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LONDON (Alliance News) - Despite a positive open Tuesday, UK stock indices are mixed mid-morning, while the pound is lower against other major currencies after official data showed UK inflation fell below the 2.0% target for this first time since 2009 in January.
By mid-morning January, the FTSE 100 is flat at 6,736.00, the FTSE 250 is down 0.1% at 16,223.10, and the AIM All-Share is down 0.2% at 877.20.
Major European equity markets are also lower, with the CAC 40 down 0.5% and the DAX down 0.1%.
The price of consumer goods in the UK increased by just 1.9% year-on-year in January, slipping from 2.0% growth in December. On on a monthly basis prices fell by 0.6% from the 0.4% growth recorded in December, in line with expectations.
In December, the headline CPI rate fell to the government set target of 2.0% for the first time in four years. Tuesday's figures mark the first time inflation has been below target since November 2009.
"I expect the UK to continue to benefit from below-target inflation for some time to come and there is every chance it could drop as low as 1% by the end of this year," said UFXMarkets managing director Dennis De Jong. "As revealed by Bank of England Governor Mark Carney last week, this lack of inflationary pressure will also mean that interest rates are likely to need to remain at low levels in the short to medium term,? says De Jong.
Since the BoE raised its GDP forecasts for the UK last week, the pound had gained almost 2.5% against the dollar, peaking at more than a four-year high overnight, above USD1.6800, as markets continue to believe that strong growth will lead the central bank to raise interest rates earlier than expected.
Following the inflation numbers, the pound slipped back to a two-day low against the dollar of USD1.6651. Against the euro the pound is also also lower, currently trading at EUR1.2155. Against the dollar, the euro remains broadly flat Tuesday at USD1.3710, remaining remarkably strong despite a eurozone economic sentiment survey missing expectations.
The eurozone ZEW survey of current economic sentiment recorder 68.5 in February, slipping from 73.3 in January and missing economists forecasts of 73.9. The same survey in Germany also missed expectations, recording 55.7 in February, down from 61.7. Economists had expected the reading to remain unchanged.
Within UK equities, utilities lead the falls, with Centrica suffering the most after receiving a downgrade to Sell from UBS. The bank suggests that increasing political pressure, including price freezes and profit caps will continue to weigh on the companies performance. Centrica leads the FTSE 100 fallers Tuesday, down 3.2%.
Within the sector, National Grid and United Utilities are also down, by 0.4% and 0.7% respectively. FTSE 250 listed energy supplier Drax Group is down 1.2% despite reporting strong 2013 full-year results as it expects pressure on coal prices to lead to a tougher 2014.
On the upside, the Oil Equipment Services & Distribution sector leads the gainers, with Wood Group leading the way, up 4.1%. Along with full-year results that were in line with expectations, Wood Group announced a 14.9 cents final dividend, taking its full-year payout 29% higher than in 2012. Liberum Capital said the planned dividend progression from here is also significantly higher than expected.
Still to come Tuesday, the US New York Empire State manufacturing index at 1330 GMT, followed by the US Redbook of retail sales at 1355 GMT.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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