London close: Stocks rise as UK inflation holds steady

London markets ended the day on a positive note on Wednesday as housebuilders rallied, following data indicating that UK inflation remained steady in January.

That stability in price rises could alleviate pressure on the Bank of England to maintain higher interest rates for an extended period.

The FTSE 100 closed up 0.75% at 7,568.40 points, while the FTSE 250 experienced gains of 0.42% to reach 19,003.89.

In currency markets, sterling was last down 0.29% on the dollar to trade at $1.2555, while it dropped 0.49% against the euro, changing hands at €1.1702.

“The past 24 hours have been full of surprises, and this morning’s UK inflation data certainly caught markets on the hop,” said IG chief market analyst Chris Beauchamp.

“Rapid deceleration in price growth has hit the pound hard, as it seems a Bank of England rate cut has become a much more likely event in the first half of the year.

“This has helped the FTSE 100 to outperform other indices today, though of course it lags far behind on a longer-term view.”

Beauchamp added that markets seemed to have avoided a second day of heavy losses after Tuesday’s US inflation surprise.

“Dip buyers have come in following yesterday’s drop in the wake of US inflation data, mounting a holding action that is preventing any further downside for the time being.

“Bullish hopes rest in the view that the Fed is unlikely to shift position after one reading. Investors are also looking back to the CPI reading a year ago, which also spooked markets but ultimately failed to stop the upward move in equities.”

Inflation holds steady in January, UK house prices slip

In economic news, inflation in the UK held steady in January according to fresh official data, surprising analysts with a narrow deviation from forecasts.

The Office for National Statistics reported that the consumer price index (CPI) remained unchanged at 4% for the 12 months through January, matching December's figures.

Analysts had anticipated a slight uptick to 4.2%.

Notably, food prices experienced a decline for the first time in over two years, while furniture and household goods prices also decreased.

However, that was partially offset by increased gas and electricity charges, as well as higher second-hand car prices, marking their first rise since May.

On a monthly basis, the CPI eased by 0.6%.

Including owner occupiers’ housing costs, inflation maintained at 4.2%, mirroring December's rates.

Core inflation, excluding the more volatile elements of food, alcohol, and energy, remained stable at 5.1%.

“The slowing trend in consumer price rises remains intact, despite the stable headline rate of CPI inflation in January,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“As expected, the contribution from electricity and natural gas prices to the headline rate increased, driven by an increase in Ofgem’s price cap, which will be short-lived.

“By contrast, food CPI inflation dropped to 6.9% from 8% in December.”

Meanwhile, official data revealed on Wednesday that UK house prices declined in December, although the pace of decline notably slowed.

According to provisional estimates from the ONS, house prices dropped by 1.4% at the end of 2023, compared to a revised 2.3% decline in November.

On a seasonally-adjusted basis, prices saw a month-on-month increase of 0.3%.

The average UK house price stood at £285,000, down £4,000 from December 2022.

Factors such as higher interest rates, the cost of living crisis, and a surge in mortgage rates following then-prime minister Liz Truss’s controversial mini-budget have heavily impacted the UK housing market.

However, with inflation now at 4%, most analysts anticipate the Bank of England to initiate rate cuts later this year, potentially aiding the market as mortgage rates also start to decline.

“The official measure probably will tick down over the next couple of months, despite the recent rollover in mortgage rates, as it is based on completed sales financed with mortgages that were arranged several months beforehand,” said Gabriella Dickens, senior UK economist at Pantheon.

“We continue to expect a 5% peak-to-trough fall, though the risks appear to be skewed towards a smaller decline.

“Further ahead, we expect the official measure to follow the Nationwide measure and start to rebound as the fall in mortgage rates and recovery in real incomes boosts affordability.”

On the continent, eurozone GDP growth stagnated in the final quarter of 2023, narrowly avoiding a technical recession, according to Eurostat.

The data indicated a 0% growth in the final quarter, aligning with the earlier flash reading, while also confirming a 0.1% decline in the prior three months.

Notably, Germany - the largest economy in Europe - contracted by 0.3% in the final quarter, while France's output remained stagnant.

Conversely, Italy recorded 0.2% growth, Spain saw a 0.6% increase, and Portugal posted a 0.8% reading.

