FTSE gains despite shock leap in inflation to 2.1%

UK equities shrugged off an inflation rise that breached the Bank of England's 2% target as investors continue to believe rising prices are temporary.

UK inflation may have sailed past the Bank of England’s 2% target but the FTSE 100 ignored any concerns about rising prices to hit the 7,200 level this morning.  

The main market was up 0.4%, or 29 points, to trade at 7,202 by 8:40am as the Office for National Statistics reported the consumer price index rate of inflation had leapt from 1.5% to 2.1% in May, which was higher than the expected rate of 1.8% and above the Bank’s long-held 2% target.

The Bank had already predicted inflation would hit its target this year before falling back below this level, meaning it may still hold off raising interest rates. 

Rachel Winter, associate investment director at Killik & Co, said the jump in inflation, which was driven by rising transport, clothing, food, and recreation prices, shows life returning to normal.

However, she warned that with US inflation also running hot, it will ‘be critical to keep an eye on inflation here’.

‘Gradual inflation is beneficial but having too much of a good thing too soon is not,’ she said. ‘If inflation becomes unmanageable, the Bank may be forced to raise interest rates much sooner than anticipated.’

Derrick Dunne, the chief executive of Beaufort Investment, said the data indicates an ‘impressive recovery is coming’ but also warned of an interest rate rise.

‘The Bank may soon have to take tightening measures. Let’s not forget a few years ago when it started cautiously raising the base rate in the face of a post-Brexit inflation surge,’ he said.

He added that the delay to ‘Freedom Day’ should ‘temper price rises in the short-term’ but ‘nothing is off the table’ in terms of policy adjustment.

Heavyweight financial stocks were the biggest gainers, with NatWest (NWG) leading the blue chips higher, up 1.8%, or 3p, at 209p. Asset manager M&G (MNG) added 1.6%, or 3p, to trade at 248p, and insurer Prudential (PRU) gained 1.5% to trade at £15.25.

There were widespread losses among the biggest miners:

  • Glencore (GLEN) down 2.4% at 313p;
  • Anglo American (AAL) down 1.7% at £29.47;
  • Antofagasta (ANTO) down 1% at £14.53;
  • BHP (BHP) down 0.8% at £21.12;
  • Evraz (EVRZ) down 0.8% at 623p;
  • Fresnillo (FRES) down 0.5% at 833p; and
  • Rio Tinto (RIO) down 0.5% at £59.83.

The FTSE 250 added 0.38%, or 86 points, to reach 22,717, led higher by Network International (NETW), which provides payment solution in the Middle East and Africa; it advanced 2.9%, or 11p, to 387p.

Hilton Food Group (HFG) moved 2% higher to £11.10 just a day after it suffered ‘extensive’ damage from a fire at one of its Belgian food processing plants.

SONG remains the same

Acquisitive Hipgnosis Songs Fund (SONG ) slipped 1.6% to 122p after announcing plans to raise £150m in a share placing at 121p per share, a 2.4% discount to yesterday’s closing price and a 2% premium to the adjusted net asset value of 118.57p per share. The 4%-yielder will use the money to buy the rights to more popular songs and repay some of its overdraft or ‘revolving credit facility’.

In other investment trust news, Electra Private Equity (ELTA ) eased 5p, or 0.9%, to 584.9p after saying TGI Fridays, the winding down fund’s biggest asset, would demerge in September under a new company called Hostmore.

Augmentum Fintech (AUGM ) recovered 2.2%, or 3p, to 138.75p after yesterday’s decline on confirmation of a forthcoming share issue.

Schroder Japan Growth (SJG ) extended its recent run, up 2.9%, or 6p, to 209.5p.

Riverstone Energy (RSE ) tapered its wide 40% share price discount, adding 5p, or 1.5%, on an agreement to invest US$20m in Decarbonization Plus Acquisition Corporation III ahead of the private company’s merger with Solid Power Inc, whose lithium-ion batteries could be used by Ford and BMW.

Tritax EuroBox (EBOX ) firmed 0.4p to 111.6p on making its first investment in Sweden and the Nordics, using another £47m of the €500m (£429m) green bond it issued last month to buy two warehouses in the Port of Gothenburg.

 

 

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