By Shashank Nayar and Bansari Mayur Kamdar
(Reuters) -UK's FTSE 100 climbed on Monday, helped by heavyweight mining and energy stocks, while a stronger pound on the back of rising inflation and interest rate hike bets limited further gains.
Inflation is back on the investor radar after Bank of England (BoE) policymaker Michael Saunders told households to get ready for "significantly earlier" interest rate rises, and Governor Andrew Bailey said above-target inflation was concerning.
Stuart Cole, head of macroeconomics at Equiti Capital, said the problem that policymakers were facing was that the sources of inflation that had previously seemed temporary were becoming sustainable.
The blue-chip FTSE 100 index ended 0.7% higher and recorded its third consecutive session of rises, with Royal Dutch Shell (LON:RDSa), BP (LON:BP), Anglo American (LON:AAL), and Rio Tinto (LON:RIO) among the top gainers.
The pound strengthened 0.2%, limiting gains in the export-focussed FTSE 100.
Banks added more than 2.2% as bond yields jumped across the curve after Bailey said he was concerned about inflation shooting past the BoE's 2% target. The benchmark 10-year bond yield jumped to its highest since May 2019.
The FTSE 100 has risen about 10% so far this year on easy central bank policies and re-opening optimism, but the pace of gains has slowed recently as investors straddle the fence between rising inflation and rate hike pressures and steady gains in mining and energy stocks on strong commodity prices.
Oil stocks, which have gained about 37% this year, hit their highest level since March last year to recoup most of the pandemic-driven losses. Mining stocks marked their best session since July.
Meanwhile, the domestically focused mid-cap index dropped 0.2%, with consumer discretionary stocks among the worst performers.
Online clothing store ASOS (LON:ASOS) fell 13.4%, hitting a 17-month low, after it parted company with Chief Executive Officer Nick Beighton and warned that higher logistics costs and supply chain disruption could force 2022 profits to drop by more than 40%.