Additionally, fresh data indicated unexpected growth in eurozone manufacturing in December, suggesting a revival of industrial output alongside stable employment growth.

Industrial production within the common currency area jumped 2.6% month-on-month, surpassing the anticipated 0.2% decline, following a revised 0.4% increase in November.

Moreover, the year-on-year rate rebounded to 1.2%, from November's decline of 5.4%.

At the same time, eurozone employment experienced a 0.3% quarter-on-quarter increase in the fourth quarter of 2023, maintaining the year-on-year growth rate at 1.3%, following a 0.2% rise in the third quarter.

Housebuilders rise, TUI tumbles as it leaves London

On London’s equity markets, housebuilders were among the risers, with Persimmon up 3.77%, Taylor Wimpey ahead 2.25%, and Barratt Developments rising 2.06%.

Building materials suppliers also saw positive movement, with Marshalls and Grafton Group posting gains of 2.03% and 1.87%, respectively.

Coca-Cola HBC emerged as a standout gainer, jumping 7.98% after it reported record profits for the previous year, driven by robust sales and volumes for sparkling drinks and coffee, combined with eased costs in the second half.

On the downside, furniture and homewares retailer Dunelm Group declined 2.58%, despite announcing a rise in interim profits and sales along with an increased dividend and a special payout.

Water companies United Utilities Group and Severn Trent also found themselves in the red, with decreases of 0.63% and 0.06%, respectively, following trading updates.

TUI shares plummeted 6.32% as shareholders bid farewell to the travel giant's London listing, dealing another blow to the City's reputation as a hub for major firms.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,568.40 0.75%
FTSE 250 (MCX) 19,003.89 0.42%
techMARK (TASX) 4,380.93 0.93%

FTSE 100 - Risers

Coca-Cola HBC AG (CDI) (CCH) 2,382.00p 7.98%
Persimmon (PSN) 1,403.50p 3.08%
Frasers Group (FRAS) 829.00p 2.85%
Rentokil Initial (RTO) 407.50p 2.83%
JD Sports Fashion (JD.) 108.25p 2.66%
Ocado Group (OCDO) 532.80p 2.54%
BT Group (BT.A) 104.80p 2.44%
Melrose Industries (MRO) 602.20p 2.28%
NATWEST GROUP (NWG) 209.00p 2.25%
Convatec Group (CTEC) 239.80p 2.22%

FTSE 100 - Fallers

Entain (ENT) 933.40p -4.15%
Fresnillo (FRES) 466.50p -1.12%
Endeavour Mining (EDV) 1,269.00p -1.01%
Centrica (CNA) 134.40p -0.85%
BP (BP.) 476.50p -0.68%
Haleon (HLN) 316.20p -0.53%
Anglo American (AAL) 1,747.20p -0.50%
British American Tobacco (BATS) 2,399.00p -0.39%
Reckitt Benckiser Group (RKT) 5,692.00p -0.35%
Beazley (BEZ) 575.00p -0.35%

FTSE 250 - Risers

Domino's Pizza Group (DOM) 360.20p 3.27%
Trustpilot Group (TRST) 192.60p 2.99%
Softcat (SCT) 1,523.00p 2.70%
Dr. Martens (DOCS) 89.90p 2.63%
UK Commercial Property Reit Limited (UKCM) 65.20p 2.52%
Auction Technology Group (ATG) 578.00p 2.48%
Babcock International Group (BAB) 465.60p 2.28%
Moonpig Group (MOON) 156.70p 2.22%
Harbour Energy (HBR) 264.20p 2.21%
Hargreaves Lansdown (HL.) 830.80p 2.19%

FTSE 250 - Fallers

TUI AG Reg Shs (DI) (TUI) 548.50p -6.31%
Ferrexpo (FXPO) 83.95p -3.51%
Spirent Communications (SPT) 113.80p -3.48%
Dunelm Group (DNLM) 1,057.00p -2.58%
Bytes Technology Group (BYIT) 629.00p -2.10%
TP Icap Group (TCAP) 175.40p -2.01%
Target Healthcare Reit Ltd (THRL) 78.60p -1.90%
PZ Cussons (PZC) 100.00p -1.77%
Darktrace (DARK) 346.10p -1.74%
Foresight Solar Fund Limited (FSFL) 86.00p -1.60%