Proactive Investors -
- FTSE 100 falls 16 points
- UK inflation did not fall in February as expected
- Rises in food and drinks costs drive 10.4% CPI increase
Nope - the FTSE has slipped back again, with commodities stocks driving the losses.
Shell and BP have lurched lower, down 0.5% and 0.9%, and been joined by the big miners, with Rio Tinto PLC down 1.4%, Antofagasta PLC losing 0.6%, while Glencore and Anglo American are down 0.2%.
Meanwhile, the debate rages over tomorrow's BoE decision, which is not cut and dried as some think.
Craig Erlam, market analyst at Oanda, is firmly expecting a hike, saying this morning’s surprise inflation rebound, reversing the declining trend we have seen in recent months, has dealt a “crushing blow”.
"Whatever flexibility the Bank of England may have thought it would have tomorrow was wiped out by this morning's inflation data and once more, the topic of conversation has shifted to whether 25 basis points will be enough."
Considering headline CPI and the core number were both expected to decline, Erlam says the large increase has “come as a nasty shock”.
"And while it could prove to be a blip, there really isn't anything positive we can take away from this release. And certainly, nothing that would justify a pause tomorrow from the MPC, even against the backdrop of financial stability concerns and the knock-on effects of aggressive rate hikes.
"Inflation is still expected to fall considerably over the course of the year but we need to see much more evidence of that than we've had so far."
Rob Morgan, chief investment analyst at Charles Stanley (LSE:CAY), agreed that were it not for the hot inflation reading, the interest rate decision “would have been finely balanced” but now the MPC has been given “every reason” to hike again, though he said a 0.25% hike was most likely.
He said inflation is proving "much stickier" in the UK than the US, as higher energy prices and the weak pound are keeping inflation figures high.
"Despite the OBR expecting inflation to drop rapidly to 2.9% by the end of the year, the latest data shows that the threat hasn’t receded. If anything, authorities need to be on even higher alert to ensure that ‘Terminator’ inflation doesn’t keep coming back," Morgan said.
Not everyone is in agreement, however.
Sam Tombs, chief UK economist at Pantheon Macroeconomics, said despite the unexpected rise in CPI inflation the outcome of the MPC meeting is still “finely balanced”, though he still thinks “concerns about financial stability and the recent slowdown in wage growth will ensure that a small majority of members vote to keep Bank Rate at 4.0%”.
He noted that “core services” CPI inflation – which excludes transport services, package holidays and education – undershot the MPC’s 6.9% forecast, despite rising to 6.7% from 6.1%.
The surprise came from food CPI inflation, which increased to 18.0%, from 16.2%, and from core goods CPI inflation, which rose to 5.7%, from 5.6%.
“The jump in food CPI inflation is linked to shortages of some fruit and vegetables as a result of bad weather in southern Europe and Africa, and so should prove to be temporary,” he said.
He said headline inflation is likely to fall to about 9.6% in March, on the anniversary of the surge in motor fuel prices in the wake of Russia’s invasion of Ukraine, while price rises in the hospitality and tourism sector are likely to be smaller in March than a year ago, when some businesses hiked prices ahead of the increase in VAT and the contribution of electricity and natural gas prices to the headline rate will fall in April as it will be compared to the huge 54% increase on Ofgem’s price cap in April 2022.
Berenberg economist Kallum Pickering was predicting the MPC would stand pat, but said the CPI upside surprise “skew the risks towards a further hike”.
“The decision will hinge on whether policymakers believe the backward looking inflation surprise is likely to be the start of a trend or whether it is a one-off linked to normal monthly volatility.
“Furthermore, policymakers will need to judge whether a likely period of liquidity hoarding and cautious lending behaviour by banks de facto does the BoE’s job for it – at least for a while.
“As the BoE is likely at or close to the end of its rate hike cycle, as signalled in February by its shift to data-dependant mode, this is probably the most finely balanced decision in living memory.”
Is a 25bp increase in Bank Rate tomorrow really a sure bet?The MPC's measure of core services CPI inflation *undershot* its 6.9% forecast, despite rising to 6.7% in Feb, from 6.1% in Jan.
It makes little sense to hike rates to counter a weather-related jump in food prices. pic.twitter.com/3POHV1xkdy
— Samuel Tombs (@samueltombs) March 22, 2023
Banks lead fight-back
London's blue-chip benchmark has erased most of its early losses and is now down just three points at just below 7533.
The banks are leading the way, with NatWest Group PLC (LON:NWG) up 1.5% and topping the leaderboard, with HSBC (LON:HSBA) up 1.1%, Barclays (LON:BARC) 0.8%, Lloyds (LON:LLOY) 0.7% and Standard Chartered (LON:STAN) up 0.5%.
The mid caps on the FTSE 250 are still down 0.25% at 18,732, that's despite some solid news out from companies this morning.
Full-year figures from housebuilder Vistry Group (LON:VTYV) seem to have impressed the market, with the shares up 3.7%.
Adjusted profit before tax rose 21% to £418mln on revenue up 14% to £3.07bn, with a final dividend of 32p down from 40p last year and synergies from its acquisition of Countryside upped to £60mln.
Broker Peel Hunt noted that, like others in the sector, Vistry has seen an improving sales trend since the start of the year, with an average private sales rate per site per week of 0.54, rising to 0.62 in the past four weeks compared to 0.58 in 2019.
Top of the FTSE 250 leaderboard however is Bytes Technology Group PLC, up 3.9%, as it talked about "very strong" demand across both private and public sectors in a year-end trading update.
Gross profit growth and adjusted operating profit growth of 20% are expected for the year ending February.
On AIM, tonic maker Fevertree Drinks is up 4.8% after confirming its return-to-growth strategy will result in increased prices as it battles to mitigate the rising cost of glass, with sales guidance maintained at £390-£405mln and confidence expressed about achieving 13% to 18% growth.
It cited ongoing momentum across its 'growth' regions, particularly in the US, and a return to growth in the UK for the relatively bullish outlook.