Yahoo Finance FTSE 100 Live: ‘Inflation has become entrenched’ — blue-chips close at 7559 after prices shock; gilts surge
The Office for National Statistics published May’s inflation figures this morning, confounding experts in the City again as inflation remained stuck at 8.7%. Core inflation, which hit a 30-year high in April, rose even higher to 7.1%.
George Lagarias, chief economist at Mazars, said: “There’s no way to sugar-coat this, 8.7% is a bad number. Inflation has become entrenched and remains high versus other developed market economies.
UK-focused shares including housebuilders and banks traded lower amid fears over the impact of higher interest rates.
FTSE 100 Live Wednesday
Inflation shock as CPI stays at 8.7%
Interest rate hike of 0.5% more likely
Public sector debt tops 100% of GDP
Today’s snapshot as markets close
16:50 , Daniel O'Boyle
Take a look at all of the key data as blue-chip shares avoided major declines despite worse-thsan-expected inflation figures.
FTSE close to flat despite inflation shock
16:39 , Daniel O'Boyle
The FTSE 100’s declines today were limited, despite higher-than-expected inflation figures fuelling fears of more interest rate hikes.
The index of London blue-chips was down just 0.1% to 7,559.18, recovering after falling as low as 7524 earlier.
Oil supermajors BP and shell were among the top risers of the day, while DS Smith was the biggest faller ahead of its results tomorrow.
Bank of England acted too late on inflation and now homeowners will pay
16:27 , Daniel O'Boyle
“This morning’s UK inflation data can be described in just two words: truly horrible,” writes Stephen King. “With headline inflation stuck at 8.7 per cent and core underlying inflation rising from 6.8 per cent to 7.1 per cent, the Bank of England is facing a huge problem. Most thought the Bank’s key policy rate would rise by a quarter of one per cent tomorrow. Some are now thinking that it will have to move by half of one per cent.
“Anyone with a mortgage will be feeling nervous. Interest rates are a remarkably blunt instrument. Yes, they’ll eventually do the job of bringing inflation to heel. Along the way, however, there’s likely to be considerable collateral damage. Homeowners with big mortgages are in the firing line.”
THG boss Matt Moulding gives up ‘golden share’ status
16:25 , Daniel O'Boyle
The boss and co-founder of online retail group THG has given up his “golden share” rights which granted him power to veto any takeover of the firm.
The move comes almost two years after he first promised to drop the powers amid efforts by the company to ease investor concerns over corporate governance.
Chief executive officer Matt Moulding will lose the special share as it also looks to secure a premium listing on the London Stock Exchange.
West End Final: Britain’s economy cannot grow without generating inflation
16:09
“I ask the court to judge which is worse,” urges the handsome but painfully earnest Dylan McDermott. “A lie that draws a smile or a truth that draws a tear?” This rhetorical flourish is problematic even by Hollywood’s standards, given that Kris Kringle’s lawyer in Miracle on 34th Street appears to be suggesting his client is committing perjury.
The Office for National Statistics, on the other hand, has no such qualms about delivering tear-inducing truths, which is just as well. This morning, it published inflation data that continues to leave the government and households squirming.
Read the rest of today’s West End Final newsletter from Jack Kessler here
Bank of England rate hike: how high will they go?
15:46 , Michael Hunter
High noon is looming for mortgage payers and borrowers across London and the UK, with the Bank of England due to make one of the highest profile interest rate calls in a decade.
It is widely expected to lift the cost of borrowing for the thirteenth consecutive time and its most likely to take the base cost of borrowing to 4.75%, up by a quarter of a percentage point.
But the pressure is on for an even bigger, half-point rise to 5%, with inflation stuck at almost 9% and proving harder for the BOE to tame toward its 2% target.
City experts are convinced that the BOE’s governor Andrew Bailey and his eight colleagues on the Monetary Policy Committee will have to vote through a hike, with interest rates already at their highest since 2008.
Read more here on what City experts think will happen tomorrow at noon when the announcement is made, and where interest rates may peak.
Today’s business pages
15:39 , Daniel O'Boyle
Read our full coverage of the ongoing inflation crisis in today’s Standard.
Londoners hardest hit by Britain’s mortgage rate mayhem
15:36 , Daniel O'Boyle
Londoners and the under-40s will be hardest hit by the mortgage rise juggernaut battering Britain which is also sending rents spiralling, leading economists warned on Wednesday.
