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(Alliance News) - Stocks in London are called lower on Wednesday, after hotter-than-expected UK inflation data wrong-footed forecasters once again and heaped more pressure on the Bank of England.
According to the Office for National Statistics, the UK annual inflation rate was unchanged at 8.7% in May, where it had landed in April. Inflation had been expected to cool to 8.4%, according to market consensus cited by FXStreet, so the latest figure was hotter-than-forecast.
The ONS said rising travel prices, second-hand cars, as well as recreational and cultural goods and services kept the yearly inflation rate in red-hot territory last month.
Wednesday's reading puts the spotlight on the Bank of England, on the eve of its interest rate decision. The BoE targets an inflation rate of 2%. The BoE on Thursday is expected to lift bank rate to 4.75%, from 4.5%.
"These numbers warn that inflationary pressures in the UK are not under control and call for further rate hikes which will further squeeze the British households, without a guarantee of easing inflation," said Swissquote Bank's Ipek Ozkardeskaya.
Of particular concern will be the second consecutive upside surprise to core inflation, suggesting inflation is becoming more deeply entrenched in the British economy.
Core consumer prices, which exclude volatile categories such as food, energy, alcohol and tobacco, rose 7.1% on-year in May. Market consensus had expected the reading to be unchanged from 6.8% in April.
Meanwhile, in UK company news, Berkeley Group said it met its annual guidance despite recent turbulence in the housing market. THG said its founder & Chief Executive Matthew Moulding has given up his special share, which paves the way for the firm to get a premium listing.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: called down 16.7 points, 0.2%, at 7,552.61
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Hang Seng: down 2.0% at 19,221.15
Nikkei 225: closed up 0.6% at 33,575.14
S&P/ASX 200: closed down 0.6% at 7,314.90
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DJIA: closed down 245.25 points, or 0.7%, at 34,053.87
S&P 500: closed down 20.88 points, or 0.5%, at 4,388.71
Nasdaq Composite: closed down 22.28 points, or 0.2%, at 13,667.29
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EUR: up at USD1.0911 (USD1.0909)
GBP: up at USD1.2783 (USD1.2743)
USD: up at JPY141.74 (JPY141.26)
Gold: up at USD1,936.48 per ounce (USD1,935.21)
Oil (Brent): up at USD76.22 a barrel (USD74.86)
(changes since previous London equities close)
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ECONOMICS
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Wednesday's key economic events still to come:
09:30 BST UK house price index
09:30 BST UK forecasts for the economy statistical release
11:00 BST UK CBI industrial trends survey
10:00 CEST Germany Ifo economic forecast
07:00 EDT US MBA weekly mortgage applications survey
08:55 EDT US Johnson Redbook retail sales index
10:00 EDT US Federal Reserve Chair testifies before US House Financial Services Committee
16:30 EDT US API weekly statistical bulletin
US FRB Chicago President Austan Goolsbee speaks at The Wall Street Journal's Global Food Forum
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The UK's debt pile reached more than 100% of economic output for the first time since 1961 as government borrowing more than doubled in May, according to official figures. The Office for National Statistics said net debt reached GBP2.6 trillion as of the end of May, estimated at 100.1% of gross domestic product. It is the first time the debt-to-GDP ration has risen above 100% since March 1961, except for during the pandemic, but this was later revised lower due to stronger GDP figures. It came as government borrowing soared to GBP20 billion in May, pushed higher by the cost of energy support schemes. May's borrowing figure was GBP10.7 billion higher than a year ago and the second-highest May borrowing since monthly records began in 1993. Economists had predicted borrowing of GBP19.5 billion for May. Chancellor Jeremy Hunt said the government has been taking "difficult decisions" to balance the books following the pandemic and Russian President Vladimir Putin's invasion of Ukraine.
"We rightly spent billions to protect families and businesses from the worst impacts of the pandemic and Putin's energy crisis," he said. "But it would be manifestly unfair to leave future generations with a tab they cannot repay. "That's why we have taken difficult but necessary decisions to balance the books in order to halve inflation this year, grow the economy and reduce debt."
