LONDON MARKET MID-MORNING: Pound Surges After UK Inflation Picks Up

LONDON (Alliance News) - London stock prices are trading lower mid-morning Tuesday, weighed down by resources stocks, while the pound shot up against other major currencies after UK inflation surprised to the upside.

UK consumer prices rose unexpectedly in July and core inflation reached a five-month high, data from the Office for National Statistics showed. Consumer prices advanced 0.1% in July from last year, while the index was expected to remain flat, as it did in June.

Meanwhile, consumer prices declined 0.2% month-on-month after showing no change in June. This was the first fall in six months but was slightly slower than the expected 0.3% decrease. Core inflation accelerated to a five-month high of 1.2% in July from 0.8% in June. Economists had forecast it to rise marginally to 0.9%.

The retail price index, on which next year's UK rail fares will be based, rose 1.1% year-on-year, unchanged from June.

The pound shot higher against the dollar as the rise in inflation suggested the Bank of England may raise interest rates sooner than some people expect. Sterling reaching a high of USD1.5676 after the data, while hitting a high of EUR1.4160 against the euro.

The FTSE 100 trades down 0.5% at 6,515.95, the FTSE 250 is down 0.1% at 17,591.82 and the AIM All-Share is flat at 751.00.

European stock indices are mixed, with the CAC 40 in Paris down 0.1% and the DAX 30 in Frankfurt flat.

Miners are the main weight on the FTSE 100, as copper prices continue to trade near six-year lows. BHP Billiton is the worst FTSE 100 performer down 2.5%, while Antofagasta is down 2.4% and Anglo American is down 2.3%. In the FTSE 250, Lonmin is down 4.8% having fallen to a new all-time low, and Evraz is down 3.3%.

Oil stocks also are under pressure after US benchmark West Texas Intermediate fell to a new six-and-a-half year low at USD41.41 a barrel. Brent oil trades at USD48.56 a barrel.

Royal Dutch Shell 'A' is down 1.5%, Weir Group trades down 1.4%, and BP is down 1.0%.

Separately, the US government gave Shell the green light Monday to begin exploratory oil drilling in the Arctic Ocean off Alaska. The Department of Interior earlier this year granted preliminary approval of Shell's plans, but drilling hadn't begun because a key piece of emergency equipment was not on hand.

Fidelity China Special Situations is the worst mid-cap performer, down 5.1%, after a heavy fall in Asian equities. The Shanghai Composite close down 6.2%, while the Hang Seng in Hong Kong ended down 1.4%. The falls in Asian stock markets came after figures from the National Bureau of Statistics showed that home prices in majority of the Chinese cities increased in July. On a monthly basis, home prices rose 31 out of 70 cities surveyed by the government. Prices dropped in 29 cities but remained flat in 10 cities.

"Data showing a monthly rise in house prices could hamper the ability of the People’s Bank of China to cut interest rates for risk of blowing air back into a housing bubble," says Jasper Lawler, market analyst at CMC Markets.

Persimmon is amongst the worst blue-chip performers, down 2.2%. The FTSE 100 housebuilder said its pretax profit surged in the first half as it boosted margins, sold more homes and did so at higher prices, all while saying that its performance thus far in the traditionally slower summer selling season still looks robust.

However, analysts at Shore Capital, Numis and The Share Centre all said the valuation on Persimmon shares looks stretched at the moment and concerns about this appear to have trumped the robust results.

John Wood Group reported a fall in profit in the first half of 2015 as expected but the FTSE 250 oil engineering services company reaffirmed its commitment to grow the dividend and reiterated its full year outlook remains unchanged. The stock trades down 4.1%.

In the economic calendar later in the day are US housing starts and building permits, both at 1330 BST.

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

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