London open: Stocks fall as sterling rallies on inflation data
London stocks fell in early trade on Wednesday as sterling rallied after UK inflation hit its highest level in nearly three years, increasing pressure on the Bank of England to tighten monetary policy.
At 0835 BST, the FTSE 100 was down 0.4% at 7,094.76, while the pound was up 0.3% against the dollar at 1.3848 as data from the Office for National Statistics showed consumer price inflation rose to 2.5% in June from 2.1% in May, coming in above the BoE's 2% target for the second month in a row. It was also above consensus expectations of 2.2%.
The ONS said prices for food, second-hand cars, clothing and footwear, eating and drinking out, and motor fuel rose in 2021 but mostly fell in 2020, resulting in the largest upward contributions to the change in the 12-month inflation rate between May and June 2021.
Core inflation - which strips out food, energy, alcohol and tobacco - came in at 2.3% in June compared to 2.0% the month before.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "The creeping UK headline inflation rate is likely add to the sense of unease pervading the financial markets about the impact higher prices will have on economies around the world, as concerns about new Covid variants also rise. The FTSE 100 opened lower amid expectations central bank mass stimulus programmes may start to be eased more quickly, even though the recovery remains fragile.
"Although, for the moment, central banks are largely keeping their cool, appearing confident the spectre of lingering inflation will disappear, there are increasing signs of nervousness among investors, especially as readings in other countries also show price spikes.
"Also playing on minds are surging Covid infection rates due to the spread of the delta variant and how these could slow the economic recovery. This raises the unpalatable possibility that stagflation could take hold, where there is a drag on economic growth and knock on higher unemployment, amid the headache of rising prices."
In equity markets, homewares retailer Dunelm fell even as it said annual profits would be ahead of forecasts as fourth-quarter sales more than doubled driven by pent-up demand after stores reopened from Covid lockdown.
Budget airline easyJet was knocked lower by a downgrade to ‘neutral’ at Davy, while British Airways and Iberia parent IAG was weaker after a downgrade to ‘market perform’ at Raymond James.
Travel-related stocks more generally were under the cosh, however, amid ongoing concerns about Covid, with engine maker Rolls-Royce and travel company Tui both in the red. Leisure and hospitality shares were also down, with Cineworld and Restaurant Group lower.
On the upside, banks were the top performers, with NatWest, Lloyds, Barclays and Standard Chartered all up.
Industrial thread maker Coats Group rallied as it upgraded its full-year expectations following a "strong" first half.
Barratt Developments ticked higher after the housebuilder lifted annual profit forecasts on the back of strong demand.
Market Movers
FTSE 100 (UKX) 7,094.76 -0.42%
FTSE 250 (MCX) 22,827.98 -0.43%
techMARK (TASX) 4,448.96 -0.70%
FTSE 100 - Risers
NATWEST GROUP PLC ORD 100P (NWG) 205.90p 2.23%
Lloyds Banking Group (LLOY) 47.28p 1.13%
Barclays (BARC) 171.00p 0.59%
BT Group (BT.A) 188.20p 0.59%
Barratt Developments (BDEV) 700.60p 0.55%
Evraz (EVR) 607.40p 0.50%
Admiral Group (ADM) 3,265.00p 0.43%
Standard Chartered (STAN) 450.30p 0.36%
Glencore (GLEN) 314.65p 0.29%
Royal Dutch Shell 'B' (RDSB) 1,420.80p 0.24%
FTSE 100 - Fallers
Rolls-Royce Holdings (RR.) 90.90p -2.89%
International Consolidated Airlines Group SA (CDI) (IAG) 169.68p -1.93%
Johnson Matthey (JMAT) 3,112.00p -1.77%
Experian (EXPN) 2,981.00p -1.39%
Hargreaves Lansdown (HL.) 1,654.50p -1.34%
British American Tobacco (BATS) 2,747.50p -1.24%
Just Eat Takeaway.Com N.V. (CDI) (JET) 6,463.00p -1.22%
Land Securities Group (LAND) 679.20p -1.22%
Imperial Brands (IMB) 1,574.00p -1.13%
JD Sports Fashion (JD.) 919.00p -1.12%
FTSE 250 - Risers
Coats Group (COA) 69.20p 2.06%
Countryside Properties (CSP) 513.00p 1.58%
Hilton Food Group (HFG) 1,120.00p 1.27%
Virgin Money UK (VMUK) 190.65p 1.11%
Biffa (BIFF) 332.00p 0.91%
Tullow Oil (TLW) 51.66p 0.86%
Close Brothers Group (CBG) 1,550.00p 0.85%
Auction Technology Group (ATG) 1,320.00p 0.61%
RIT Capital Partners (RCP) 2,520.00p 0.60%
Diversified Energy Company (DEC) 103.00p 0.59%
FTSE 250 - Fallers
Cineworld Group (CINE) 65.14p -4.57%
TUI AG Reg Shs (DI) (TUI) 331.50p -4.25%
Bytes Technology Group (BYIT) 430.00p -3.72%
SSP Group (SSPG) 257.70p -2.53%
Restaurant Group (RTN) 116.20p -2.35%
Allianz Technology Trust (ATT) 297.50p -2.14%
Micro Focus International (MCRO) 408.90p -1.94%
Derwent London (DLN) 3,422.00p -1.78%
easyJet (EZJ) 864.00p -1.57%
CLS Holdings (CLI) 251.00p -1.57%