London close: Stocks lower as UK inflation remains sticky

(Sharecast News) - London stock markets closed lower on Wednesday, pulled down by escalating inflation fears and uncertainty preceding this week's interest rate decision from the Bank of England. Both the FTSE 100 and FTSE 250 finished in negative territory, with the former losing 0.13% to close at 7,559.18 points and the latter declining by 0.93% to settle at 18,571.45 points.

Ahead of the central bank's decision, sterling dropped against major currencies, and was last down 0.14% on the dollar to trade at $1.2747, while it slid 0.51% against the euro to change hands at €1.1631.

"Today's Powell testimony has been overshadowed by the UK's strong inflation data, which has reminded investors that central banks generally aren't done hiking rates," said IG chief market analyst Chris Beauchamp.

"While investors seemed to doubt the Fed's commitment last week, they are less sure of themselves today, and stocks continue to push lower.

"For now the market has run out of reasons to rally, and no other catalysts are yet in sight."

Consumer inflation remains stubborn in May

In economic news, contrary to expectations of a decline to 8.4%, the UK consumer price index held steady at 8.7% in May, fuelling concerns about the economy's health and potentially forcing the Bank of England's hand to persist with interest rate hikes.

The steady inflation rate, coupled with core inflation - which excludes variable components like food and energy - reached a 31-year peak at 7.1%, up from April's 6.8%, spelling an impending challenge for policymakers.

Analysts had predicted core inflation to remain unchanged.

ONS chief economist Grant Fitzner said airfares and second-hand cars were keeping inflation high.

"After last month's fall, annual inflation was little changed in May and remains at a historically high level," he said.

"The cost of airfares rose by more than a year ago and is at a higher level than usual for May.

"Rising prices for second-hand cars, live music events and computer games also contributed to inflation remaining high."

In another eyebrow-raising revelation, public sector borrowing witnessed a sharp upturn last month.

May's net public sector borrowing, excluding public sector banks (PSNB ex), reached £20bn, a significant £10.7bn hike compared to the same month last year.

That represented the second-highest May borrowing since record-keeping began in 1993, overshooting consensus estimates of £19.5bn and the £18.3bn prediction by the Office for Budget Responsibility.

The UK housing market meanwhile displayed resilience, registering a month-on-month increase for the first time since last November.

The ONS' house price index climbed 0.5% in April, with an average UK house price of £286,000, a £9,000 annual increase.

However, the figure remained £7,000 short of last September's peak.

Despite the marginal growth, the annual rate of increase slowed down to 3.5%, marking a decline from March's 4.1%.

Adding to the economic woes, the Confederation of British Industry reported continued contraction in the manufacturing sector.

The output volume, represented by a weighted balance of -6% in June, showed a slight improvement from May's -10% but remained in negative territory.

12 out of the 17 sub-sectors reported a drop, with mechanical engineering and the food, drink, and tobacco sectors being the hardest hit.

Total order books were reported to be below average, with a slight improvement to -15% from May's -17%.

Across the pond, Federal Reserve Chair Jerome Powell confirmed the institution's unwavering focus on its dual mandate of maximising employment and ensuring stable prices during his semi-annual testimony to Congress.

Powell emphasised that the Federal Open Market Committee was unanimous in its belief in the necessity for further interest rate hikes, albeit gradual ones, by the end of 2023.

Broker notes prove a drag, Aston Martin revs higher

On London's equity markets, Berkeley Group Holdings shares fell 1.56% despite reporting a robust 9.5% increase in its full-year pre-tax profit.

Rathbones Group was hit hard with a 3.76% fall in share price following a downgrade by Barclays, which changed its rating on the company's stock from 'equalweight' to 'underweight'.

The shares of St. James's Place and AJ Bell also took a hit, falling by 0.5% and 0.25% respectively.

Both companies had their ratings improved by Barclays, with St James's Place being raised to 'overweight' from 'equalweight' and AJ Bell to 'equalweight' from 'underweight'.

Grainger's stock also had a disappointing day, with shares sliding 0.94%, despite Barclays upgrading the company's rating to 'overweight' from 'equalweight'.

On the upside, Aston Martin Lagonda raced ahead 4.19%, hitting a fresh 52-week high.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,559.18 -0.13% FTSE 250 (MCX) 18,571.45 -0.93% techMARK (TASX) 4,523.42 -0.50%

FTSE 100 - Risers

BP (BP.) 464.00p 2.21% CRH (CDI) (CRH) 4,194.00p 2.07% Shell (SHEL) 2,363.50p 1.81% Convatec Group (CTEC) 209.00p 1.55% Ocado Group (OCDO) 430.00p 1.42% British American Tobacco (BATS) 2,596.50p 1.03% GSK (GSK) 1,371.80p 0.75% Imperial Brands (IMB) 1,754.50p 0.54% Haleon (HLN) 322.65p 0.48% HSBC Holdings (HSBA) 618.10p 0.47%

FTSE 100 - Fallers

Smith (DS) (SMDS) 290.20p -5.96% Smurfit Kappa Group (CDI) (SKG) 2,664.00p -5.46% Persimmon (PSN) 1,134.00p -4.14% Barratt Developments (BDEV) 425.40p -4.10% NATWEST GROUP (NWG) 235.60p -3.95% Burberry Group (BRBY) 2,150.00p -3.85% Taylor Wimpey (TW.) 104.50p -3.51% Mondi (MNDI) 1,198.00p -3.31% Fresnillo (FRES) 624.40p -3.22% BT Group (BT.A) 131.20p -2.85%

FTSE 250 - Risers

Aston Martin Lagonda Global Holdings (AML) 323.00p 4.19% CLS Holdings (CLI) 134.60p 3.70% Bakkavor Group (BAKK) 98.00p 3.59% RHI Magnesita N.V. (DI) (RHIM) 2,700.00p 3.29% Petershill Partners (PHLL) 163.00p 3.16% Baltic Classifieds Group (BCG) 172.20p 2.38% Syncona Limited NPV (SYNC) 150.60p 2.32% Senior (SNR) 171.40p 1.90% TBC Bank Group (TBCG) 2,585.00p 1.77% TI Fluid Systems (TIFS) 128.60p 1.74%

FTSE 250 - Fallers

Trainline (TRN) 255.00p -4.57% Urban Logistics Reit (SHED) 119.40p -4.48% Paragon Banking Group (PAG) 548.00p -3.94% Digital 9 Infrastructure NPV (DGI9) 67.80p -3.83% Rathbones Group (RAT) 1,894.00p -3.76% Howden Joinery Group (HWDN) 632.20p -3.75% Mobico Group (MCG) 104.30p -3.69% OSB Group (OSB) 491.20p -3.69% Crest Nicholson Holdings (CRST) 205.40p -3.59% Softcat (SCT) 1,419.00p -3.40%