London midday: Stocks fall further as sterling gains on accelerating wage growth

London stocks had extended losses by midday on Wednesday as the pound gained ground after UK wage growth was shown to have accelerated more than expected at the start of the year, while a slew of updates from retailers meant the high street was very much in focus.

The FTSE 100 was down 0.4% to 7,031.25, while the pound was up 0.4% against the dollar at 1.4058 and 0.2% firmer versus the euro at 1.1460.

Data out earlier from the Office for National Statistics showed UK average weekly earnings in the three months to January rose 2.8% compared to UK the same period last year, beating the 2.6% that economists had forecast and up on the figure from a month earlier, which was revised up to 2.7% from 2.6%.

Wages excluding bonuses, the measure that the BoE rate setting committee has been focusing on ahead of this week's policy meeting, revealed wages grew 2.6%, as expected, up from 2.5% previously. On a month-to-month basis, basic wages in January were up just 0.1%, or 1.6% year-on-year, which was the smallest increase since February last year.

Real incomes still remain negative, as pay growth was still lagging the 3% rate of CPI inflation in the three months to January.

The headline ILO unemployment rate for the three month period fell back to 4.3% from 4.4%, though the market expected it to have stayed unchanged. Employment increased by 168,000, double the consensus estimate and the figure from the previous period, while more timely data showed jobless claims in February were up 9,200 after the previous month was revised to a decline of 1,600.

Howard Archer, economic adviser to the EY Item Club, said the data could encourage the MPC to raise interest rates in May.

Archer said the combination of stronger wage growth and further doubts over productivity "are likely to reinforce the hawkish instincts of the MPC and we expect the Committee to use tomorrow’s meeting to lay the ground for a May rate hike".

However, Samuel Tombs at Pantheon Macroeconomics pointed out that the headline rate of wage growth exceeded the consensus in January only because bonus payments between November and January rose by 6.2% year-over-year and that basic wages increased by the smallest degree in almost a year.

"We continue to think that wage growth will rise at only a modest pace this year, ensuring that the MPC needs to raise interest rates only by 25bp in 2018," he said.

With the UK jobs data out of the way, investors prepared to shift their attention to the US, where the Fed's rate announcement is at 1800 GMT, along with a speech by chair Jerome Powell and the central bank's economic projections. With a 25 basis points rate hike largely prices largely priced in by the market, attention will turn to the 'dot plot' projections to see how many more rate increases are on the cards this year.

In corporate news, B&Q and Screwfix owner Kingfisher slumped as it reported an 8% fall in annual profits on flat sales and issued a very cautious outlook. Retail peers Next and Dunelm were also dragged into the red.

Menswear specialist Moss Bross tumbled as it warned that it now expects profits this year to be "materially lower" than current market expectations, while baby and toddler chain Mothercare reversed earlier gains to trade a touch lower even as it got some much needed breathing space as lenders gave it some breathing space.

It was a cheerier picture for embattled floor coverings retailer Carpetright, however, which gained ground after saying it has secured a £12.5m emergency loan from one of its biggest shareholders, announcing a £40m to £60m cash call and saying it is looking at a company voluntary arrangement to cut rents and close stores.

Elsewhere, GKN ticked up as it branded suitor Melrose Industries a "novice" operator with "no plan" in the latest round of accusations between the companies locked in a hostile bid battle.

Inhaled medicines designer Vectura Group sank after saying that revenue had taken a hit as it focused on R&D, while Ukrainian miner Ferrexpo dropped despite declaring a higher special dividend than most investors may have expected thanks to higher iron ore prices offsetting slightly lower production.

Softcat fell sharply even as the provider of IT infrastructure products and services reported a rise in interim operating profit and revenue and lifted its dividend by 14% amid strong customer demand. Traders pointed out that the stock had rallied strongly into the results.

Oilfield services provider Petrofac advanced as it was awarded a new contract in India valued at around $200m.

In broker note action, 888 Holdings was cut to 'hold' from 'add' by Numis, while Ocado was downgraded to 'neutral' from 'buy' at Goldman Sachs. London Stock Exchange was the standout gainer on the FTSE 100 as Barclays upped its price target on the overweight-rated stock by 6%, saying the market is "unduly pessimistic" on 2019 EBITDA margin.

Market Movers

FTSE 100 (UKX) 7,031.25 -0.43%
FTSE 250 (MCX) 19,637.45 -0.44%
techMARK (TASX) 3,214.54 -0.41%

FTSE 100 - Risers

London Stock Exchange Group (LSE) 4,091.00p 1.36%
Ferguson (FERG) 5,332.00p 1.14%
SSE (SSE) 1,223.80p 0.97%
Antofagasta (ANTO) 951.80p 0.76%
RSA Insurance Group (RSA) 634.80p 0.76%
Mediclinic International (MDC) 574.00p 0.56%
Direct Line Insurance Group (DLG) 390.30p 0.49%
Pearson (PSON) 767.40p 0.45%
Reckitt Benckiser Group (RB.) 5,659.00p 0.44%
GKN (GKN) 426.60p 0.42%

FTSE 100 - Fallers

Kingfisher (KGF) 313.20p -7.25%
Micro Focus International (MCRO) 926.40p -6.56%
Whitbread (WTB) 3,688.00p -3.23%
Smurfit Kappa Group (SKG) 2,968.00p -2.43%
easyJet (EZJ) 1,647.50p -1.91%
SEGRO (SGRO) 610.40p -1.90%
Next (NXT) 4,669.00p -1.75%
G4S (GFS) 243.40p -1.74%
TUI AG Reg Shs (DI) (TUI) 1,541.00p -1.72%
3i Group (III) 889.80p -1.61%

FTSE 250 - Risers

Woodford Patient Capital Trust (WPCT) 78.21p 7.43%
Sophos Group (SOPH) 439.91p 5.60%
Convatec Group (CTEC) 197.80p 3.51%
Spire Healthcare Group (SPI) 219.60p 2.52%
Petrofac Ltd. (PFC) 502.60p 2.13%
Telecom Plus (TEP) 1,240.00p 1.97%
CLS Holdings (CLI) 230.50p 1.77%
Capita (CPI) 155.55p 1.73%
Caledonia Investments (CLDN) 2,774.11p 1.62%
Crest Nicholson Holdings (CRST) 457.60p 1.51%

FTSE 250 - Fallers

Softcat (SCT) 598.81p -11.81%
Dunelm Group (DNLM) 518.70p -4.65%
888 Holdings (888) 267.80p -3.04%
Dixons Carphone (DC.) 176.50p -3.02%
Galliford Try (GFRD) 966.50p -2.96%
Provident Financial (PFG) 897.00p -2.67%
Ferrexpo (FXPO) 293.90p -2.62%
McCarthy & Stone (MCS) 145.80p -2.54%
NewRiver REIT (NRR) 295.00p -2.48%
RHI Magnesita N.V. (DI) (RHIM) 4,465.00p -2.40%