Taylor Wimpey Share News (TW.)

LONDON (Alliance News) - UK stocks closed lower Friday, as US consumer prices rose in line with expectations in June, while housing starts and building permits increased notably in the same month, reinforcing expectations for a US interest rate hike later this year.

The Labor Department released a report showing that consumer price index in the US climbed by 0.3% month-on-month in June following a 0.4% increase in May. The continued increase in prices matched economist estimates.

Excluding food and energy prices, core consumer prices still rose by 0.2% in June after inching up by 0.1% in the previous month. The uptick in core prices also came in line with expectations.

The annual rate of US inflation was 0.1%, up from flat in May, while core consumer prices rose 1.8% annually, faster than the 1.7% in May. Both annual readings matched expectations.

Meanwhile, a Commerce Department report showed significant increases in both US housing starts and building permits in the month of June. The report said housing starts jumped 9.8% to an annual rate of 1.174 million in June from the revised May estimate of 1.069 million. Building permits, an indicator of future housing demand, surged 7.4% to an annual rate of 1.343 million in June from the revised May rate of 1.125 million.

In her testimony before Congress on Wednesday and Thursday, Federal Reserve Board Chair Janet Yellen lent support to the expectation of higher interest rates later this year, if the US economy shows sustained recovery.

The prospect of a US rate hike caused gold to fall to its lowest level in over five years. The metal hit a low of USD1,131.00 an ounce, causing the share prices of gold miners to sink.

In the FTSE 100, Randgold Resources closed down 2.0% and Fresnillo down 1.6%. In the FTSE 250, Acacia Mining ended down 2.8% and Polymetal International down 4.7%.

The FTSE 100 ended the day down 0.3% at 6,775.08, but added 1.5% for the week as a whole following positive steps forward in the Greek debt situation. The FTSE 250 edged 0.1% lower to 17,775.91 on Friday, and the AIM All-Share closed flat at 756.84. Both indices also gained ground over the course of the week.

In Europe, the French CAC 40 closed up 0.1% and the German DAX 30 ended down 0.4%.

On Wall Street at the London close, the DJIA was down 0.4% and the S&P 500 was down 0.1%. However, the Nasdaq Composite was up 0.6%, pushing to new record highs on the back of strong earnings from Google.

In London, housebuilders were amongst the biggest fallers after Bank of England Governor Mark Carney suggested the UK also will see higher interest rates by the turn of the year.

Carney said Thursday evening that the central bank will start to consider changing its UK interest rate policy at end of 2015, but said that any increases would be slow and suggested that interest rates would rise to no more than 2.25% in the medium term.

Speaking in Lincoln Cathedral in a speech about the Magna Carta and the Bank of England, Carney said the decision on when to start the process of raising interest rates in the UK, from the current 0.5% rate, "will likely come into sharper relief around the turn of this year".

Barratt Developments ended down 1.3%, Persimmon down 1.4%, and Taylor Wimpey down 1.1%. In the FTSE 250, Bovis Homes Group closed down 2.6%, Bellway down 1.8% and Berkley Group Holdings down 2.0%.

Expectations of a UK rate hike also supported the pound, which rose to its highest level against the euro since November 2007 at EUR1.4414.

Elsewhere on the London Stock Exchange, Royal Mail closed as the worst FTSE 100 performer, down 3.5%. UK media and communications regulator Ofcom outlined the scope of its review into the regulation of postal service operator Royal Mail, including whether any price controls should be imposed on the company given the lessening of competition in the postal services market.

Ofcom said in June that it had widened its review of the regulation of Royal Mail in light of the decision by competitor Whistl to halt its own direct delivery services in the UK. It said at the time that it would look at whether the commercial flexibility Royal Mail was given following the last regulatory review in 2012 was still appropriate and whether any pricing controls should be imposed.

The publication of the scope of the review on Friday confirmed that this remains on the table as an option, with Ofcom saying it will examine whether Royal Mail's wholesale costs and retail prices are affordable and sufficient to cover the costs of the universal service and whether the company's commercial flexibility remains appropriate within the changing market, including whether wholesale or retail charge controls may be appropriate.

Ocado Group closed as the worst performer in the FTSE 250, down 6.9% after it was downgraded to Neutral from Buy by UBS. The Swiss investment bank said that whilst it remains supportive of the online grocery company's business model, it believes upside from a new potential partner is already priced in.

The Greek situation was less in the spotlight Friday than it had been for most of the week. However, a vote in the German Parliament saw an overwhelming majority agreeing to launch talks on Greece's third bailout in five years.

While 439 of the 598 members of the Bundestag voting on the talks backed the negotiations for a new EUR86 billion lifeline for Greece, a sizeable 191 opposed it. The vote is one of the last major obstacles to opening the talks, after the Greek Parliament passed the required reforms late Wednesday.

In a quiet economic calendar Monday, there are the German producer price index at 0700 BST, eurozone current account at 0900 BST and UK public sector net borrowing at 0930 BST. At 1100 BST the German Bundesbank releases its monthly report.

In the UK corporate calendar, a first quarter interim management statement is due from FTSE 100 property developer British Land Co and a second quarter statement from gold producer Polyus Gold International. Schroder Real Estate Investment Trust reports full-year results, while Michelmersh Brick Holdings gives half-year results.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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