The Institute for Fiscal Studies laid out the scale of the exploding home loans crisis as fears sky-rocketed that the Bank of England will be forced to hike interest rates far higher than expected in a desperate bid to tame runaway inflation.
US shares lower ahead of Powell House testimony
15:04 , Daniel O'Boyle
Wall Styreet shares opened lower today as Federal Reserve chair Jerome Powell prepares to speak in front of Congress, potentially giving greater insight into where the Fed’s interest rates go next.
The S&P 500 is down 0.6% to 4362, whilethe Dow Jones is down 0.4% to 33913. The Nasdaq, containing the most rate-sensitive stocks, is down 1% to 13,529.
Chip giant Nvdia, among the biggest gainers in the past year, is one of the top fallers today, with shares down 2.5%. Rivals AMD and Intel are also down 2%.
Mortgage mayhem sees lenders pull almost 150 more deals, but worst may still be to come
14:24 , Daniel O'Boyle
Britain’s mortgage mayhem rumbled on as nearly 150 more deals were pulled from the market, and brokers warned it will only get worse with many more withdrawals and higher prices on the way.
Today’s shock inflation reading is likely to lead to higher mortgage rates, as the Bank of England is expected to hike its own interest rate higher to slow down demand. But already this morning, lenders were pulling products amid fears of the potential interest rate outlook.
Gary Bush, financial adviser at MortgageShop.com, said: “What we all prayed for, didn’t come.
“The stubborn inflation figure is going to bring continued havoc to UK mortgage rates, starting tomorrow with a likely increase in the Bank of England base rate.”
Halfords sees profits crash as brake put on bike spending
13:22 , Daniel O'Boyle
THE wheels came off profits at Halfords today as hard-pressed consumers cut back on spending at the bicycle and car accessories provider.
Annual earnings at the company slowed by 38% to £51.5 million. The Redditch-based company was not helped by the cost-of-living crisis, or chilly weather at the start of the spring cycling season after a long winter.
But its shares went up a gear today, climbing 10p to 202p, helped by an upbeat outlook from the retailer, and its move to sell parts for vehicles as well as accessories.
Chief executive Graham Stapleton said: “Trading since the start of the new financial year has been strong. We have seen growth in our loyalty club, now reaching more than two million members, and we have entered the £1 billion car parts market, drawing on our unrivalled value and convenience.”
“Tax cuts no longer look viable"
12:48 , Daniel O'Boyle
Samuel Tombs, chief economist at Pantheon Macroeconomics, says that the Office for Budget Responsibility may up its forecasts for debt interest payments by £40 billion if interest rates rise as expected.
Payments firm Volt secures $60 million funding round
12:41 , Simon Hunt
The CEO of payments firm Volt has called time on the industry dominance of Visa and Mastercard as it raised $60 million (£47 million) in a fresh funding round.
Tom Greenwood, who founded Volt in 2019, said: “Visa and Mastercard have historically been the backbone of the economic system.
“Those systems were first implemented in the 1950s and 60s and the tech that underpins it is 70 years old…it’s antiquated.
“With any delay between transactions is a real cost associated with that. They recognise both the opportunity and the threat that real-time payments present.”
London house market faces ‘slowdown’ as Bank of England risks overdoing rate rises says Berkeley boss
11:47 , Daniel O'Boyle
London’s housing market is facing a “slowdown” and the Bank of England is in danger of “overdoing” interest rate rises according to the chief executive of housebuilder Berkeley.
Rob Perrins told The Standard that buyers were being deterred by a lack of clarity on where interest rates are likely to peak. “What people would like is certainty … when [ interest rates] are moving, get to the end of the journey as quickly as you can.”
He was speaking as Berkeley reported annual profit of £604 million today, in line with forecasts and up 10%. It sold over 4,000 homes in London and the South East alone, with the average price for the region at £608,000, up slightly from £603,000 a year ago.
Market snapshot as shares recover
11:40 , Daniel O'Boyle
Shares rebounded after the initial impact of today’s higher-than-expected inflation figure, with the FSTE 100 up slightly, as markets predict the interest rate impact of toda’s reading may not be as bad as first thought.
Take a look at the key market data.
