London midday: FTSE extends gains as housebuilders rally on inflation data

London stocks had extended gains by midday on Wednesday, with housebuilders on the rise after data showed a bigger-than-expected decline in consumer price inflation, easing pressure on the Bank of England to keep hiking rates.

The FSTE 100 was up 1.6% at 7,571.06, while sterling was down 1% against the dollar at 1.2911.

A weaker pound tends to lift the top-flight index, as around 70% of its constituents derive their earnings from overseas.

Figures released earlier by the Office for National Statistics showed that consumer price inflation fell to 7.9% in the year to June from 8.7% in May. This was the lowest reading since March 2022 and below analysts’ expectations of 8.2%, but still well above the Bank's 2% target.

Meanwhile core inflation - which excludes energy, food, alcohol and tobacco - fell to 6.9% from 7.1%, versus expectations for it to remain unchanged.

Danni Hewson, head of financial analysis at AJ Bell, said: "The inflation reading has dampened the outlook for interest rate hikes in the UK, much to the excitement of investors. Two-year gilts fell from 5.079% to 4.842%, sterling fell 0.7% to $1.2937 in the space of 20 minutes and interest rate-sensitive stocks soared on the news.

"Investors are taking the view that if inflation is on a sustained downward path, then the Bank of England might be less eager to keep pushing up interest rates. The market is desperate for that pivot moment where central banks call the end to the current rate rise cycle.

"Without wanting to put a dampener on proceedings, we’ve had plenty of false dawns over the past year regarding the ‘pivot’ and analysing trends means looking at multiple data points over many months. Yes, inflation is now much lower than at the start of the year, but June’s 7.9% reading is still considerably higher than the Bank of England’s 2% target. That means further rate hikes cannot be ruled out.

"Nevertheless, stock markets are all about anticipating what will happen next. A further decline in inflation for July could really get the ball rolling for UK equities and lift them out of the mud."

Other figures released by the ONS showed that growth in house prices slowed in May.

The official house price index showed that prices rose by 1.9% in the 12 months to May, down from a revised 3.2% growth in April. The average price of a house was £286,000, up £6,000 on a year ago, but £7,000 below the recent peak in September 2022.

Data from the ONS also showed that private rental prices paid by tenants in the UK rose by 5.1% in the 12 months to June 2023, up from 5% in the 12 months to May. This marked the largest annual percentage change since this data series began in January 2016.

In equity markets, Persimmon, Barratt, Taylor Wimpey, Berkeley, Redrow and Crest Nicholson all jumped. Property stocks Land Securities, Derwent and Great Portland also gained.

Hewson said: "Housebuilders had been heavily sold off due to fears a sharp rise in interest rates would destabilise the housing market. While that’s certainly in motion, with plenty of people struggling with higher mortgage rates and a slowdown in property transactions, the valuations of housebuilders were effectively pricing in a deep rut.

"Today’s inflation news has spurred investors with an appetite for risk to go fishing for bargains in the space in the hope that property market won’t experience a severe collapse."

Hargreaves Lansdown was in the black after it reported a jump in fourth-quarter net new business and assets under administration.

Luxury car maker Aston Martin was boosted by an upgrade to ‘buy’ from ‘neutral’ at Goldman Sachs.

On the downside, Chilean copper miner Antofagasta fell as it cut its full-year copper production forecast.

Market Movers

FTSE 100 (UKX) 7,571.06 1.57%
FTSE 250 (MCX) 19,190.10 3.07%
techMARK (TASX) 4,456.42 2.05%

FTSE 100 - Risers

Persimmon (PSN) 1,174.00p 7.51%
Hargreaves Lansdown (HL.) 902.00p 7.36%
Land Securities Group (LAND) 652.20p 6.15%
Barratt Developments (BDEV) 449.70p 5.99%
SEGRO (SGRO) 787.60p 5.97%
Taylor Wimpey (TW.) 115.40p 5.97%
Admiral Group (ADM) 2,171.00p 4.32%
Rightmove (RMV) 564.40p 4.25%
Unite Group (UTG) 955.00p 4.14%
United Utilities Group (UU.) 992.00p 3.92%

FTSE 100 - Fallers

Antofagasta (ANTO) 1,462.50p -2.95%
Weir Group (WEIR) 1,790.50p -1.65%
Anglo American (AAL) 2,281.50p -1.28%
Rio Tinto (RIO) 5,071.00p -0.76%
Glencore (GLEN) 451.10p -0.64%
Ocado Group (OCDO) 688.00p -0.52%
WPP (WPP) 870.00p -0.43%
Centrica (CNA) 122.85p -0.41%
Fresnillo (FRES) 628.00p -0.10%
Prudential (PRU) 1,075.00p 0.00%

FTSE 250 - Risers

Crest Nicholson Holdings (CRST) 211.40p 9.08%
Future (FUTR) 850.50p 9.04%
Grainger (GRI) 249.80p 8.51%
Molten Ventures (GROW) 282.00p 8.46%
Redrow (RDW) 506.50p 8.41%
Great Portland Estates (GPE) 435.00p 7.99%
Derwent London (DLN) 2,204.00p 7.93%
British Land Company (BLND) 350.50p 7.91%
Watches of Switzerland Group (WOSG) 759.50p 7.73%
Warehouse Reit (WHR) 88.50p 7.27%

FTSE 250 - Fallers

Vanquis Banking Group 20 (VANQ) 183.00p -0.22%
Bakkavor Group (BAKK) 100.00p 0.00%
Network International Holdings (NETW) 385.80p 0.10%
Twentyfour Income Fund Limited Ord Red (TFIF) 97.00p 0.21%
CMC Markets (CMCX) 152.00p 0.40%
Dechra Pharmaceuticals (DPH) 3,718.00p 0.43%
Bank of Georgia Group (BGEO) 3,125.00p 0.48%
Petershill Partners (PHLL) 166.00p 0.48%
Me Group International (MEGP) 157.00p 0.51%
TBC Bank Group (TBCG) 2,495.00p 0.60%