FTSE struggles for gains as inflation surges to 3.2%

UK stocks opened flat this morning as inflation hit its highest level in a decade in August.

The FTSE 100 struggled to make gains this morning, as UK inflation surged to 3.2%, its highest level in a decade.

The UK blue-chip index opened flat at 7,033 after the Office for National Statistics (ONS) reported the consumer price index had recorded its largest-ever leap in inflation in August, with the price of goods increasing 3.2% over the past year. The reading is at the highest it has been since January 2012.

The combination of artificially suppressed prices last year due to the Covid-19-induced lockdowns, rising fuel prices and supply issues have pushed prices higher.

Laura Suter, head of personal finance at AJ Bell, said the ONS was ‘keen to point out that much of this rise in prices is temporary, particularly the restaurant and café sector’.

‘However, the Bank of England has predicted prices will rise further from here before the end of the year, so we shouldn’t bank on this being a flash in the pan,’ she said.

Just Eat (JET) was the biggest mover, dropping to the bottom of the blue chips after shedding 4% to trade at £63.34. The takeaway delivery platform fell on reports that Amazon is planning to offer Prime subscribers free Deliveroo Plus for a year. Deliveroo (ROO) itself rose 1.2% to 336p. 

Johnson Matthey (JMAT) was up 2.5% at £26.92, with the chemical company continuing to benefit from working with OnTo Technology, which develops battery recycling solutions, to develop the latter’s patented recycling process.

Banks and oil majors ticked higher, with Lloyds (LLOY) adding 1.3% to trade at 44p, NatWest (NWG) up 1.1% to 210p, BP (BP) climbing 0.8% to hit 302p, and Royal Dutch Shell (RDSA) ticking up 0.7% to £14.62.

The mid-cap FTSE 250 index slipped 0.3%, or 72 points, to trade at 23,614, with Trustpilot (TRST) sliding 6% to 389p in early trading. The consumer reviews website reporting a widening in its pre-tax losses due to increased overheads in the first half, although it has lifted its full-year outlook as revenues rose 31%.

Restaurant Group (RTN), which owns Wagamama and Frankie & Benny’s, fell 3.9% to 116p despite projecting higher annual profit thanks to a strong recovery post-reopening. However, it did flag sector challenges, including labour shortages and inflationary pressures.

Tullow Oil (TLW) was the biggest mid-cap winner, jumping 7% to 48p despite a fall in both revenues and sales. The bad news was offset by a 17.4% rise in the realised oil price to $60.8 a barrel.

Hargreaves Lansdown analyst Sophie Lund-Yates said the oil group was ‘in a much better position’ and has been ‘buoyed by higher oil prices, lower impairment charges and the cost benefits of having a smaller workforce’.

‘Debt is going in the right direction, and when all’s said and done, progress has been swifter than feared,’ she said.

However, Lund-Yates flagged environmental issues and the push towards renewables.

‘Debt-heavy companies like Tullow face an uphill batter over the long term. There are fewer resources to fund a pivot towards alternative energy, which could be problematic,’ she said. 

Trust news

News of China’s worsening slowdown in August rattled Baillie Gifford China Growth (BGCG ), off 3.9% or 15.5p at 389.25p, and Fidelity China Special Situations (FCSS ), down 2.2% or 7.5p at 336p. 

Literacy Capital (BOOK), the private equity fund founded by ex-Capital boss Paul Pindar, jumped 10p or 3.5% to 300p after Lloyds Development Capital backed a management buyout of Wifinity, a wifi provider to hard-to-reach campus locations that is the trust’s tenth largest holding. The transaction values Wifinity at 10% above BOOK’s carrying value and lifts net asset value by 3.3% or 6p per share.

Renewables Infrastructure Group (TRIG ) gained 2% or 2.6p to 127.4p after an over-subscribed £200m share issue. Stifel analyst Iain Scouller said this was ‘another substantial and successful equity issue’. Greencoat UK Wind (UKW ) rose 3p or 2.2% to 140p.

Debt fund Honeycomb (HONY ) added 10p or 1% to 980p after reporting a 4.3% total investment return in the first half of the year and saying opportunities to lend to smaller and medium-sized businesses through government-backed schemes offered ‘compelling returns’.

Baker Steel Resources (BSRT ) slipped 2% to 82.25p on half-year results showing a 2.7% investment gain that trailed the 11.4% total return of the EMIX Global Mining index.

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