Bank of England mulls interest rate ‘jumbo hike’ amid inflation spiral
11:12 , Daniel O'Boyle
The Bank of England is under huge pressure to hike interest rates even further and faster than previously thought, amid fears the economy could slip into a “wage-price spiral” otherwise.
Inflation didn’t budge in May, remaining at 8.7% despite supermarkets boasting of price cuts for certain food products. Core inflation, which strips out food and energy prices to create a less volatile picture of domestic inflation, rose from what was already a 30-year high to hit 7.1%.
David Bharier, head of research at the British Chambers of Commerce, said: “What started as a commodity price shock has now created a wage-price spiral.”
De Beers update puts pressure on Anglo American, THG shares up 3%
10:30 , Graeme Evans
THG shares put on a strong showing today as the Hut Group e-commerce business forecast a big jump in profitability.
Ahead of its AGM in Altrincham, THG revealed a strong start to the financial year by the Nutrition arm that includes the online sports brand Myprotein.
THG said pricing decisions to support consumers through the cost of living crisis were “now paying dividends”, with softer commodity prices also benefiting margins. It now forecasts a significant increase in overall first-half profitability.
Shares rose 3% or 2.15p to 75.05p, still a far cry from September 2020’s 500p stock market float price.
Analysts at Jefferies today upgraded their price target to 95p, noting that cost headwinds behind 2022’s downgrades are turning into tailwinds. They believe there’s “considerable value and growth potential” in the group’s market-leading assets.
As well as the Nutrition arm and a Beauty division featuring the Lookfantastic brand, THG operates a platform providing e-commerce services for brand owners.
THG also confirmed chief executive and founder Matt Moulding has relinquished the special share held since the flotation, part of an overhaul of corporate governance as the £1 billion-valued company seeks a place in the FTSE 250 index.
The THG performance was one of the few highlights in a session when the FTSE 100 index fell 9.06 points to 7560.25 and the UK-focused FTSE 250 lost 133.71 points at 18,612.45.
In the top flight, Anglo American fell 35p to 2349.5p as its De Beers division reported rough diamond sales for the past fortnight of about $450 million, down on the previous period and compared with $657 million the year before.
Other mining stocks also came under selling pressure today, with Rio Tinto down by just under 1% or 46p at 5107p.
The risers board included Premier Inn owner Whitbread, which lifted 21p to 3420p ahead of the company’s trading update tomorrow. HSBC shares also rose 3.2p to 618.4p in a session when UK-focused lenders were under selling pressure.
Small businesses warn of impact of rate hikes
10:07 , Daniel O'Boyle
More interest rate hikes appeal likely after today’s inflation reading. But Martin McTague, chair of the Federation of Small Businesses, warned that further hikes could lead to many smaller companies going bust.
He said: “The potential economic fallout from high interest rates isn’t confined to balance sheets - it will affect every aspect of our society, from employment rates to consumer spending and beyond, so we urge the Bank of England to show moderation.”
Revolution Beauty hits out at Boohoo
09:15 , Simon Hunt
Beleaguered cosmetics firm Revolution Beauty has lashed out at major shareholder Boohoo after the fashion retailer called for the ousting of three board members, to be replaced by its own executives.
Revolution Beauty said the move was “nothing short of value-destructive, opportunistic and self-serving.
“At a time when, thanks to current management’s tireless efforts, the company’s fortunes are finally looking up, with business back on track and re-admission to trading on AIM being potentially imminent, boohoo is seeking to stage a board and management control coup without making a general offer, or paying a single penny.
“These are certainly not the actions of any reasonable "strategic" shareholder.”
Shares in Revolution Beauty were suspended in September after it encountered a string of accounting problems which caused major delays to the publication of its results.
Boohoo controls a 26.6% stake.
Today’s market snapshot as inflation reading sends shares down
08:43 , Daniel O'Boyle
Take a look at the latest key market data as investors fear the impact of interest rates that could rise as high as 6%.
Mortgage rates keep climbing
08:41 , Daniel O'Boyle
Mortgage rates keep climbing, with more rises expected following today’s higher inflation reading.
According to Moneyfacts, the average two-year fixed residential mortgage rate today is 6.15%, up from 6.07%. The average five-year rate is up from 5.72% to 5.79%.
Rates are also up for buy-to-let deals, with two-year rates increasing to 6.44% and five-year rates to 6.31%.
