Market update: FTSE 100 firm ahead of interest rate decisions, AO World lower
10:15 , Graeme EvansInterest rate speculation and Middle East uncertainty today held back European markets during a lacklustre session for the FTSE 100 index.
The Federal Reserve is in the spotlight tonight, when an updated dot plot summary of economic projections will provide clues on the timing of future rate cuts.
Expectations for an August move by the Bank of England will be the focus of tomorrow’s policy announcement, particularly after mixed messages in today’s inflation figures.
May’s headline print of 3.4% was in line with forecasts, with a dip in the rate of services inflation from 5.4% to 4.7% an area of encouragement.
This was offset by the fastest growth in food prices in over a year, a spike blamed on higher energy and ingredients costs.
The Israel-Iran conflict has added another layer of complexity for central banks after the rebound in price of oil today left Brent Crude above $76 a barrel.
The events in the Middle East have weighed on risk appetite in recent sessions, with Wall Street benchmarks down by almost 1% last night.
The FTSE 100 index recovered some of yesterday’s fall in today’s session, adding 13.78 points to 8847.81 while European markets drifted lower.
GKN Aerospace owner Melrose Industries led London’s top flight with a gain of 3% or 14.6p to 488.8p, followed by a rise of 15.8p to 853.4p for gambling group Entain.
Other blue-chip risers included Aviva, Rolls-Royce and HSBC after adding 1%.
Howden Joinery fell 3% or 30p to 845p, while it was a poor session for healthcare stocks as GSK lost 18.5p to 1461.5p, AstraZeneca dipped 144p to 10,518p and Smith & Nephew eased 9p to 1068.5p.
The UK-focused FTSE 250 index crept 8.97 points higher to 21,246.02, with B&M European Value Retail among the stronger stocks after a rise of 5.2p to 269.6p.
Online electricals business AO World fell 3.2p to 97.6p despite reporting a 27% rise in annual profit to £44 million and forecasting a figure in the range of £40 million and £50 million for this year.
Broker Peel Hunt, which has a price target of 137p, said the figures met its expectations: “AO continues to build momentum in market share, sales, and margins.”
Rising energy costs drive food price surge
08:48 , Graeme EvansInflation figures today showed that the price of food and non-alcoholic beverages prices went up by 4.4% in the year to May, compared with April’s 3.4%.
The figure was the highest recorded since February 2024, when the rate was 5%.
Seven food categories saw inflation in double digits: butter (18.2%), chocolate (17.7%), beef and veal (17.0%), coffee (13.9%), lamb and goat (11.2%), edible offal (10.1%), and cocoa and powdered chocolate (10.1%).
Dr Liliana Danila, lead economist of the Food and Drink Federation said:“These figures are being driven by rising energy and ingredients costs.
“Food manufacturing is an energy intensive sector, and wholesale gas prices are 7.8% higher compared to last May, as UK businesses face significantly higher industrial energy costs compared to other nations.
“Meanwhile, the price of ingredients has also surged. For example, in the last two years, the price of cocoa has tripled, while wholesale butter prices are also 55% higher than last year.
“Recent and upcoming regulations are also bringing additional costs to manufacturers.
FTSE 100 slightly higher, pharma stocks under pressure
08:34 , Graeme EvansThe FTSE 100 index is 11.58 points higher at 8845.61, with gambling group Entain and GKN Aerospace business Melrose Industries among those up by 1%.
Tesco shares have risen 2.9p to 399.1p while Next has added 85p to 12,565p and Aviva lifted 5p to 609.6p.
On the fallers board, pharma giants GSK and AstraZeneca have reversed 19.5p to 1460.5p and 150p to 10,512p respectively.
The FTSE 250 index is 7.98 points higher at 21,245.03.
Richard Hunter, head of markets at Interactive Investor, said: “Global market direction remains clouded by tariffs, complicated by the Middle Eastern conflict and confounded by the lack of any obvious positive catalysts.”
AO World annual profit up by 32%
08:17 , Graeme EvansAO World today notched up record annual profits as it cheered the success of its membership scheme and a surge in sales.
The online electricals retailer reported a better-than-expected 32% rise in underlying pre-tax profits to £45 million for the year to March 31.
