London pre-open: Stocks called higher as UK inflation falls

(Sharecast News) - UK stocks are expected to open slightly higher on Wednesday, though gains are likely to be limited as investors continue to avoid taking on too much risk ahead of central bank meetings at home and abroad. Futures on the FTSE 100 are pointing to a 0.3% gain to the 7,685 level when markets open, helped higher by an unexpected fall in UK inflation. The index has traded within a tight range so far this week as caution began to set in.

The Federal Open Market Committee meeting kicked off on Tuesday afternoon and will conclude later today - though the policy decision and statement will not come out before the closing bell in London.

"Market participants are positioning themselves for the Federal Reserve's upcoming policy decision, with expectations of higher for longer interest rates persisting to combat inflation," said Stephen Innes, managing partner at SPI Asset Management.

Analysts unanimously expect the Fed to leave rates unchanged, so the focus is very much on how FOMC members assess the need for more hikes down the line as it continues to battle stubbornly high inflation.

Adding to inflationary concerns over the past few days has been another surge in the price of oil, which jumped over 1% on Tuesday to the $95-a-barrel level. Brent crude prices were pulling back on Wednesday, down 1.1% at $93.32 early on.

The Bank of England meets on Thursday and is widely expected to hike interest rates by a further 25 basis points to 5.5%, in what many hope will be the final hike in the current cycle.

Adding to expectations on Wednesday morning was the downside surprise in UK inflation data. The year-on-year change in the consumer price index eased to 6.7% last month, from 6.8% in July and surprising economists who had forecast a slight tick-up to 7.1%. Core inflation dropped to 6.2% in August, from 6.9% the month before and well below the 6.8% reading expected.

"The BoE has had a tough task in navigating its fight against inflation, and this morning's figures suggest it may finally be having a real impact," said Richard Carter, head of fixed interest research at Quilter Cheviot.

In company news, global investment manager M&G posted stronger-than-expected interim profits. Pre-tax profits came in at £75m with adjusted operating profits printing at £390m (consensus: £284m). Assets under management and administration meanwhile came in at £332.8bn (consensus: £339bn). The firm said it was on track to meet its 2024 operating capital generation target of £2.5bn and that it was making good progress on its 2025 financial targets.

3i Group updated the market on its September portfolio reviews, highlighting growth and positive momentum in several sectors despite macroeconomic challenges. Notably, Action saw robust sales and EBITDA growth with year-to-date sales at €7.5bn, 31% higher than the same period in 2022. However, certain assets like Luqom and YDEON continued to face sales challenges post-Covid lockdown, while Action expected its operating EBITDA to reach around €1.53bn.

UK homewares retailer Dunelm reported a 7.8% fall in annual profits as hard-pressed shoppers reined in spending amid the cost-of-living crisis, but expects earnings growth this year on higher volumes. Pre-tax profit for the 12 months to July 1 came in at £192.7m from £209m a year earlier while sales rose 5.5% to £1.6bn.