London close: Stocks slip as food inflation remains red-hot

London stocks closed in negative territory on Wednesday, after fresh data showed UK inflation falling less than expected last month.

Record-high food prices continued to mount, according to the ONS data, further raising expectations of potential interest rate hikes.

The FTSE 100 closed down 0.13% at 7,898.77, while the FTSE 250 ended the session 0.49% weaker at 19,200.85.

Sterling meanwhile strengthened against both the dollar and the euro, last rising 0.11% on the former to trade at $1.2439, while it advanced 0.28% against the latter to change hands at €1.1355.

“Short-term US yields have been on the up for about a week, but stocks are only really noticing now,” said IG chief market analyst Chris Beauchamp.

“After a reasonable start to earnings season we have seen a more cautious mood creep in, which is understandable given the fears about a recession happening within the next year.

“Losses have been relatively contained however, with stocks caught more in a period of indecision rather than heading into another big sell-off.”

UK inflation falls less than forecast, house price growth slows

In economic news, official data released earlier revealed that UK inflation fell by less than expected last month, while record-high food prices continued to mount.

According to the Office for National Statistics (ONS), the consumer price index (CPI) rose 10.1% in the year to March, down from February's 10.4%, but still higher than economists' expectations for a 9.8% print.

It marked the seventh successive month that headline CPI remained in double figures.

The monthly CPI rise was 0.8%, compared to a 1.1% increase in February, with motor fuels and heating oil prices making the largest downward contributions.

However, food prices were a significant weight on the index, hitting a fresh 45-year high of 19.2% in March, up from February's 18.2%.

The core CPI including owner-occupier housing costs (CPIH) rose 5.7% in the 12 months to March, unchanged from February.

Core CPI itself was 6.2%, also higher than the expected 6.0%.

“While the Bank of England may have been the first of the main central banks to start hiking rates at the end of 2021, their timidity in pushing rates higher since then appears to have created a situation that has meant inflation is likely to remain higher for longer,” said Michael Hewson, chief market analyst at CMC Markets UK.

“Andrew Bailey has said on several occasions that the Monetary Policy Committee expects inflation to cool and that the country needs to be careful about a wage-price spiral.

“This comes across as somewhat tone deaf when inflation is average over 10% a month and wages have lagged CPI since October 2021.”

Separate ONS data meanwhile showed that UK house price growth slowed for the third consecutive month in February.

Average UK house prices increased 5.5% in the 12 months to February, down from January's upwardly-revised growth of 6.5%.

However, the figure exceeded consensus, which predicted 5.1% growth.

The average cost of a house was now £288,000, up £16,000 from February last year, but £5,000 lower than November's recent peak.

On a non-seasonally adjusted basis, average UK house prices fell 1% in February, compared to a 0.6% decline in March, and on a seasonally-adjusted basis, they fell 0.3%.

London showed the lowest annual growth, with prices up by 2.9%, while the West Midlands had the highest, with growth of 8.6%.

“The downturn in the housing market was in full swing in February, due to the surge in mortgage costs,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.

“Timely measures suggest the downturn has continued since February - Nationwide’s measure of house prices, for instance, fell by a further 0.8% month-to-month in March.

“Looking ahead we continue to think that real disposable incomes will start to recover in the second quarter, supported at first by a pick-up in benefit payments and then, in the third quarter, by a sharp fall in energy prices.”

In the eurozone, inflation fell sharply in line with expectations in March to 6.9% from 8.5%, driven by a drop in energy prices.

However, core inflation, which excludes components like energy, food, alcohol, and tobacco, rose by 0.1% to 5.7%, posing challenges for policymakers at the European Central Bank.

Meanwhile Eurostat reported that seasonally-adjusted production in the construction sector increased 2.3% in February in the eurozone, and by 2.0% across the wider European Union.

However, the growth was slower than January's, when production in the sector increased by a downwardly-revised 3.8% in the eurozone and by 3.3% in the 27-member bloc.

Year-on-year, construction output rose by 2.3% and 2.1% in the eurozone and the EU, respectively.

Tobacco producers lead the way with miners on the back foot

On London’s equity markets, tobacco companies were among the top gainers, with British American Tobacco up 3.37% and Imperial Brands climbing 1.02%.

In a statement released ahead of its annual general meeting earlier, BAT said it expected full-year constant-currency organic group revenue growth excluding Russia and Belarus to be between 3% and 5%.

It forecast mid-single-figure growth in earnings per share on a constant currency-adjusted diluted earnings per share basis.

"Given the macro-economic outlook, and in line with our February 2023 guidance, we expect our performance, on an organic basis , to be second half weighted," BAT said.

Commercial vehicle rental provider Redde Northgate meanwhile jumped 4.25% after announcing that full-year adjusted pre-tax profit was likely to exceed market consensus, and be at the top end of the range of expectations following recent strong trading.

Shares in Hunting, a provider of drilling tools and services, added 0.41% after it reported a strong start to the year, with first-quarter earnings coming in ahead of expectations.

Transport operator National Express Group gained 4.42% after reporting a rise in first-quarter revenues, driven by an improvement in UK buses and German rail.

Multi-asset financial technology company Plus500 was 1.59% firmer after it reported strong trading, with revenue of $207.9m, a 64% increase from the fourth quarter of 2022, and EBITDA of $100.9m, a 116% improvement.

Just Eat Takeaway managed to reverse earlier losses to close up 0.14% after it lifted its guidance for full-year core profit, despite posting a decline in first-quarter orders.

On the downside, precious metals miner Fresnillo declined 1.22% as gold prices fell, while miners Antofagasta, Anglo American, and Rio Tinto Group were all lower following a strong session on Tuesday.

Antofagasta was in particular focus after it held its annual production guidance despite a quarter-on-quarter decline in copper and gold output.

Copper production fell 25.4% compared to the final three months of 2022 to 145,900 tonnes, in line with guidance, and 5.1% higher year-on-year.

Elsewhere, Kainos Group was off 8.01% despite saying that results for the year ended 31 March were set to be in line with current consensus forecasts.

Similarly, Liontrust Asset Management closed down 6.9%, despite reporting that annual profits were on course to come in ahead of expectations.

Reporting by Josh White for Sharecast.com.