London open: Stocks nudge lower as investors mull sharp fall in inflation
London stocks nudged lower in early trade on Wednesday as investors digested a sharp decline in UK inflation and eyed the latest Federal Reserve rate announcement.
At 0830 BST, the FTSE 100 was down 0.2% at 6,093.03, while the pound was flat against the dollar at 1.2889.
Figures released earlier by the Office for National Statistics showed inflation plunged in August as the government's Eat Out to Help Out scheme cut the cost of restaurant bills.
Annual consumer price inflation fell to 0.2% from 1% in July as the Chancellor Rishi Sunak's subsidy for meals out and a VAT cut for the hospitality industry reduced prices. On average, economists had expected the rate of price increases to drop to zero.
Prices in the hotels and restaurant sector fell 2.8% compared with a 1.8% increase in July. Clothing and footwear prices also fell as retailers delayed price rises for autumn ranges and air fares fell in August for the first time on record.
The unusually big drop for inflation showed the effects of the Covid-19 crisis hitting large swathes of the economy. Recreation and culture was the only sector to register a small increase to 2.8% from 2.6%.
ONS statistician Jonathan Athow said: "The cost of dining out fell significantly in August thanks to the Eat Out to Help Out scheme and VAT cut, leading to one of the largest falls in the annual inflation rate in recent years."
Capital Economics said August was probably the low point for inflation after the Eat Out to Help Out subsidy finished at the end of August.
"The VAT cut for the hospitality industry will expire on 12 January [and] the drag on inflation from the previous collapse in the oil price will continue to fade," economist Thomas Pugh said. "But the big picture is that it will be a few years before the economy is strong enough to sustain CPI inflation at the 2% target."
Market participants were awaiting the latest interest rate decision from the US Federal Reserve, due after the close of European markets. The central bank is widely expected to leave its target Fed Funds range unchanged between 0.00 and 0.25%.
Jeffrey Halley, senior market analyst at Oanda, said: "We expect the Fed to reiterate its lower for longer call on rates, and to do whatever it takes on the liquidity front to support growth and unemployment. We may get some insight into the nuances of their new fuzzy inflation targeting process."
In corporate news, B&Q and Castorama owner Kingfisher was the top performer on the FTSE 100, having fallen heavily on Monday on the back of French DIY sales data.
Oil and gas exploration company Energean was the top gainer on the FTSE 250 after securing two new gas shale agreements for its flagship Karish project off Israel.
On the downside, housebuilder Redrow lost ground after it said full-year profits slumped 66% due to the coronavirus and associated lockdowns, although reservations were up in the first 11 weeks of the new fiscal year and it expected to resume dividend payments in 2021.
Trading platform Plus500 fell despite saying it was very confident about its outlook after momentum from the first half continued into the second half. Revenue has stayed strong supported by higher customer numbers and use of its platform is at "elevated levels", it said.
Supermarket retailer Morrisons was in the red after a downgrade to ‘underweight’ from ‘neutral’ at JPMorgan Cazenove.
FTSE 100 - Risers
Kingfisher (KGF) 284.40p 3.99%
JD Sports Fashion (JD.) 815.60p 1.72%
Intermediate Capital Group (ICP) 1,275.00p 1.67%
M&G (MNG) 160.20p 1.55%
Fresnillo (FRES) 1,313.50p 1.35%
Associated British Foods (ABF) 2,011.00p 1.06%
Ferguson (FERG) 7,504.00p 1.05%
Avast (AVST) 534.50p 1.04%
Just Eat Takeaway.Com N.V. (CDI) (JET) 8,504.00p 0.97%
Johnson Matthey (JMAT) 2,649.00p 0.95%
FTSE 100 - Fallers
Taylor Wimpey (TW.) 110.60p -2.73%
Rolls-Royce Holdings (RR.) 199.30p -1.97%
International Consolidated Airlines Group SA (CDI) (IAG) 131.00p -1.80%
HSBC Holdings (HSBA) 318.05p -1.47%
Morrison (Wm) Supermarkets (MRW) 175.50p -1.46%
Rio Tinto (RIO) 5,070.00p -1.27%
InterContinental Hotels Group (IHG) 4,373.00p -1.26%
Whitbread (WTB) 2,231.00p -1.24%
Melrose Industries (MRO) 123.65p -1.24%
BT Group (BT.A) 110.65p -1.21%
FTSE 250 - Risers
Energean (ENOG) 558.80p 6.89%
Weir Group (WEIR) 1,344.00p 3.58%
4Imprint Group (FOUR) 2,075.00p 2.98%
TI Fluid Systems (TIFS) 158.08p 1.99%
Henderson Smaller Companies Inv Trust (HSL) 780.00p 1.56%
Dunelm Group (DNLM) 1,417.00p 1.50%
Spirent Communications (SPT) 290.50p 1.40%
Avon Rubber (AVON) 4,275.00p 1.30%
Hochschild Mining (HOC) 239.40p 1.27%
Grafton Group Ut (GFTU) 734.50p 1.24%
FTSE 250 - Fallers
Hammerson (HMSO) 24.24p -4.42%
Liontrust Asset Management (LIO) 1,300.00p -3.70%
Equiniti Group (EQN) 109.80p -3.51%
Carnival (CCL) 999.80p -3.35%
John Laing Group (JLG) 273.00p -2.57%
Hiscox Limited (DI) (HSX) 865.00p -2.52%
Dixons Carphone (DC.) 88.05p -2.44%
TUI AG Reg Shs (DI) (TUI) 330.10p -2.19%
Provident Financial (PFG) 221.20p -2.12%
SSP Group (SSPG) 213.20p -2.11%