London close: Footsie underperforms ahead of Fed as pound gains

The FTSE 100 finished 0.53% lower at 7,403.54 after the pound gained 0.52% against the US dollar to 1.2623, while trading 0.40% firmer versus the euro at 1.1263, amid speculation that Rory Stewart might yet give Boris Johnson a run for his money in the race to become the next leader of the Tory party.

Figures released earlier by the Office for National Statistics showed that consumer level inflation slowed a touch last month, led by a seasonal decline in air fares and a drop in new car prices, but some economists still saw scope for the Bank of England to hike interest rates before the year is out, providing a further tailwind for the pound.

Consumer price inflation fell to 2% in May from 2.1% in April, coming in as expected and matching the Bank of England's target. Meanwhile, core inflation declined to 1.7% from 1.8% the month before, but came in ahead of consensus expectations of 1.6%.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said CPI inflation was likely to fall below the BoE's 2% target over the coming months in response to the renewed fall in oil prices and the impending reduction in electricity and natural gas prices in October, but on his estimates, underlying services prices were not as weak as might at first appear to be the case.

"As interest rate changes only affect the economy with a lag and core goods prices aren’t falling like they did throughout the 2000s, the MPC won’t wait until underlying services inflation reaches its pre-crisis norm of 3.5% before raising Bank Rate again," Tombs said.

"As a result, May’s inflation data reinforce our expectation that the Committee will retain its hawkish bias in tomorrow’s meeting and will raise Bank Rate again towards the end of this year, provided a no-deal Brexit is averted."

With the UK inflation data out of the way, attention shifted to the latest policy announcement from the Federal Reserve, due after the close of London markets.

"The indices are hoping that Jerome Powell and his FOMC cronies will be just as dovish as Mario Draghi was on Tuesday morning, with many expecting the Fed to tee-up a July rate cut," said Spreadex analyst Connor Campbell. "However, the central bank’s decision is complicated by Donald Trump, specifically his trade war with China.

"The President is set to meet Xi Jinping for more talks at the G-20 meeting in Osaka next week, the outcome of which could be the key driver of what the Federal Reserve actually does in the coming months."

In equity markets, airlines were under the cosh after HSBC downgraded its stance on British Airways owner IAG and EasyJet following Lufthansa's profit warning earlier this week.

Just Eat slumped after a downgrade to 'neutral' from 'buy' at UBS, while Ted Baker was knocked lower by a downgrade to 'hold' at HSBC.

Housebuilder Berkeley Group finished a tad lower as it posted a 20.7% decline in full-year pre-tax profits to £775.2m.

Over-50s products specialist Saga saw its shares fall sharply as it said it was making good progress with its new fixed price motor insurance but cautioned that conditions in its travel and insurance markets are "challenging".

On the upside, Whitbread shook off earlier losses to trade up even as it said first quarter like-for-like revenue per available room at its Premier Inn division fell 6% as Brexit concerns and cost inflation continued to weigh. The food and hotel company, which last year sold the Costa coffee chain to Coca-Cola for £3.9bn, said total UK like-for-like sales were 3.7% lower.

CYBG advanced as the owner of the Yorkshire Bank and Clydesdale Bank announced that it will rebrand as Virgin Money by the end of 2021 and said it was targeting an additional £50m of annual net cost savings on top of existing £150m annual savings form the Virgin Money deal.

Construction and property group Kier was trading on the front foot, having taken a beating earlier in the month on the back of a profit warning.

Market Movers

FTSE 100 (UKX) 7,403.54 -0.53%
FTSE 250 (MCX) 19,245.46 -0.34%
techMARK (TASX) 3,632.52 -0.23%

FTSE 100 - Risers

Royal Bank of Scotland Group (RBS) 222.50p 3.49%
Smith (DS) (SMDS) 354.10p 2.58%
Melrose Industries (MRO) 174.65p 2.31%
NMC Health (NMC) 2,431.00p 2.10%
Lloyds Banking Group (LLOY) 59.20p 1.95%
Standard Life Aberdeen (SLA) 280.80p 1.37%
Flutter Entertainment (FLTR) 5,884.00p 1.37%
ITV (ITV) 109.05p 1.35%
Barclays (BARC) 153.22p 1.07%
Mondi (MNDI) 1,757.00p 1.04%

FTSE 100 - Fallers

Ocado Group (OCDO) 1,087.00p -5.64%
Rio Tinto (RIO) 4,649.00p -4.68%
Marks & Spencer Group (MKS) 212.10p -4.55%
Just Eat (JE.) 614.60p -3.70%
easyJet (EZJ) 867.80p -3.64%
Evraz (EVR) 675.80p -3.43%
International Consolidated Airlines Group SA (CDI) (IAG) 443.00p -3.17%
Hargreaves Lansdown (HL.) 1,859.00p -2.72%
Experian (EXPN) 2,381.00p -2.54%
Micro Focus International (MCRO) 1,988.60p -2.52%

FTSE 250 - Risers

CYBG (CYBG) 196.95p 6.20%
TI Fluid Systems (TIFS) 192.00p 4.35%
John Laing Group (JLG) 385.60p 3.54%
Euromoney Institutional Investor (ERM) 1,264.00p 2.76%
Cairn Energy (CNE) 156.80p 2.69%
Stobart Group Ltd. (STOB) 108.00p 2.66%
Capita (CPI) 104.50p 2.45%
Kier Group (KIE) 122.70p 2.34%
Renishaw (RSW) 3,904.00p 2.31%
BCA Marketplace (BCA) 194.60p 2.21%

FTSE 250 - Fallers

Saga (SAGA) 33.46p -11.01%
Ted Baker (TED) 815.00p -8.94%
Bakkavor Group (BAKK) 120.60p -5.78%
PZ Cussons (PZC) 206.00p -5.50%
Intu Properties (INTU) 82.44p -4.16%
Safestore Holdings (SAFE) 611.00p -3.93%
Metro Bank (MTRO) 530.00p -3.64%
Syncona Limited NPV (SYNC) 227.00p -3.40%
Diploma (DPLM) 1,579.00p -2.95%
Polypipe Group (PLP) 432.80p -2.92%