FTSE fails to hold on to gains as inflation slows to 2%
The FTSE 100 edged higher in early trading as inflation slowed to the Bank of England’s 2% target rate but, unlike their mid-cap counterparts, the blue chips failed to keep hold of gains.
The main market was up 0.2% after the bell but soon lost momentum, slipping 0.35%, or 24 points, to trade at 7,156, despite the latest inflation data allaying fears that the Bank would have to rein in its monetary policy.
The latest data from the Office for National Statistics showed the consumer price index fell to 2% in July, down from 2.5% in June. This is positive news for investors, who have been jittery about inflation rises leading to higher interest rates and the curtailing of the Bank’s bond buying programme. But the central bank did warn inflation will rise again and is expected to hit 4% by the end of the year.
Jason Hollands, managing director at Bestinvest, said it was too early to dismiss inflation fears.
‘While much of the surge in inflation will be a temporary effect resulting from the sharp economic rebound after lockdowns, there is also a risk of the economy overheating and so pressure is building for the Bank to act by tapping on the brakes in respect of its stimulus programmes that have kept borrowing costs down,’ he said.
AJ Bell analyst Danni Hewson said the inflation figure must be taken in context with yesterday’s jobs numbers and wage hikes, with salaries jumping .
‘If people have more to spend, they might be prepared to keep spending just that little bit more and businesses might need to push up prices to cover their costs, creating a lovely muddy circle,’ she said.
‘July has brought a surprising bit of breathing space, but this inflationary story doesn’t seem to have quite run its course.’
The largest faller on the blue chips was miner BHP (BHP), which shed 2.3%, or 56p, to trade at £23.02. The world’s largest miner yesterday confirmed plans to move out of fossil fuels and has now said it plans to end its dual listing, leaving the FTSE 100 for Sydney.
Mining peer Evraz (EVRZ) fell 1.4% to 563p while oil major Royal Dutch Shell (RDSA) lost 0.9% to trade at £14.22.
Persimmon (PSN) lost ground despite a strong set of first-half results, with the housebuilder ticking 1.1% lower to change hands at £28.34. It enjoyed a 64% jump in pre-tax profits to £480.1m in the period.
Adam Vettese, an analyst at eToro, said the results suggest ‘the housebuilder has staged a total recovery’ but longer term there are ‘signs that activity in the property market has cooled slightly since the government’s decision to start tapering its stamp duty holiday’.
The domestically-focused FTSE 250 made the most of the inflation data, adding 0.35%, or 82 points, to hit 23,776.
Network International (NETW) climbed to the top of the mid-caps, adding 5.7%, or 20p, to trade at 372p after the payment solutions provider swung a first-half profit of $15m (£10.9m), compared with a $900,000 loss in the same period last year.
Media group Future (FUTR) ticked 4.6%, or 170p, higher to £38.70 and Indivior (INDV), a pharmaceutical firm specialising in opioid addiction treatment, gained 3.1% to trade at 184p.
Balfour Beatty (BBY) tumbled 5.2%, or 16p, to 302p, after suffering a £23m construction loss in the first half of the year. The infrastructure group struggled with a number of fixed-price residential projects in London as the pandemic caused delays and forced a write-down on profit.
In investment trust news, Majedie Investments (MAJE) fell 0.94% to 228p after the fund’s 17.2% holding in its manager Majedie Asset Management was valued at £24.8m in June, a fall of 2% on the previous month. The valuation reflects outflows from St James’s Place that took place in July, said Winterflood.
Seraphim Space (SSIT) slipped 0.6% to 112p after one of its holdings, Spire Global, a provider of space-based data and analytics, completed a merger with NavSight Holdings. Shares in the combined firm started trading on the New York stock market yesterday.