Lenders continued to pull products, with 143 less products on the market.
Economists predict Bank will jump straight to 5%
08:27 , Daniel O'Boyle
Economists at Capital Economics now expect the Bank of England to hike rates straight to 5%, rather than the previously forecasted quarter-point rise to 4.75%.
“In response to May’s inflation data, released earlier today, we now expect the MPC to raise interest rates by 50bps to 5.00% at tomorrow’s meeting,” group chief ecnomist Neil Shearing said. “A lot of attention has focussed on the fact that inflation failed to fall in line with expectations last month and was instead unchanged at 8.7%.
“But the bigger concern in our view is that core inflation rose yet again, hitting a 31-year high of 7.1%. This marks the UK out from other advanced economies, including the euro-zone and the US, where core inflation has started to fall.”
Lloyds and NatWest shares under pressure, FTSE 250 down 0.8%
08:24 , Graeme Evans
The UK-focused FTSE 250 index today felt the force of today’s shock inflation figure, falling by 0.8% or 144.92 points to 18,601.24.
The FTSE 100 index, which is dominated by oversea-earning stocks, fell 0.4% or 27.62 points to 7,541.69 in a performance still weaker than those seen in Frankfurt and Paris.
Recession fears caused by expectations of even higher interest rates meant shares in UK-focused lenders NatWest and Lloyds fell 3% and housebuilding stocks Taylor Wimpey and Barratt Development lost more than 2%.
In the FTSE 250, stocks under pressure included British Land as its shares fell 3% or 9.8p to 326.1p.
Chamber of Commerce research boss warns of ‘wage-price spiral'
08:22 , Daniel O'Boyle
David Bharier, head of research at the British Chambers of Commerce, said that the current inflation crisis is now showing signs of a wage-price spiral.
“Today’s CPI rate of 8.7% shows that inflation is remaining elevated for longer than expected,” he said. “After 18 months of price shocks, the impact of sustained inflation remains the top issue for the vast majority of firms we speak to. What started as a commodity price shock has now created a wage-price spiral.
“However, much more positively, the producer input price (PPI) rate has slowed significantly once again to 0.5%. With our research showing that gradually fewer firms expect their own prices to rise, energy and commodity costs may fall away as drivers of consumer inflation.”
6% rates fully priced in
08:17 , Daniel O'Boyle
City traders are betting that 6% interest rates are all but certain, after today’s unchanged inflation figures.
Interest rates haven’t hit 6% since 1999, but with headline inflation stuck at 8.7% and core inflation rising further, it is feared that it will take a number of other rate rises to bring prices back under control.
Rates are expected to keep rising into 2024, with a strong chance of hitting 6.25%.
The Bank of England’s next meeting is tomorrow, and markets currently see it as almost a toss-up whether it raises rates by a quarter of a percentage point or hikes them by half a point, straight to 5%.
Public sector debt tops 100% of GDP
08:01 , Graeme Evans
As well as today’s shock inflation print, borrowing figures have revealed that public sector net debt as a percentage of GDP has topped 100% for the first time since March 1961.
The provisional estimate of 100.1% for May comes as net debt hit almost £2.57 trillion for May.
The ratio topped the 100% level during the pandemic before being revised down when stronger GDP data replaced initial forecasts.
Today’s update from the Office for National Statistics also showed the second-highest May public sector borrowing figure since monthly records began in 1993.
The reading of £20 billion was £10.7 billion more than the same month the year before due to the cost of energy support payments and interest on government borrowing.
THG expects better performance this year after heavy 2022 losses
07:55 , Daniel O'Boyle
Online retailer THG says it expects a “significant increase” in profitability in the first half of this year, after piling up huge losses in 2022, thanks to good performance for its nutrition arm.
Losses hit £540 million in 2022, but the firm said trading has been better this year. It said profits for the year should be in line with guidance, which is around £118.5 million.
THG was subject of takeover speculation earlier this year, but talks with Apollo Global never led to a firm bid.
Lib Dem treasury spokesperson: Government ‘failing’ on inflation
07:27 , Daniel O'Boyle
Responding to the latest figures showing inflation remained at 8.7% in the year to May, Liberal Democrat Treasury Spokesperson Sarah Olney MP said the latest inflation figures showed the government was “failing” to bring prices under control.
“These worse than expected figures show the government is failing miserably to bring inflation down and provide relief for struggling families facing soaring bills.
