London midday: Stocks down as inflation data dents rate cut hopes

London stocks were off earlier lows but still in the red by midday on Wednesday as data showed that inflation fell less than expected in April, dashing hopes of a summer rate cut.

The FTSE 100 was down 0.3% at 8,394.43.

Figures released earlier by the Office for National Statistics showed that consumer price inflation fell in April to its lowest level in more than three years as energy costs declined.

Consumer price inflation dropped to 2.3% from 3.2% the month before, hitting its lowest level since July 2021 and edging closer to the Bank of England’s 2% target. However, it was above the 2.1% expected.

The easing reflected large downward effects from gas and electricity after Ofgem lowered the energy price cap in April. Ofgem estimated that for an average household paying by direct debit for dual fuel, this equated to £1,690, a fall of £238 over the course of a year.

The data showed that food prices slowed to the lowest annual rate since November 2021. Prices of food and non-alcoholic beverages rose by 2.9% in the year to April, down from 4% in March. The rate has eased for the 13th consecutive month from a recent peak of 19.2% in March 2023, the highest annual rate seen for over 45 years.

However, services inflation printed at 5.9%, down from 6% in March but higher than the 5.4% expected and above the Bank of England’s forecast of 5.5%.

Core inflation - which excludes energy and food prices - fell to 3.9% from 4.2%, but was above the 3.6% forecast.

Russ Mould, investment director at AJ Bell, said: "A slower-than-expected drop in the rate of UK inflation has spooked the market, pushing back the likely point at which the Bank of England will cut interest rates. Naturally, that led to a sudden jump in sterling and gilt yields and pulled down the FTSE 100.

"Add that situation to investor gloom earlier this week over when the Fed might cut rates in the US and you’ve got one grumpy market on your hands.

"The prospect of rates staying higher for longer in the UK cast dark clouds over companies linked to the property sector, pouring cold water on the idea that mortgages would soon become more affordable. Taylor Wimpey led a sell-off in housebuilders.

"While higher rates might keep some people priced out of the property market and hurt demand for mortgages, it could lead to banks charging more for other types of loans, going some way to explain why the likes of Lloyds and NatWest were among the top FTSE 100 risers."

Separate figures from the ONS showed the government borrowed £20.5bn in April - the fourth highest borrowing for that month since records began in 1993.

Borrowing in April was up £1.5bn on the same month a year earlier and £1.2bn above the Office for Budget Responsibility’s £19.3bn forecast.

In equity markets, housebuilders were among the worst performers as rate cut expectations were pushed back, with Persimmon, Taylor Wimpey and Bellway all weaker.

SSE lost ground as it posted a decline in full-year operating profit.

RS Group tumbled as it said annual profits dropped by a quarter. The industrial and electrical products provider - formerly Electrocomponents - pinned the blame on weakness in global industrial production and the unwinding of unusual post-pandemic trading tailwinds.

Adjusted operating profit slumped by 25% on a like-for-like basis to £312m in the 12 months to 31 March, as LFL revenues fell 8% to £2.94bn and the adjusted operating profit margin fell to 10.6% from 13.5%.

On the upside, Marks & Spencer surged as it reinstated its dividend and posted a jump in full-year sales and profits as the retailer’s turnaround efforts bore fruit.

Pub group Mitchells & Butlers also rallied after saying that full-year results were set to be at the top end of consensus expectations as it reported a rise in first-half profit.

Market Movers

FTSE 100 (UKX) 8,394.43 -0.26%
FTSE 250 (MCX) 20,761.99 -0.10%
techMARK (TASX) 4,857.47 -0.01%

FTSE 100 - Risers

Marks & Spencer Group (MKS) 291.60p 6.50%
Severn Trent (SVT) 2,669.00p 2.14%
Auto Trader Group (AUTO) 741.00p 1.98%
B&M European Value Retail S.A. (DI) (BME) 551.00p 1.81%
Lloyds Banking Group (LLOY) 57.10p 1.64%
NATWEST GROUP (NWG) 320.20p 1.62%
Admiral Group (ADM) 2,775.00p 1.54%
Airtel Africa (AAF) 121.20p 1.34%
Weir Group (WEIR) 2,196.00p 1.29%
Convatec Group (CTEC) 255.00p 1.27%

FTSE 100 - Fallers

St James's Place (STJ) 459.80p -3.81%
Persimmon (PSN) 1,419.00p -2.47%
Antofagasta (ANTO) 2,355.00p -2.28%
3i Group (III) 2,902.00p -1.96%
Burberry Group (BRBY) 1,041.00p -1.84%
Glencore (GLEN) 490.80p -1.82%
Kingfisher (KGF) 259.60p -1.82%
Legal & General Group (LGEN) 248.40p -1.58%
Fresnillo (FRES) 622.00p -1.58%
Taylor Wimpey (TW.) 144.85p -1.43%

FTSE 250 - Risers

Mitchells & Butlers (MAB) 300.50p 12.97%
IntegraFin Holding (IHP) 346.50p 11.06%
Spire Healthcare Group (SPI) 268.50p 3.87%
Coats Group (COA) 88.90p 3.01%
British Land Company (BLND) 405.80p 2.79%
Patria Private Equity Trust (PPET) 564.00p 2.55%
Trustpilot Group (TRST) 224.00p 2.28%
Auction Technology Group (ATG) 630.00p 2.27%
Bytes Technology Group (BYIT) 563.50p 2.08%
Baltic Classifieds Group (BCG) 243.00p 1.89%

FTSE 250 - Fallers

Close Brothers Group (CBG) 472.80p -3.71%
Watches of Switzerland Group (WOSG) 401.00p -3.47%
Assura (AGR) 40.90p -3.22%
4Imprint Group (FOUR) 6,020.00p -2.75%
Bellway (BWY) 2,674.00p -2.69%
Wood Group (John) (WG.) 179.90p -2.28%
Pets at Home Group (PETS) 294.20p -2.13%
Marshalls (MSLH) 322.50p -2.12%
Ferrexpo (FXPO) 45.25p -2.06%
Victrex plc (VCT) 1,326.00p -1.78%