Stronger than expected UK wage growth data sparked worry over the Bank of England’s next move, driving stock prices in London lower at midday on Tuesday.
Investors will now be eyeing Wednesday’s inflation reading for July and what this might mean for interest rates.
The FTSE 100 index was down 111.39 points, 1.5%, at 7,395.76. The FTSE 250 was down 119.24 points, 0.6%, at 18,642.19, and the AIM All-Share was down 3.74 points, 0.5%, at 751.22.
The Cboe UK 100 was down 1.4% at 737.43, the Cboe UK 250 was down 0.7% at 16,364.56, and the Cboe Small Companies was down 0.1% at 13,597.24.
According to the Office for National Statistics, the UK unemployment rose unexpectedly in the three months to June, while at the same time wage inflation accelerated more quickly than expected.
The UK jobless rate rose to 4.2% in the three months to June. Market consensus, as cited by FXStreet, had expected it to remain unchanged from 4.0% in the three months to May.
Also in the three months to June, annual growth in average total pay, including bonuses, accelerated to 8.2% from the upwardly revised figure of 7.2% in the previous three-month period. June’s figures overshot FXStreet-cited consensus of 7.3%.
The ONS noted that this total growth rate is affected by the NHS one-off bonus payments made in June 2023.
‘The question for the Bank of England is how much pressure will remain on companies to offer inflation busting settlements and how will employees react to their change in fortunes,’ said Danni Hewson, head of financial analysis at AJ Bell.
‘Most people have been left badly bruised by the impact of increased costs for life’s necessities like power and food. Even if inflation is falling and wage increases are finally making a material difference, prices are still historically high and in the most part show no signs of falling any time soon.’
The pound jumped back above the $1.27 mark shortly after the reading. This suggests the market believes the Bank of England will be troubled by the rising wages, and more likely to continue hiking interest rates.
The pound was quoted at $1.2708 at midday on Tuesday in London, higher compared to $1.2690 at the equities close on Monday. The euro stood at $1.0934, up against $1.0918. Against the yen, the dollar was trading at JP¥145.62, up compared to JP¥145.31.
On Wednesday, UK inflation figures will be released. This will give more of an indication of what the Bank of England’s next move could be.
UK consumer prices are expected to slow down to 6.8% in July annually, from 7.9% a month earlier.
On Tuesday, survey data from Kantar showed that grocery price inflation in the UK cooled by just over two percentage points to 12.7% in the four weeks that ended August 6. This marks the second sharpest slowdown in price in 15 years, with staples such as milk and vegetable oil seeing price cuts.
Amongst supermarkets, losing ground was Ocado Retail, an online grocery joint venture between Ocado Group and Marks & Spencer Group. With just 1.4% annual sales growth, Ocado’s market share slipped to 1.7% from 1.8%.
Ocado shares lost 1.8% on the back of this.
Meanwhile, M&S was up 6.7%, having separately said on Tuesday it now expects profit growth in its full financial year and interim results to show ‘significant’ improvement over previous expectations.
The London-based clothing, homewares and food retailer said it has seen ‘continued market share growth’ in Clothing & Home as well as Food in the first 19 weeks of its financial year.
In the FTSE 100, Legal & General lost 3.4%.
For the first half of 2023, the London-based financial services and asset management company pretax profit was £324 million, down 53% from £697 million a year before. This was largely due to around £617 million in investment losses, widened from £261 million.
L&G raised its dividend to 5.71 pence, up 5.0% from 5.44p a year before, and said it intends to grow the dividend at 5% each year to 2024.
Looking ahead, the firm said it was on track to achieve its five-year ambitions for the 2020 to 2024 period.
On London’s AIM, PHSC jumped 30%, after it announced the start of its share buyback programme.
The Kent-based health, safety, hygiene and environmental consultancy services provider said it is buying back up to 1.2 million shares or up to a gross amount of £200,000, whichever is the lower.
Abingdon Health jumped 24%.
The lateral flow contract development and manufacturing company said that Tesco will roll-out Salistick.
Abingdon is the exclusive distributor of Salistick in the UK and Ireland on behalf of Salignostics Ltd, an Israeli developer of innovative saliva-based diagnostics tests. Salistick is the first-ever saliva pregnancy test.
Abingdon Health said Tesco will role out the test in 298 stores and online from late August.
In European equities on Tuesday, the CAC 40 in Paris was down 1.3%, while the DAX 40 in Frankfurt was down 1.1%.
Stocks in New York were called down. The Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq Composite are all called down 0.7%.
Still to come on Tuesday’s economic calendar, there’s US retail sales at 1330 BST.
Brent oil was quoted at $84.67 a barrel at midday in London on Tuesday, down from $86.47 late Monday. Gold was quoted at $1,903.11 an ounce, down against $1,909.82.
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