London midday: FTSE falls as retailers slip on deflation data

The FTSE 100 slipped lower by midday with London's blue-chip stocks losing their early momentum as retailers joined banks and housing stocks in dragging the index lower.

The FTSE 100 was down 1.6% and the 250 1.2% just after noon, with gains from gold miners Randgold Resources and Fresnillo counterbalanced by a lurch south from the big supermarket groups.

Tesco, Morrisons and Marks and Spencer moved lower after shop price data from BRC-Neilsen showed deflation decreased to -2% in June, raising the prospect of further erosion of profit margins.

For the wider market, Brexit jitters are the clear driver, said analysts.

"Equity markets are nursing losses this morning as traders revert to worrying about the fallout from Brexit," said Mike van Dulken, head of research at Accendo Markets.

"This after a trio of large UK property funds pulled down the shutters and suspended redemptions in the face of investor panic linked to concerns about a residential and commercial property market downturn - a self-fulfilling prophecy if you force them to sell property, n'est-ce pas? Banks are also suffering from a negative read-across and contagion-concerns linked to Italian banks being in trouble."

Sterling plumbed a new 31-year low versus the dollar, sinking below 1.2800 at one point in the early hours.

Overnight, US stock markets ended lower, dragged down by oil prices falling 4%, while Asian equities also mostly closed lower.

Looking ahead on Wednesday, outside the damning verdict of the long awaited Chilcot inquiry into the Iraq invasion that was dominating UK news headlines, there are meeting minutes due from the US Federal Reserve's rate setters, with traders looking into the finer details as they position themselves amid a general belief that interest rates will remain at their current level.

The FOMC minutes will show how the committee views the landscape for policy normalisation in light of June’s surprisingly weak US jobs report.

In company news, low cost airline easyJet reported a 5.8% jump in passengers for the month of June on Wednesday, with 6.94m customers taking to their orange jets, compared with 6.56m in June 2015. The FTSE 100 firm’s load factor for the month was 94.1%, up 1.4 percentage points from the 92.7% figure the same time last year.

Late on Tuesday, the government unveiled changes to the new Digital Economy Act that will scrap a law that could boost the coffers of public broadcasters such as the BBC, ITV, and Channel 5 by tens of millions of pounds a year. ITV was said to be poised to seek to charge Virgin Media to broadcast its flagship channel as a result.

Melrose Industries has agreed to acquire US air conditioning and security technology group Nortek for $1.44bn in cash, funded by a proposed £1.61bn issue of new shares. Due to the size of the deal, where the proposed offer price of $86 per share values Nortek's shares at $1.436bn (£1.1bn) and the entire enterprise including debt at $2.81bn million (£2.15bn), it will be classed as a reverse takeover and require the approval of FTSE 250-listed Melrose's shareholders. As well as the fundraising, Melrose, which said it had received "very supportive" noises from number of its institutional shareholders about the deal, proposed to fund the balance of the debt repayment through new debt of approximately $780m.

A High Court challenge by alternative network builder CityFibre has accused regulator Ofcom of making “ridiculous” policy decisions that will cement BT Group’s position in the broadband market as a “single, unassailable wholesale infrastructure provider”. The communications regulator, theTelegraph reported, is planning a major overhaul of the broadband market by allowing rival service providers such as Sky and Vodafone to connect their own equipment to the high-capacity fibre-optic lines inside BT’s Openreach network at controlled prices.