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(Alliance News) - Stock prices in London closed in the red on Monday, with markets unnerved after a forecast by Citi predicted that UK consumer price inflation will breach 18% in the first quarter of next year.
The US bank's prediction follows last week's report that UK inflation accelerated at the fastest pace in 40 years in July. The consumer price index surged 10.1% on an annual basis in July, topping market consensus of 9.8% and quickening from 9.4% in June.
Citi's latest forecast is also far higher than the Bank of England's recent warning that inflation will peak at just over 13% in the fourth quarter of this year.
"Investors now think a recession in Europe and the UK is unavoidable, and are now expecting the Fed to have to make more hawkish noises about the likelihood of further rate increases into Q4 2022 and beyond," said Chris Beauchamp, chief market analyst at IG.
The FTSE 100 index closed down 16.58 points, or 0.2% at 7,533.79 on Monday. The FTSE 250 ended down 388.45 points, or 2.0%, at 19,499.34. The AIM All-Share closed down 12.89 points, or 1.4%, at 907.28.
The Cboe UK 100 ended down 0.2% at 752.26, the Cboe UK 250 closed down 2.2% at 16,817.80, and the Cboe Small Companies ended down 1.0% at 14,173.96.
In European equities on Monday, the CAC 40 in Paris ended down 1.8%, while the DAX 40 in Frankfurt ended down 2.3%.
The pound was quoted at USD1.1787 at the London equities close Monday, a touch lower from USD1.1790 at the close on Friday.
In the FTSE 100, Vodafone ended down 1.5% after the telecommunications firm agreed to sell its Hungarian arm for EUR1.8 billion.
The Newbury, England-based company said the sale price represents a 9.1 times multiple of Vodafone Hungary's adjusted earnings before interest, tax, depreciation and amortisation after leases for the financial year ended March 31.
Pershing Square finished 1.8% lower after the North America-focused investment company swung to an an interim loss, citing uncertainty around monetary policy, rising inflation and geopolitical events.
Its pretax loss in six months to June 30 stood at USD3.04 billion compared to a profit of USD718.7 million a year prior, while its total assets dropped to USD11.86 billion at June 30 from USD15.81 billion at December 31, 2021.
In the FTSE 250, Wizz Air dropped 9.8% after Hungary's government ordered an investigation into the domestic low-cost carrier over what it called possible breaches of consumer protection laws.
The probe, ordered by Hungary's Ministry of Justice, comes after the ministry said it received an increase in complaints against the Budapest-based airline over its failure to provide information and assistance to customers whose flights are delayed or cancelled, according to Hungary's state news agency MTI.
It is the second such investigation it has launched against an airline since June.
Peer easyJet ended down 4.8%. On Friday, easyJet's Spanish pilots began a new three-day work stoppage, calling for the reinstatement of conditions they enjoyed before the pandemic.
Coming at the height of the summer tourist season, the new easyJet stoppages only add problems to a sector struggling with rolling strikes by cabin crew, as seen with Dublin-listed peer Ryanair.
Cineworld shares tanked again, plummeting 23% after it confirmed it is considering filing for Chapter 11 bankruptcy in the US, as it continues to battle with liquidity issues.
Last Wednesday, Cineworld said it was in "active discussions" with various stakeholders, to explore the possibilities of securing further liquidity or restructuring its balance sheet through a "comprehensive deleveraging transaction".
It also warned that lacklustre trading was prompting potential financing decisions that could significantly dilute shareholders.
The Picturehouse chain owner said recent admission levels have been below expectations, despite a slow recovery in demand since re-opening from Covid restrictions in April 2021.
Made.com fell 10% after Senior Independent Non-Executive Director Gwyn Burr stepped down with immediate effect.
The news comes only a week after Made.com said it was it was "considering all options" to bolster its balance sheet, including a share issue.
The euro took a hit from a gloomy economic outlook.
The single currency stood at USD0.9964 at the European equities close Monday, down against USD1.0035 at the same time on Friday, dropping below parity for the second time in about two months.
The euro had fallen below parity with the dollar was on July 12, the first time since 2002.
The outlook for the eurozone's largest economy is becoming increasingly gloomy, Germany's central bank revealed on Monday.
A worse economic performance in the winter has become "significantly more likely," the Bundesbank wrote in its monthly report for August.
Up to and including September 2022, the bank expects German economic output to "again basically tread water."
The central bank said it believes that the inflation rate in Germany could reach "in the order of 10%" in autumn.
Against the yen, the dollar was trading at JPY137.26 late Monday, higher compared to JPY137.15 late Friday.
Stocks in New York were lower at the London equities close, with the Dow Jones Industrial Average down 1.4%, the S&P 500 index down 1.7%, and the Nasdaq Composite down 2.1%.
Investors are looking ahead to a meeting of central bankers in Jackson Hole, Wyoming on Thursday, with a keynote speech from US Federal Reserve Chair Jerome Powell due on Friday.
His words may offer long-awaited for clues to the future pace of US interest rate hikes.
Markets have been optimistic of a "pivot" to smaller interest rate increases by the Fed following the slowing in US consumer price inflation reported earlier this month.
However, Fed policymakers have tried to dispel this, stressing in recent speeches that the central bank remains committed to pursuing its battle against inflation.
Brent oil was quoted at USD93.26 a barrel at the London equities close Monday, down from USD96.45 late Friday.
"There remain many factors influencing the oil price right now from a tight market to a diminishing growth outlook and a potential Iran nuclear deal," said Craig Erlam, senior market analyst at Oanda.
Gold was quoted at USD1,736.39 an ounce at the London equities close Monday, down against USD1,748.05 at the close on Friday.
In Tuesday's UK corporate calendar, there' are half-year results from streaming platform Aferian and consultant John Wood Group.
In the economic calendar, there are a slew of flash PMI readings, including Japan overnight, the eurozone at 0900 BST, the UK at 0930 and the US at 1445 BST. A preliminary consumer confidence reading from the eurozone is released at 1500 BST.
By Heather Rydings; heatherrydings@alliancenews.com
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