 2,341.00p 0.58%
Whitbread (WTB) 2,676.00p 0.49%
BP (BP.) 462.30p 0.16%
Standard Chartered (STAN) 612.40p 0.03%
NATWEST GROUP (NWG) 269.70p 0.00%
Burberry Group (BRBY) 1,772.00p -0.06%

FTSE 100 - Fallers

Ocado Group (OCDO) 623.40p -8.22%
Abrdn (ABDN) 142.30p -4.62%
Berkeley Group Holdings (The) (BKG) 3,479.00p -4.48%
Schroders (SDR) 2,546.00p -4.07%
Melrose Industries (MRO) 116.75p -3.99%
Rolls-Royce Holdings (RR.) 75.16p -3.97%
CRH (CDI) (CRH) 3,061.00p -3.79%
Severn Trent (SVT) 2,684.00p -3.66%
Antofagasta (ANTO) 1,166.00p -3.64%
WPP (WPP) 756.60p -3.57%

FTSE 250 - Risers

Network International Holdings (NETW) 292.20p 5.34%
Dunelm Group (DNLM) 749.50p 3.46%
Darktrace (DARK) 380.60p 2.95%
Tullow Oil (TLW) 50.80p 2.21%
Fidelity China Special Situations (FCSS) 240.50p 1.91%
Dr. Martens (DOCS) 260.00p 1.25%
CMC Markets (CMCX) 224.50p 1.13%
Wood Group (John) (WG.) 144.10p 1.12%
Foresight Solar Fund Limited (FSFL) 122.20p 0.99%
Apax Global Alpha Limited (APAX) 163.60p 0.99%

FTSE 250 - Fallers

C&C Group (CDI) (CCR) 160.90p -8.11%
JTC (JTC) 787.00p -6.75%
Future (FUTR) 1,698.00p -6.60%
Kainos Group (KNOS) 1,378.00p -6.26%
Wizz Air Holdings (WIZZ) 2,024.00p -5.99%
Vistry Group (VTY) 725.00p -5.91%
Mitie Group (MTO) 72.80p -5.82%
ITV (ITV) 62.72p -5.46%
Genuit Group (GEN) 330.50p -5.44%
Hochschild Mining (HOC) 59.25p -5.20%