Stocks in London largely fell at the open on Wednesday, as a stronger than expected inflation reading damped hope of a June interest rate cut by the Bank of England, but boosted sterling.
The FTSE 100 index opened down 37.88 points, 0.5%, at 8,378.57. The FTSE 250 was down 66.19 points, 0.3%, at 20,717.18. The AIM All-Share barely budged, inching up just 0.1 of a point at 807.19.
The Cboe UK 100 was down 0.5% at 836.17, the Cboe UK 250 was down 0.4%, trading at 18,138.79, and the Cboe Small Companies was largely flat at 16,648.76.
In European equities on Wednesday, the CAC 40 in Paris was down 0.4%, while the DAX 40 in Frankfurt fell 0.3%.
The pound was quoted at $1.2750 early Wednesday in London, up from $1.2715 late Tuesday afternoon. The euro stood at $1.0857, flat from $1.0856. Against the yen, the dollar bought JP¥156.41, rising from JP¥156.10.
The UK consumer price index rose by 2.3% in April from a year before, slowing from a 3.2% annual increase in March, according to the Office for National Statistics. Though inflation was hotter than market consensus of 2.1%, which would have been only a hair above the Bank of England’s 2% target, the latest figure is the coolest rate of inflation since July 2021.
Since then, inflation pressure has been robust, with the annual rate hitting a recent peak of 11.1% in October 2022.
On a monthly basis, consumer prices rose 0.3% in April, after they climbed 0.6% in March from February. The monthly reading topped the consensus of 0.2%, according to FXStreet.
Numbers from the ONS showed annual services inflation, a gauge on which the BoE has been keeping a close eye, remained stubbornly high at 5.9% in April, easing slightly from 6.0% in March.
XTB analyst Kathleen Brooks said ‘sticky service prices put rate cuts on ice’.
‘The market had been looking for a reading of 5.4%. The details of the service sector report are mixed. For example, the price of recreation and cultural services were down 0.1% between March and April this year, however, the price of restaurants and hotels along with miscellaneous services all rose between March and April. Restaurants and hotels made the largest upward contribution to the annual CPI rate in April, rising 0.85% compared to a year ago. This suggests that service prices remain sticky, and a cut in interest rates next month might exacerbate cost pressures in this area,’ Brooks added.
‘April‘s inflation data has triggered a rapid recalibration of UK rate cut expectations. The market had been pricing in a 50% chance of a June rate cut ahead of this report, but this has now sunk to 19%. The market is now expecting the first rate cut from the BoE in September, with sticky inflation wiping out the chance of a rate cut in the summer.’
Shares in the interest rate-sensitive housebuilding sector fell. Persimmon lost 2.2%, while Barratt Developments gave back 1.3%.
Marks & Spencer jumped 8.1%, with the firm declaring it has ‘wind in our sails’.
It reported annual earnings growth, hailing ‘market-leading’ progress at both its Food and Clothing & Home offerings.
The retailer said statutory revenue in the year to March 30 rose 9.3% to £13.04 billion from £11.93 billion a year prior. Pretax profit jumped 41% to £672.5 million from £475.7 million.
M&S, which recently restored its dividend after a four-year hiatus, declared a 2.0 pence per share final payout. It means its total dividend for the year amounts to 3p, having not paid one in financial 2023.
Chief Executive Stuart Machin said: ‘Two years into our plan to Reshape for Growth we can see the beginnings of a new M&S. Food and Clothing & Home grew volume and value share ahead of the market and sales increased across stores and online. Both businesses have now delivered 12 consecutive quarters of sales growth and this trading momentum gives us wind in our sails, and confidence that our plan is working. We are becoming more relevant, to more people, more of the time.’
Looking to the new year, it said it will make a ‘further significant investment in colleague pay’.
M&S added: ‘This will be funded by structural cost reductions and other efficiencies. Other cost inflation will largely be offset by reduced energy costs. Given our track record of delivering volume growth, market share and free cash flow we are confident that we will make further progress in 2024/25 and beyond.’
Mitchells & Butlers jumped 11%. The operator of restaurants and pubs, including Harvester and All Bar One, said revenue in the half year ended April 13 rose 8.9% to £1.40 billion from £1.28 billion a year prior. Pretax profit jumped to £108 million from £40 million.
‘Continued like-for-like sales outperformance against the market coupled with easing inflationary costs and focus on efficiencies has resulted in very strong profit recovery for the period,’ CEO Phil Urban said. ‘We remain focused on our Ignite programme of initiatives and our successful capital investment programme, driving further cost efficiencies and increased sales. We have confidence that continued focus on effective delivery of our strategic priorities will generate further value from our enviable estate portfolio and customer offers, enabling us to build further momentum throughout the year, with a strong foundation for long term outperformance.’
Elsewhere in London, Zenova surged 19% after the fire safety product manufacturer won a deal with the NHS in the UK, becoming an ‘official supplier’.
It secured its first order to two hospitals in the Epsom and St Helier Trust Hospital group in Surrey.
CEO Thomas Melchior said: ‘This is a major contract win for Zenova and with the largest single institution in the UK, the NHS. This breakthrough for the group comes as a result of a long period of their testing of our FX extinguishers, as well as the growing concerns around lithium-ion battery fires. Given the prevalence of equipment powered by such batteries in NHS facilities, this increased awareness will inevitably result in significant sales to follow in the months to come.’
Brent oil was quoted at $81.59 a barrel early Wednesday, down from $82.66 late Tuesday. Gold was quoted at $2,416.41 an ounce, declining from $2,425.40.
In Asia, the Shanghai Composite ended a touch higher, while the Hang Seng in Hong Kong was 0.2% lower. In Tokyo, the Nikkei 225 fell 0.9%, while Sydney’s S&P/ASX 200 ended marginally lower.
Still to come on Wednesday, minutes from the Federal Reserve’s latest meeting are released at 1900 BST.
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