London midday: Stocks tick higher, pound regains 1.27 as inflation surges

London stocks were holding onto small gains by midday on Tuesday, while sterling popped above 1.27 against the dollar as inflation climbed to a near four-year high.

The FTSE 100 was up 0.1% to 7,515.77, while the pound was up 0.5% against the euro and the dollar at 1.1358 and 1.2731, respectively.

Sterling recovered from its post-election slump after data from the Office for National Statistics showed UK inflation surged faster than expected to a new four-year high in May, highlighting the increasing squeeze on households as prices rise faster than wages.

The consumer price index was up 2.9% year-on-year in May, the highest level since June 2013 and up from 2.7% in April. Inflation in May was well above than the 2.4% last recorded rate of wage growth and higher the market was expecting, with a consensus forecast from economists of 2.7% and 2.6% from the Bank of England.

On a monthly basis, CPI rose 0.3% in May, down from the 0.5% rise a month before but greater than the 0.2% increase economists had forecast. Although fuel prices eased, this was offset by rises in prices for computer games and package holidays in particular.

While the Bank of England remains concerned by inflation, with the rate-setting Monetary Policy Committee meeting this week, the central bank is intent on "looking through" this spike in prices, with the increased political uncertainty giving even less of a chance of an interest rate rise soon.

CPIH, the ONS's preferred new measure of inflation as it includes owner-occupiers' housing costs, rose by a slightly higher than expected 0.3% month-on-month but remained at 2.6% compared to the same month last year, as expected.

Core CPI, which excludes more volatile prices such as food and fuel, rose to a yearly 2.6% from 2.4% the prior month, where it was forecast to remain.

Sterling had been under the cosh on Monday as investors continued to assess the implications of a hung parliament on the UK economy. Prime Minister Theresa May addressed her party's backbench 1922 Committee, apologising for "getting us into this mess" but also pledging to "get us out of it" and to serve as "long as you want me to do it".

On Tuesday, market participants were mulling over reports that Labour and Tory MPs have met for secret talks to secure cross-party backing for a soft Brexit. According to The Telegraph, some of the most senior members of May's team have been discussing ways to force the PM to make concessions on immigration, the customs union and the single market.

May is due to meet for talks with Democratic Unionist Party leader Arlene Foster later on in the day in the hope that her party will back the PM's minority government, but requiring the Tories to drop policies such as removing the triple lock guarantee for pensioners and means tests for winter fuel payments.

Tuesday also marks the first day of the Federal Reserve's two-day interest rate setting meeting, which is expected to yield the second rate hike this year when the central bank makes its announcement on Wednesday.

Stocks on the move

In corporate news, London Stock Exchange was the standout gainer as it benefited from the European Commission draft on clearing, which was not as bad as feared. LSE was also lifted by target price increases at RBC Capital Markets and Credit Suisse.

Advertising giant WPP was boosted by an initiation at 'buy' from UBS, while Legal & General gained after saying it has had a strong start to the year.

Petrofac gushed higher after it secured a $35m contract with Kuwait Oil Company, while Acacia Mining was in the black as the gold miner confirmed that it is continuing to operate all three of its mines in Tanzania, after the government accused it of operating illegally and avoiding tax by under-declaring its gold exports.

Outsourcer Capita surged after it reported "good progress" on its restructuring and said the turnaround of IT Services was progressing better than expected, three months after its chief executive resigned and the outsourcing group was dumped out of the FTSE 100.

Fashion retailer Ted Baker rallied after it posted a 14.2% rise in revenue for the 19 weeks to 10 June and housebuilder Crest Nicholson nudged up after reporting a rise in profit and revenue for the half year.

Merlin Entertainments was on the back foot after it warned over the impact of the UK terror attacks and 3i was hit by a downgrade at Morgan Stanley.

Telecom Plus slumped as its full-year pre-tax profit came in below consensus expectations.

Market Movers

FTSE 100 (UKX) 7,515.77 0.05%
FTSE 250 (MCX) 19,803.12 0.61%
techMARK (TASX) 3,575.30 0.07%

FTSE 100 - Risers

London Stock Exchange Group (LSE) 3,545.00p 4.30%
Smurfit Kappa Group (SKG) 2,327.00p 2.15%
International Consolidated Airlines Group SA (CDI) (IAG) 601.00p 2.12%
Convatec Group (CTEC) 320.80p 2.00%
Royal Bank of Scotland Group (RBS) 254.90p 1.92%
TUI AG Reg Shs (DI) (TUI) 1,162.00p 1.75%
easyJet (EZJ) 1,347.00p 1.66%
Paddy Power Betfair (PPB) 8,495.00p 1.55%
Sainsbury (J) (SBRY) 269.10p 1.55%
Hargreaves Lansdown (HL.) 1,392.00p 1.38%

FTSE 100 - Fallers

3i Group (III) 899.50p -3.12%
Merlin Entertainments (MERL) 490.00p -2.58%
Imperial Brands (IMB) 3,524.50p -1.80%
Centrica (CNA) 198.10p -1.25%
BAE Systems (BA.) 659.00p -1.20%
Randgold Resources Ltd. (RRS) 7,380.00p -1.01%
Antofagasta (ANTO) 803.00p -0.99%
Rolls-Royce Holdings (RR.) 883.50p -0.95%
Rio Tinto (RIO) 3,216.50p -0.91%
Unilever (ULVR) 4,270.50p -0.70%

FTSE 250 - Risers

Capita (CPI) 623.50p 13.26%
Kennedy Wilson Europe Real Estate (KWE) 1,128.00p 9.51%
Petrofac Ltd. (PFC) 400.20p 4.82%
Acacia Mining (ACA) 269.90p 3.41%
Unite Group (UTG) 670.00p 3.16%
AO World (AO.) 127.00p 2.75%
Assura (AGR) 61.80p 2.74%
Sophos Group (SOPH) 435.10p 2.69%
Hunting (HTG) 511.50p 2.57%
Workspace Group (WKP) 938.50p 2.40%

FTSE 250 - Fallers

Telecom Plus (TEP) 1,224.00p -5.99%
CLS Holdings (CLI) 192.70p -3.41%
Daejan Holdings (DJAN) 6,270.00p -1.57%
Centamin (DI) (CEY) 173.60p -1.36%
Greencore Group (GNC) 239.30p -1.28%
AA (AA.) 220.90p -0.99%
IP Group (IPO) 133.80p -0.96%
Clarkson (CKN) 2,562.00p -0.93%
Evraz (EVR) 193.80p -0.87%
Kaz Minerals (KAZ) 526.00p -0.85%