“Homeowners now face the likelihood of even more interest rate hikes adding to their monthly mortgage payments, all while the Chancellor just sits on his hands.
“It beggars belief that ministers are refusing to support hard-pressed families when it’s this Conservative government’s catastrophic failure to run the economy that caused this crisis.
“This must be the most uncaring Government to ever walk into Downing Street. It’s as if ministers are living on another planet.”
Chancellor responds to higher-than-expected inflation figures
07:27 , Daniel O'Boyle
Chancellor of the Exchequer Jeremy Hunt said the Government will continue to support the Bank fo England as it is expected to hike interest rates following today’s inflation shock.
“We know how much high inflation hurts families and businesses across the country, and our plan to halve the rate this year is the best way we can keep costs and interest rates down.
“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy, while also providing targeted support with the cost of living.”
Southend Airport owner confirms it is up for sale
07:23 , Simon Hunt
The owner of Southend Airport has confirmed the site has been put up for sale.
Debt-ridden Esken, which is also putting its Renewables business up for sale, said it “concluded that the interests of all stakeholders would be best served by seeking a new owner for each of the core businesses through a managed sale process.”
It comes despite the fact the firm recently secured a multi-year agreement with easyJet, which will see the airline will operate a new route to Amsterdam, in addition to the three existing destinations of Malaga, Majorca and Faro.
Asia markets under pressure, FTSE 100 seen flat
07:22 , Graeme Evans
Wall Street markets finished in the red last night, with the S&P 500 index down 0.5% for its first back-to-back decline since the end of May.
The Dow Jones Industrial Average fell 0.7% and the Nasdaq Composite lost 0.2% as US shares paused a recent strong run.
The selling comes as traders prepare for Federal Reserve chair Jerome Powell’s update on the US economy during two days of testimony to Congress.
European markets fell slightly yesterday, with the FTSE 100 down 0.3% and Frankfurt’s Dax 0.6% lower.
Disappointment at the scale of yesterday’s rate cuts by China’s central bank means the Hang Seng in Hong Kong has fallen 1.8%, although Tokyo’s Nikkei 225 has bucked the trend in positive territory.
In today’s session CMC Markets expects London’s top flight to open four points higher at 7573.
Will it take a recession to beat inflation?
07:15 , Daniel O'Boyle
Joseph Calnan, corporate FX dealing manager at Moneycorp, has warned that the interest rates priced in by markets - whcih now appear more likely after the latest inflation shock - could mean the UK is plunged into a recession.
“Despite a steady rate of CPI, the Bank of England mustn’t lose sight that we’re still in worse straits than the US and the eurozone, with a long way to go,” he said.
“Concerns are circulating that the terminal rate of 6% now priced in by the markets could tip the UK into a recession, but unless the BoE keeps hiking rates, high inflation will be here to stay.
“The news of average two-year fixed mortgage rates narrowly breaking through the 6% pain threshold yesterday no doubt complicates the issue, but unfortunately reducing borrowing and spending by increasing the benchmark rate is the only realistic way to bring prices down.
“Just how much the ‘aligned’ monetary and fiscal policy emphasised by the chancellor are able to reduce the strain on households remains to be seen, but a further hike from the BoE is all but a certainty. It’s not a question of ‘if’, but ‘by how much’.”
Inflation stuck at 8.7%
07:09 , Daniel O'Boyle
Inflation was unchanged in May, remaining at a higher-than-expected 8.7%, according to figures released by the ONS this morning, which could spark fears of price rises becoming entrenched.
The lack of change will likely mean more interest rate hikes, possibly to levels that haven’t been seen this century.
Despite a number of supermarkets boasting of price cuts, food prices were still up by 18.4%.
Maybe more worryingly, core inflation hit another 30-year high of 7.1%.
Recap: Yesterday’s top stories
06:49 , Simon Hunt
Good morning. Here’s a look back at some of our top stories from yesterday:
The board of car dealership Lookers has backed a £464 million takeover offer from Canadian firm AAG.
A small London-based AI startup with barely more than 10 employees has already hit a $100 million valuation in signs investors are flooding in to get a stake in the technology. (Read a comment piece about these soaring valuations here).
Revolution Beauty has begun a legal fight with its former boss Adam Minto after its shares were suspended amid audit issues.
