London midday: Stocks maintain losses as pound slumps on inflation data

London stocks were in the red at midday on Wednesday as traders booked some profits following record highs earlier in the week, amid pressure on sterling from an inflation surprise and speculation around potential Barclays merger action.

The FTSE 100 was tumbled 0.7% to 7,823.50, even though the pound was off 0.6% against the dollar at 1.3356 and 0.1% lower versus the euro at 1.1388 after data from the Office for National Statistics showed inflation fell unexpectedly in April, casting further doubt on when the Bank of England will next decide to increase interest rates.

Annual consumer price inflation eased to 2.4% from 2.5%, official figures showed. The April figure was the weakest since March 2017 and lower than economists’ average forecast for inflation to hold steady at 2.5%.

Lower-than-forecast inflation gives the Bank of England further food for thought after its monetary policy committee held off on increasing interest rates in May.

Many economists now expect the BoE to raise rates in August but Governor Mark Carney said earlier this week that he wants to check if a slowdown in the first quarter was a blip. The BoE has signalled its readiness to increase borrowing costs because it expects wage growth to push up prices.

Ruth Gregory, UK economist at Capital Economics, said the MPC had forecast CPI would slip so there were "no surprises" for policymakers. "A rate hike in August still looks a close-run thing. However, provided that activity data rebounds in Q2 as we expect, we continue to think that it is more likely than not."

Sam Tombs at Pantheon Macroeconomics said he thinks inflation will hold steady in May before jumping to 2.7% in June as consumers endure rises in motor fuel, electricity and natural gas prices, while the MPC's inflation forecasts for 2.5% in June are partly based on forecast only including an $71 oil price, $8 below its current level.

"Provided GDP growth recovers in Q2, June’s inflation data likely will be strong enough to persuade a majority of MPC members to vote to raise rates in August, rather than wait until later in the year," Tombs said.

Elsewhere, UK retail sales picked up but remained weak, the latest survey from the Confederation of British Industry showed, after two months of declines. The monthly survey found 29% of retailers reporting higher sales volumes than a year ago and 18% saying sales were falling. The +11% balance was lower than the average for the time of year, the CBI said.

More broadly, worries about relations between the US and China resurfaced after President Trump said on Tuesday that he was not happy with the progress being made on trade talks. He also said that there is a "very substantial chance" a historic summit with North Korea's Kim Jong-Un next month may not happen.

Investors were also eyeing release of the latest FOMC meeting minutes in the US at 1900 BST.

In corporate news, reports that Barclays is mulling a possible merger sent Standard Chartered higher. The Financial Times reported Barclays had been moved to explore deals in response to pressure from activist investor Edward Bramson.

Marks & Spencer was the standout gainer as its proposed revamp of the business trumped a better-than-expected 5.4% fall in annual profits as margins at the retailer’s food business were squeezed by the rising cost of ingredients. After including a huge £514m of exceptional costs, mostly related to a £321m provision for the cost of the accelerated store closure programme announced earlier in the week, reported pre-tax profits slumped by 62% to £66m.

Water and sewage group Severn Trent advanced as it increased its dividend 6% after receiving an £80m incentive payment for outperforming on customer 'outcomes', also saying it would invest £100m of savings gained from efficiencies back in the business.

Rio Tinto edged up after it confirmed it is in discussions to sell its entire interest in the Grasberg copper mine in Indonesia to Inalum, following reports that it could go for $3.5bn.

Drinks maker Britvic fizzed higher as it posted a jump in interim revenue and earnings and expressed confidence over the rest of the year, although pre-tax profit was dented by £21.6m of costs from its planned business capability programme.

PrimeLocation owner ZPG rose as it posted a 41% increase in first-half earnings, while Babcock rallied as its full-year earnings beat expectations and Softcat gained as it said full-year results will be ahead of expectations.

On the downside, BBA Aviation was in the red after agreeing to buy fuel and fuel-related services supplier EPIC Fuels for a cash consideration of $88.1m and Bovis Homes fell despite saying that market fundamentals remain strong and total sales for the year are in line with expectations, with pricing strong.

Cathedral City owner Dairy Crest tumbled as it announced plans to raise £69.9m in a 7.7% discounted share placing to fund an expansion of its cheese production facility.

Great Portland Estates was on the back foot even after saying it swung back into an annual profit, while wealth manager St James’s Place ticked down as it announced that chairwoman Sarah Bates had decided to retire as chair and as a director of the company. She will be succeeded by Iain Cornish.

In broker note action, Victrex was rated a new ‘hold’ at HSBC, and Elementis a new ‘buy’ while IAG was cut to ‘reduce’ by the same outfit.

Halfords was cut to ‘hold' at N+1 Singer. Computacenter was initiated at ‘buy’ at Stifel and Grainger was cut to ‘hold’.

Market Movers

FTSE 100 (UKX) 7,823.50 -0.68%
FTSE 250 (MCX) 21,054.92 -0.64%
techMARK (TASX) 3,540.11 -0.26%

FTSE 100 - Risers

Marks & Spencer Group (MKS) 305.00p 4.52%
Standard Chartered (STAN) 778.80p 1.55%
Imperial Brands (IMB) 2,822.00p 1.38%
British American Tobacco (BATS) 3,812.50p 1.33%
SSE (SSE) 1,444.87p 1.22%
Severn Trent (SVT) 2,081.00p 1.02%
G4S (GFS) 274.90p 0.92%
Whitbread (WTB) 4,257.00p 0.57%
NMC Health (NMC) 3,756.00p 0.54%
Reckitt Benckiser Group (RB.) 5,950.00p 0.49%

FTSE 100 - Fallers

Anglo American (AAL) 1,834.40p -4.78%
Royal Dutch Shell 'A' (RDSA) 2,664.00p -2.76%
Royal Dutch Shell 'B' (RDSB) 2,755.99p -2.49%
BP (BP.) 574.90p -2.29%
International Consolidated Airlines Group SA (CDI) (IAG) 686.80p -2.25%
Rio Tinto (RIO) 4,318.50p -2.19%
Glencore (GLEN) 381.40p -2.15%
Ashtead Group (AHT) 2,314.00p -2.03%
Antofagasta (ANTO) 1,076.00p -2.00%
easyJet (EZJ) 1,746.00p -1.94%

FTSE 250 - Risers

Softcat (SCT) 716.33p 8.37%
Britvic (BVIC) 813.00p 7.19%
Thomas Cook Group (TCG) 125.10p 4.51%
Greencore Group (GNC) 170.75p 3.74%
Homeserve (HSV) 871.00p 2.35%
Pets at Home Group (PETS) 140.40p 2.18%
Babcock International Group (BAB) 777.60p 1.73%
Marston's (MARS) 102.60p 1.68%
Card Factory (CARD) 222.80p 1.55%
Tate & Lyle (TATE) 612.40p 1.49%

FTSE 250 - Fallers

Dairy Crest Group (DCG) 491.80p -8.33%
Vedanta Resources (VED) 775.40p -8.13%
Tullow Oil (TLW) 258.75p -5.25%
Cairn Energy (CNE) 254.00p -3.71%
Inmarsat (ISAT) 348.40p -3.52%
Ocado Group (OCDO) 870.40p -3.46%
TBC Bank Group (TBCG) 1,697.00p -3.36%
Weir Group (WEIR) 2,248.00p -3.31%
Kaz Minerals (KAZ) 1,028.00p -3.25%
Renishaw (RSW) 5,321.46p -3.07%