The FTSE 250-listed group saw like-for-like sales lift 7% to £1.11 billion and said it was “confident” of another sales rise in the new financial year.
Markets on edge ahead of Federal Reserve announcement
07:53 , Graeme EvansWall Street futures are pointing to a modest recovery after leading benchmarks including the S&P 500 index fell by almost 1% yesterday.
IG said: “Markets remained on edge on Wednesday as the Israel-Iran air war continued into its sixth day, fuelling fears of deeper US military involvement after President Trump demanded Iran’s unconditional surrender.
“This geopolitical anxiety pushed oil prices higher and kept investors wary of risk, with Asian and European equities mostly lower and the dollar relatively firm.
It said the conflict and uncertainty over Trump’s trade policies set a tense backdrop for the Federal Reserve’s latest policy announcement this evening.
IG added: “While the Fed is widely expected to keep interest rates unchanged, markets are focused on its updated economic projections, especially regarding growth and inflation expectations.”
Inflation progress but too early for BoE rate cut
07:48 , Graeme EvansDeutsche Bank said softer rates of core and services inflation will be welcome news for policymakers at the Bank of England monetary policy committee (MPC).
Economist Sanjay Raja said: “The focus now will turn to geopolitical events and the rise in energy prices. This will undoubtedly complicate the MPC's task. Higher energy prices will mean higher inflation expectations.
However, he said the ongoing labour market loosening should give the MPC a little more confidence in its 'gradual and careful' approach to dialling down restrictive policy.
He added: “Today's data should help convince MPC members on the fence that price pressures are tracking as expected and underlying disinflation remains on track.
“But don't expect a dovish pivot just yet – more data and more accumulation of evidence that the economy is returning to a sustainable equilibrium will be needed to push the MPC into a more dovish direction.”
Jump in food prices clouds interest rate outlook
07:36 , Graeme EvansFood price inflation jumped from 3.4% to 4.4% in today’s CPI release, representing the highest annual rate since February 2024.
Capital Economics said this could be a sign that firms are passing on more of April’s rise in National Insurance contributions in their selling prices.
It added that today’s release is unlikely to move the needle much for the Bank of England.
The consultancy said: “We are maintaining our view that the Bank will cut rates by quarter percentage points twice more this year (in August and November).
“The big risk in the near term is that another bout of second-round effects on wages and inflation expectations means inflation stays above 3% for longer and causes the Bank to shift to a slower rate cutting path.”
Inflation rate dips after April spike
07:05 , Graeme EvansThe UK’s rate of inflation fell slightly to 3.4% in May, despite the fastest jump in food prices for more than a year.
The Consumer Prices Index (CPI) - the headline measure of inflation - was 0.1% down on the official April figure.
However, the Office for National Statistics (ONS) said earlier this month this had been overstated by 0.1% because of an error in collecting date on vehicle road tax.
The largest downward contribution to the monthly change in the consumer prices index (CPI) came from transport. This offset upward contributions from food and household goods.
The figures come on the day that Bank of England rate setters begin their two-day policy meeting.
They are expected to keep interest rates on hold but a slowdown in the annual rate of services inflation from 5.4% to 4.7% means a cut in August is still possible.
FTSE 100 seen higher as oil climbs to $76
07:00 , Graeme EvansBrent Crude futures are near to $76 a barrel after fears of Middle East supply disruption lifted the benchmark by more than 4% yesterday.
It closed last night at its highest since February, at $76.45, although it did hit an intra-day peak of $78.50 on Friday.
Deutsche Bank said: “Oil is still below its 2024 average of $80 so we have to put things in perspective from an inflationary angle but it was trading at $58.20 in early May so this fillip to growth and inflation has faded somewhat.”
Speculation that the US may join attacks on Iran also led to a risk-averse session for stock markets, with the S&P 500 down 0.8% at Wall Street’s close.
London’s FTSE 100 index, which fell by 41.19 points or 0.5% to 8834.03 yesterday, is seen 0.1% higher at today’s opening bell.
In Asia, the Nikkei 225 has risen 0.8% whereas Hong Kong’s Hang Seng index is down 1.3%.
