LONDON (ShareCast) - (Sharecast News) - London equities advanced on Wednesday as stronger-than-expected UK inflation data curbed expectations of further interest rate cuts this year.
The FTSE 100 index gained 1.08% to close at 9,288.14 points, while the FTSE 250 edged up 0.24% to 21,885.88 points.

"Despite the sell-off in the US overnight, emanating from the technology sector, UK stocks were pretty steady in early trading on Wednesday," said AJ Bell's Danni Hewson.

Patrick Munnelly of TickMill noted that "global markets took a breather following a record-setting streak, with a significant selloff in major technology stocks pulling indices down, and futures suggesting more decreases ahead."

Sterling weakened despite the inflation surprise, slipping 0.29% on the dollar to trade at $1.3452, and falling 0.34% against the euro to change hands at €1.1545.

Hewson added that "the index was not helped by the hotter than expected UK inflation report - which gave sterling a modest lift.

"A stronger pound hits the relative value of the FTSE 100's dominant overseas earnings."

UK inflation accelerates, house prices rise

In economic news, UK inflation accelerated in July, driven by a sharp rise in transport costs, with airfares the main contributor.

Consumer prices rose 3.8% year-on-year, up from 3.6% in June and above the 3.7% forecast, marking the highest since January 2024.

Transport prices climbed 3.2%, with airfares surging 30.2% between June and July, more than double the increase seen a year earlier.

Food inflation also picked up, rising 4.9% from 4.5% the previous month, while services inflation, closely watched by the Bank of England, strengthened to 5.0% from 4.7%.

Core inflation edged higher to 3.8%.

ONS chief economist Grant Fitzner said the surge in fares was "the largest July rise since collection of air fares changed from quarterly to monthly in 2001," reflecting the timing of school holidays.

Economists differed on the implications for monetary policy.

Hewson said the rise in services inflation "is likely to narrow [the Bank's] opportunity to cut the base rate further this year."

Munnelly pointed out that "UK inflation in July surprised to the upside ... core inflation also increased to 3.8% y/y, while services inflation climbed to 5.0% from 4.7%, exceeding market expectations of 4.8%."

He added that the MPC's tight 5-4 vote last month "highlights discomfort with current price levels," even if markets had already scaled back expectations for further rate cuts.

Separate figures showed UK house price inflation quickened in June as demand picked up after a brief slump.

The ONS reported that the average home price rose 3.7% year-on-year to £269,000, compared with a 2.7% increase in May.

England saw prices climb 3.3% to £291,000, while Scotland recorded the sharpest rise at 5.9% to £192,000.

The ONS noted the figures have been distorted by April's cut to the stamp duty threshold, which prompted buyers to rush purchases before the change took effect.

Knight Frank's Liam Bailey said reforming property taxation "is no easy task," warning that any attempt to replace stamp duty "would require the Treasury to find a way to recover the lost revenue."

In the rental market, average private rents rose 5.9% in July to £1,343, moderating from June's 6.7% pace.

Rents climbed 6% in England, 7.9% in Wales and 3.6% in Scotland.

UK supermarkets meanwhile experienced a slowdown in sales growth in August as shoppers cut back on spending.

NielsenIQ reported till sales rose 3.7% in the four weeks to 9 August, down from 5.8% the previous month.

Store visits increased 6.2%, but average spend per trip fell 3.1% as consumers sought discounts and seasonal promotions, which made up 23% of all sales.

Mike Watkins, head of retailer and business insight at NielsenIQ, said the slowdown was sharper than expected, with many shoppers delaying non-essential spending.

He added that supermarkets remain "optimistic about a strong end to summer 2025" as dining at home and barbecue demand offset some weakness.

Elsewhere in Europe, Germany's producer prices fell more sharply than expected in July.

The PPI slipped 0.1% on the month, compared with forecasts of a 0.1% rise, leaving prices down 1.5% year-on-year, the steepest decline since June 2024.

Energy prices dropped 6.8% from a year earlier, led by falls in gas, electricity and oil products.

In the United States, mortgage activity softened as rates ticked higher.

Applications to refinance fell 3.1% last week, while home purchase applications were little changed, according to the Mortgage Bankers Association.

