The UK’s economy is in the spotlight after the inflation rate rose for a second month in a row and a major retailer closed stores in the wake of the Budget.
Shoe Zone was already under pressure due to weaker consumer confidence before the rise in wage costs left some sites unviable.
The Bank of England is expected to leave interest rates on hold tomorrow, whereas the Federal Reserve is set to make a “hawkish” cut tonight.
FTSE 100 Live Wednesday
- Inflation higher ahead of BoE decision
- Shoe Zone stores close after Budget
- National Grid unveils £35bn investment
Market update: Rates outlook curbs FTSE 100 demand, Shoe Zone down 40%
10:10 , Graeme EvansA modest improvement for the FTSE 100 index today masked jitters over the outcome of central bank meetings on both sides of the Atlantic.
Even though the Federal Reserve is due to cut interest rates by another 0.25%, investors expect tonight’s message to be hawkish in tone given the persistence of inflation.
Wall Street’s caution on the 2025 policy outlook has seen the longest losing run for the Dow Jones Industrial Average since 1978. Decliners in the S&P 500 index have also outnumbered higher stocks for the last 12 sessions.
The overseas-focused FTSE 100 index last night closed 0.8% lower, while the UK leaning FTSE 250 index slid 1.3% ahead of tomorrow’s decision by the Bank of England’s monetary policy committee (MPC).
This morning’s highest inflation print since March at 2.6% means policymakers are certain to keep rates at 4.75% despite slowing growth in the UK economy.
Deutsche Bank said the latest inflation reading reinforced the bank’s message of patience and gradualism.
Economist Sanjay Raja added: “Price pressures are resurfacing again – with employers likely to start ramping up prices at the start of the year to account for the National Insurance increase.
“And the MPC will be cognisant of this heading into its final decision of the year. Put bluntly, the MPC is some way away from declaring victory on inflation.”
The FTSE 100 index rose 28.93 points to 8224.13, with BP among the stocks in demand after Brent Crude’s rise in price to $73.64 a barrel underpinned a 6p gain to 386.05p.
Strongly performing Next lifted 130p to 9936p and Marks & Spencer by 4.2p to 393.1p, while in the financials sector Lloyds Banking Group rose 0.7p to 55p and HSBC by 8.1p to 765.8p.
The shares of British Airways owner IAG spent another session on the risers board, lifting 4.1p to 301.4p after analysts at Jefferies raised their price target to 350p and Peel Hunt increased to 400p.
The shares are now above 300p for the first time since the pandemic, up more than 90% this year as one of the best performing stocks in the FTSE 100 index.
On the fallers board, insurers Hiscox and Beazley weakened by about 1% while Severn Trent and United Utilities dropped 0.5% ahead of tomorrow’s final decision by Ofwat on the industry’s price framework for the next five years.
National Grid also dropped 3.4p to 933.2p as it announced “unprecedented” plans to invest £35 billion in its electricity-transmission business over the five years to March 2031.
The FTSE 250 index added 0.35% or 72.90 points to 20,615.76, with Hollywood Bowl up 5p to 300p in a recovery from yesterday’s post-results slide of 11%.
The biggest fall of the session was by AIM-listed Shoe Zone, which lost 40% of its value after slashing profit forecasts in the face of “very challenging” trading conditions.
The retailer, which has a portfolio of 297 stores and about 2250 staff, has suspended its dividend and closed some sites due to the impact of higher wage costs in the Budget. Shares fell 56p to 82.5p.
National Grid unveils £35bn investment plan
08:42 , Graeme EvansNational Grid has unveiled “unprecedented” plans to invest £35 billion in its electricity-transmission business over the five years to March 2031.
The figure is made up of around £11 billion to maintain and upgrade existing networks and about £24 billion for pipeline investment, including £15 billion to increase network capacity.
Chief executive John Pettigrew said: “This plan represents the most significant step forward in the electricity network that we’ve seen in a generation.
“Through it we will nearly double the amount of energy that can be transported around the country, support the electrification of the industries of today and tomorrow, create new jobs, and support inward investment for the UK.”
IAG shares top £3 after 2% rise, FTSE 100 higher
08:36 , Graeme EvansIAG shares are above 300p for the first time since the pandemic after the British Airways and Iberia owner benefited from another broker upgrade.
Jefferies backed the shares to reach 350p, up from its previous 270p estimate.
