FTSE extends bounce as pound rallies on low unemployment

The FTSE 100 makes further gains as sterling moves off two-year lows on expectations for further interest rate rises from a Bank of England worried about 'apocalyptic' food inflation.

The FTSE 100 was led higher by a strong pound, which climbed on the back of expectations for further interest rate rises.

The UK blue-chip index gained 0.6%, or 41 points, to 7,506 after labour data that showed UK unemployment was at its lowest level since 1974, according to the Office of National Statistics.

However, it wasn’t all good news as regular pay has fallen further behind inflation at a time when Bank of England governor warned MPs about ‘apocalyptic’ food prices.

Sterling traded 2.5% higher, rising from a two-year low of $1.21 against the dollar to $1.24.

Susannah Streeter, senior investment analyst at Hargreaves Lansdown, said soaring food prices were likely to bolster the Bank’s conviction for more interest rate rises and tougher monetary policy to tackle inflation.

While there has been a raft of wage bonuses helping keep households afloat, she said the fact real pay was lagging the cost of living ‘is expected to dent consumer spending and help tip the UK into recession’.

‘But this spiralling up in earnings is still likely to keep policymakers at the Bank firmly on the path of rate hikes, however uncomfortable this journey will be for households who are being side swiped by the cost-of-living crisis,’ she said.

The fact much of the inflation is coming from importing energy when the Ukraine war is ensuring prices are kept high means bringing down inflation is going to be far from easy.

Brent crude is still touching its highest level since the end of March at $114 a barrel and there is little progress on the EU oil embargo on Russia. This pushed commodity and oil stocks higher: miners Fresnillo (FRES) and Anglo American (AAL) both gained 2% and oil major BP (BP) firmed 1.7% to 425p.

The biggest blue-chip riser was Imperial Brands (IMB), which jumped 5.8%, or 99p, to £18.12 despite a drop in profit after the tobacco giant exited the Russian market. The Rizla owner took a £225m hit on its pre-tax profit, pushing profits down 39% to less than £1.3bn in the first six months of the year.

AJ Bell investment director Russ Mould said leaving aside the Russia impact ‘it is notable that profit is up.

‘Imperial has also been able to push through price increases and is generating mountains of cash,’ he said, adding that ‘resilient demand provides a useful hedge against inflation.’

The ‘mid-cap’ FTSE 250 index rallied 0.7%, or 146 points, to 20,070, led by power generation business Contour Global (GLO), which rocketed 33%, or 64p, to 258p after agreeing to a £1.75bn cash takeover by private equity giant KKR, which also owns Pimlico Plumbers and Rayleigh bikes.

Shareholders in the owner and operator of contracted power plants have been offered 263.6p per share.

Beverage group C&C (CCR) was up 6.2%, or 12p, at 217p after revenues increased 88% in the year to the end of February. The manufacturer, marketer and distributor of branded beers and wine, including Bulmers cider, said trading had recovered after the pandemic but warned of rising input costs.

European Growth forecasts growth

Baillie Gifford European Growth (BGEU ) firmed 1.7% to 90.5p on a 10% discount after half-year results to 31 March showed a 24.7% slump in net asset value, massively underperforming the 5.2% decline in its index benchmark, but with the fund managers confident in the 25% revenue growth rate in the portfolio this year.

Tritax Eurobox (EBOX ) dropped 3.2% to 94p on a 24% discount as the formerly highly-rated real estate investment trust reported a 12.4% total half-year investment return and said rents on over three quarters of its portfolio were inflation linked.

Schroder British Opportunities (SBO ) slipped 2.3% to 84p on a 14% discount after declaring a private equity investment in Mintec, a provider of food-related commodity pricing, forecasts and analytics.

In other investment trust trading, Petershill Partners (PHLL ), which specialises in alternative investments, narrowed its wide discount with a 5.4% rally to 234p, and Fidelity China Special Situations (FCSS ) gained 3.9% to 239p.

 

Investment company news brought to you by Citywire Financial Publishers Limited.