The decline came as benchmark 30-year mortgage rates rose by one basis point.

ConvaTec and water firms shine, housebuilders in the red

On London's equity markets, ConvaTec Group was among the standout performers on Wednesday, climbing 5.62% after the medical products company announced a share buyback programme of up to $300m.

Hewson noted: "Wound care specialist Convatec was the top FTSE 100 riser as a $300m share buyback proved a comforting balm for investors."

Utilities also made gains, with United Utilities up 3.48% following an upgrade to "overweight" from "equalweight" by Barclays.

Severn Trent rose 2.49% and Pennon also traded higher after the broker lifted its price targets across the sector, citing "better prospects" for water companies.

Ithaca Energy surged 10.44% after the oil and gas group upgraded its full-year production guidance, reporting that both profits and output had doubled in the first half of the year.

Housebuilders moved in the opposite direction as stronger-than-expected UK inflation data raised concerns for mortgage affordability.

Hewson said the implications for interest rates "also saw housebuilders foundations quiver given, in turn, what this might mean for mortgage affordability and availability."

Persimmon slipped 0.58%, Taylor Wimpey lost 0.55% and Crest Nicholson dropped 1.7%.

Computacenter edged down 0.68% after appointing its head of group commercial finance, Keith Mortimer, as chief financial officer following a nine-month search.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 9,288.14 1.08%
FTSE 250 (MCX) 21,885.88 0.24%
techMARK (TASX) 5,362.72 0.62%

FTSE 100 - Risers

Convatec Group (CTEC) 244.20p 5.62%
United Utilities Group (UU.) 1,163.00p 3.48%
Unilever (ULVR) 4,692.00p 3.26%
Coca-Cola Europacific Partners (DI) (CCEP) 6,840.00p 3.01%
Imperial Brands (IMB) 3,141.00p 2.78%
British American Tobacco (BATS) 4,351.00p 2.71%
Severn Trent (SVT) 2,631.00p 2.49%
Relx plc (REL) 3,625.00p 2.43%
London Stock Exchange Group (LSEG) 9,550.00p 2.40%
Haleon (HLN) 369.20p 2.36%

FTSE 100 - Fallers

Rolls-Royce Holdings (RR.) 1,026.00p -3.16%
easyJet (EZJ) 508.40p -1.97%
Smurfit Westrock (DI) (SWR) 3,152.00p -1.96%
ICG (ICG) 2,168.00p -1.73%
Scottish Mortgage Inv Trust (SMT) 1,066.00p -1.57%
International Consolidated Airlines Group SA (CDI) (IAG) 387.80p -1.55%
CRH (CDI) (CRH) 8,258.00p -1.46%
InterContinental Hotels Group (IHG) 8,904.00p -0.96%
Anglo American (AAL) 2,151.00p -0.92%
Flutter Entertainment (DI) (FLTR) 21,560.00p -0.92%

FTSE 250 - Risers

Ithaca Energy (ITH) 196.80p 10.44%
Dr. Martens (DOCS) 87.70p 3.85%
Auction Technology Group (ATG) 345.00p 3.76%
Pennon Group (PNN) 489.80p 3.68%
Burberry Group (BRBY) 1,211.50p 3.55%
Workspace Group (WKP) 419.00p 2.95%
Investec (INVP) 545.00p 2.73%
W.A.G Payment Solutions (WPS) 86.80p 2.36%
Endeavour Mining (EDV) 2,488.00p 2.30%
Kainos Group (KNOS) 709.50p 2.23%

FTSE 250 - Fallers

Trustpilot Group (TRST) 211.20p -3.91%
Kier Group (KIE) 199.40p -3.90%
Polar Capital Technology Trust (PCT) 388.50p -3.24%
Marshalls (MSLH) 185.80p -2.93%
Discoverie Group (DSCV) 638.00p -2.89%
Allianz Technology Trust (ATT) 445.50p -2.73%
International Workplace Group (IWG) 194.60p -2.70%
Aston Martin Lagonda Global Holdings (AML) 76.00p -2.63%
Bridgepoint Group (Reg S) (BPT) 337.00p -2.60%
Watches of Switzerland Group (WOSG) 330.20p -2.53%

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