IAG shares have risen by more than 90% this year, one of the best performances in the FTSE 100 alongside Rolls-Royce. They rose 2% or 6.2p to 303.5p in today’s session..
Other stronger stocks in the FTSE 100 index included BP, which lifted 4.05p to 384.15p, and Next with an improvement of 82p to 9888p.
London’s top flight rose 0.2% or 13.82 points to 8209.02, while the FTSE 250 index also steadied after yesterday’s poor session.
Dow Jones losing run continues, Federal Reserve set for “hawkish” cut
07:57 , Graeme EvansThe Dow Jones Industrial Average last night notched up its first nine-day losing streak since 1978, although the Wall Street benchmark is still up 15% for the year.
The S&P 500 index is still close to a record level, although Deutsche Bank points out that it is on a run of 12 days in a row where the number of decliners have exceeded higher stocks..
It said: “This is the second longest run in 100 years and has only been exceeded by a run of 14 days in 1978. Quite remarkable really.”
Tonight is likely to see the Federal Reserve cut interest rates by another 0.25%.
However, IG Index said the move has been branded a 'hawkish cut' as the central bank is likely to signal a more cautious policy in the new year due to the persistence of inflation.
Inflation rise adds to concern over weak growth
07:44 , Graeme EvansTom Stevenson, investment director at Fidelity International, said a second consecutive rise in the rate of inflation is unwelcome if not unexpected.
He said: “Combined with the recent stalling in growth, it paints a picture of a UK economy battling to escape the clutches of stagflation”
Bank of England policymakers meet this week, having previously cut interest rates in August and November.
Other central banks have lowered borrowing costs in recent days but Stevenson said the Bank may be less inclined to follow suit.
He said: “Stronger food, clothing and fuel costs were part of a broad-based rise in prices. Goods inflation turned positive after a string of falls and service sector inflation remains well above target.
“Added to firmer inflation expectations in the wake of Rachel Reeves’s first Budget, the new data adds to the government’s dilemma as it seeks to boost growth in an economy that has stopped expanding since the election.
“The UK stock market remains one of the cheapest in the developed world, but the lack of domestic growth and persistent inflation makes it harder to spot the catalyst for a re-rating.”
Shoe Zone closes stores after Budget hit
07:35 , Graeme EvansShoe Zone today revealed it has closed stores after they became unviable due to “significant additional costs” in the wake of the Budget.
The footwear retailer, which operates 297 stores and has about 2250 staff, also said very challenging trading conditions caused by weaker consumer confidence and unseasonal weather have decreased revenue and profit.
It now expects that profit for the year to next September will be not less than £5 million, down from previous expectations of £10 million. The business is not planning to announce a final dividend alongside annual results in January.
The group has not specified how many stores have closed in recent weeks.
It said: “Consumer confidence has weakened further following the Government's budget in October, and as a result of this budget, the company will also incur significant additional costs due to the increases in National Insurance and the National Living Wage.
“These additional costs have resulted in the planned closure of a number of stores that have now become unviable. The combination of the above will have a significant impact on our full year figures.”
Inflation rate rises to 2.6%, in line with forecasts
07:07 , Graeme EvansThe UK’s annual rate of inflation has increased in line with expectations to 2.6%, the highest level since the reading of 3.2% in March.
The figure for November compared with the 2.3% reported the previous month.
The change reflected upward effects from motor fuels and second-hand cars, partially offset by a downward effect from air fares.
Bank of England policymakers are seen keeping interest rates at 4.75% when they conclude their two-day meeting tomorrow.
FTSE 100 set for improved session, Federal Reserve rates decision due
07:01 , Graeme EvansThe FTSE 100 index is set to break its losing streak after futures trading pointed to a rise of 12 points to 8207 at the opening bell. It fell 0.8% yesterday.
The improvement follows a stronger performance for Asia markets, with the Hang Seng index up 0.8% on hopes of support for China’s economy in 2025.
US markets weakened ahead of today’s Federal Reserve decision, when policymakers are expected to make another quarter point cut in interest rates.
The Dow Jones Industrial Average fell by 0.6%, marking its longest losing streak in 46 years. The S&P 500 index and Nasdaq Composite also fell, having fared better in recent sessions.
The pound stood at $1.271 prior to today’s release of UK inflation figures.
