FTSE struggles as inflation jump prompts rate hike jitters

UK equities struggled to make headway this morning, while the oil price jumped to a seven-year high following a drone strike in Abu Dhabi.

The FTSE 100 struggled to make gains this morning as inflation jumped to a 30-year high and the oil price surged following a drone attack in Abu Dhabi, though Pearson (PSON) and Burberry (BRBY) provided some relief with strong trading updates.

The blue-chip index inched 0.1%, or 6 points, lower to 7,556 as the Consumer Price Index measure of annual inflation jumped to 5.4% in December, with the rising cost of energy, transport and food putting further pressure on the Bank of England (BoE) to raise interest rates to curb a cost-of-living crisis.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said the numbers ‘pile the pressure’ on the BoE.

‘It hasn’t been this far off its inflation target of 2% since it first set it,’ she said.

‘And when you add rising inflation to falling unemployment and record low redundancies, it makes the argument for raising rates far stronger. It won’t want to panic borrowers, businesses or investors by raising rates too far or too fast, but it can’t afford for inflation to get out of control either.’

The energy crisis wasn’t helped by a jump in the oil price to a seven-year high after a drone attack on a fuel storage facility in Abu Dhabi. The price of a barrel of West Texas Intermediate crude was up 1.3% at $84.89 after the strike, suspected to be the work of Yemeni Houthi rebels. Tensions rose in the region as a Saudi-led coalition retaliated with airstrikes on Yemen’s capital Sana’a, which reportedly killed 20 people.

Educational publisher Pearson was a bright spot on the index, jumping to the top of the blue chips with a gain of 5.8%, or 37p, to trade at 669p after raising full-year guidance following a strong 2021.

Group sales were up 8% over the year and it now expects to deliver profits of £385m, an increase of a third on last year.

Burberry also offered some relief, with the designer fashion brand adding 5.2%, or 92p, to change hands at £18.47 after predicting its full-year operating profit will be up 35%. It has enjoyed revenues of £723m in the third quarter, up 5% on the same period last year.

The fashion house also cheered investors with the announcement that its £150m share buyback programme is on course for completion before the end of the year.

The FTSE 250 was trading flat this morning at 22,647, with Liontrust Asset Management (LIO) falling to the bottom of the ‘mid caps’ with a loss of 4.5%, or 82p, to trade at £17.14, despite generating another quarter of increased fund sales, with net flows reaching £832m.

Investment trusts made up the bulk of the mid-cap index’s top fallers, pulled lower by either falls in tech stocks on Wall Street or the knock-on effect this had on Asian equities.

Baillie Gifford Shin Nippon (BGS ) racked up another day of losses this week, down 3.8% at 180p, while stablemate Baillie Gifford Japan (BGFD ) lost 2.7% to hit 881p, and JPMorgan Japanese (JFJ ) shed 2.6% to 578p.

Tech-heavy Herald (HRI ) slipped 2.2% to £21.40 and Allianz Technology (ATT ) lost 2% to reach 285p.

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