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The UK will back Ukraine's economy to the tune of USD3 billion over the next three years while it fights back against Russian forces, Prime Minister Rishi Sunak announced. More than 1,000 foreign dignitaries from 61 countries along with captains of industry and global investors are expected in London for a two-day conference to help Ukraine get back on its feet. The International Ukraine Recovery Conference 2023, starting Wednesday, is looking for more help from private-sector investors to strengthen the war-torn nation's battered finances. Downing Street said more than 400 companies from 38 countries with a combined annual revenue of more than USD1.6 trillion had promised to back Ukraine's recovery and reconstruction. Several multinationals and major corporations, including Virgin, Sanofi, Philips, Hyundai and Citi, have signed the Ukraine Business Compact, to encourage trade, investment and expertise-sharing. Sunak said he would launch a separate framework to improve investor confidence, working with commercial insurance markets on risks to help meet Ukraine's future needs.
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BROKER RATING CHANGES
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Barclays raises St James's Place to 'overweight' (equal weight) - price target 1,580 (1,430) pence
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Barclays cuts Rathbones to 'underweight' (equal weight) - price target 1,950 (2,050) pence
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Credit Suisse raises Mondi to 'neutral' (underperform) - price target 1,395 (1,475) pence
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COMPANIES - FTSE 100
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Housebuilder Berkeley Group reported increases in both revenue and profit for its year ended April 30. Revenue rose 8.6% year-on-year to GBP2.55 billion from GBP2.35 billion and pretax profit climbed 9.5% year-on-year to GBP604.0 million from GBP551.5 million. It said forward sales were sustained at a "healthy" GBP2.1 billion, but the value of reservations for the financial year were around 15% behind the previous year. It said sales pricing remains firm and above business plan levels, and build cost inflation was moderating. "Looking forward, we are well-placed to meet our guidance for the next two financial years and continue investing in our existing regeneration sites, but will remain cautious in committing to new investment until the conditions for growth are in place," the firm said. It reaffirmed its commitment to return GBP2.63 to shareholders per year up to September 2025.
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Anglo American said rough diamond sales at its De Beers arm declined due to ongoing global macroeconomic challenges. The London-based mining company said provisional rough diamond sales value for the fifth sales cycle of 2023 was down 6.1% to USD450 million, from USD479 million in the fourth cycle. Sales slumped by nearly one third from USD657 million in the fifth cycle of last year. The provisional rough diamond sales figure quoted for cycle five represents the expected sales value from June 5 and June 20 and remains subject to adjustment based on final completed sales. Cycle four actual sales value represents sales between the dates of May 1 and May 16. "Following the JCK Show, and with ongoing global macroeconomic challenges continuing to impact end-client sentiment, the diamond industry remains cautious heading into summer," De Beers Chief Executive Al Cook said. JCK is the jewellery industry trade event that takes place in Las Vegas.
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COMPANIES - FTSE 250
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Retailers including WH Smith, Marks & Spencer and Argos are among firms who have been "named and shamed" by the government for breaking the minimum wage law. Almost GBP5 million was found to be owed to around 63,000 workers following investigations by Her Majesty's Revenue & Customs dating back as far as 2017. Named employers have been made to pay back what they owed, and in addition were fined around GBP7 million. High street retailer WH Smith was the worst offender, according to HMRC, with the new figures claiming it failed to pay around GBP1 million to 17,607 workers. The retailer blamed this on an error related to its company uniform policy.
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OTHER COMPANIES
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THG updated on its trading ahead of its annual general meeting, boasting a "strong" quarter. It expects a significant increase in profit over the first half, with adjusted earnings before interest, tax, depreciation and amortisation to be between GBP44 million and GBP47 million, compared to GBP32.3 million a year before. The e-commerce retail company also said free cash flow is ahead of expectations. THG said it was notified that Founder & CEO Moulding transferred the special share he held, and consequently, all rights of the special share have now ceased. It will be cancelled by the company, THG confirmed. "The group's intention in relation to moving to a premium listing remains as stated in its FY 2022 results in April, with timing subject to the final outcome of the FCA's review for reform of the listing regime," it said.
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By Elizabeth Winter, Alliance News senior markets reporter
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