LONDON MARKETS: U.K. Stocks Swing Lower As Strong Inflation Reading Sends Pound To Year's Highs

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Inflation hit 2.9%; Whitbread downgraded

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U.K. blue-chip stocks turned lower Tuesday, hurt as the pound leapt following a stronger-than-expected reading on British inflation.

The FTSE 100 index shed 0.1% to 7,403.22, led by declines among consumer-related shares.

The index swung lower as the pound surged to an intraday high of $1.3283, spiking after the Office for National Statistics said inflation rose to 2.9% in August, more than the 2.8% reading expected in a FactSet survey of analysts. Pound strength can hurt revenue and earnings made overseas by U.K.-listed multinational companies.

Sterling bought $1.3160 late Monday in New York. The pound hasn't traded above $1.33 since last September.

Among multinationals, shares of British American Tobacco PLC (BATS.LN) fell 0.9%, Imperial Brands PLC (IMBBY) gave up 0.5% and drugmaker Shire PLC (SHPG) lost 0.9%.

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"The breadth of today's inflation surprise is striking. All of the headline price indices, including core CPI, PPI and RPI printed higher than median forecasts. The record 4.6% increase in clothing and footwear indicates that retailers are passing cost increases straight to consumers," said Ranko Berich, head of market analysis at Monex Europe, in a note.

The Bank of England's inflation target is 2%. The inflation data arrived before Thursday's Monetary Policy Committee meeting at the Bank of England.

"Whilst this inflation report is unlikely to mean the MPC votes for a rate hike Thursday, it does increase the prospect of interest rates raising sooner than the market currently anticipates," said Neil Wilson, ETX Capital's senior market analyst, in a note.

On Monday, the FTSE 100 closed up 0.5% (http://www.marketwatch.com/story/ashtead-hurricanes-may-increase-fleet-demand-2017-09-12) after Hurricane Irma wreaked less damage on Florida than anticipated, keeping alive hope for stronger U.S. economic growth, and as fears over North Korea's nuclear ambitions eased for now.

Stock movers: Whitbread PLC (WTB.LN) fell 2.7% after Citigroup downgraded its rating to sell from buy, saying it's "cautious on European hotels." Whitbread runs the Premier Inn hotel chain.

Citi also said its analysis points to "just" around four to five years of structural growth left in the branded U.K. coffee market, which includes Whitbread's competitors. Whitbread is behind the Costa Coffee chain.

Home builders were among the decliners, with Taylor Wimpey PLC (TW.LN) losing 2% and Persimmon PLC (PSN.LN) down 1.7%.

Ashtead Group PLC (AHT.LN) rallied 7.8%, to become the strongest performer on the FTSE 100. The equipment rental company posted a 29% rise in pretax profit and said Hurricanes Harvey and Irma may bolster demand. (http://www.marketwatch.com/story/ashtead-hurricanes-may-increase-fleet-demand-2017-09-12)

Gainers included Associated British Foods PLC (ABF.LN) , with shares up 0.7%, and miner Glencore PLC (GLEN.LN) higher by 0.7%.

Brexit watch: British Prime Minister Theresa May won a key vote on Brexit legislation early Tuesday, resolving some concerns that the House of Commons could hold up a bill designed to transpose 10,000 EU laws into U.K. law. The bill passed its first key hurdle (http://www.marketwatch.com/story/controversial-brexit-bill-passes-first-hurdle-in-parliament-2017-09-11) late Monday.

"U.K. Prime Minister May also survived another Parliamentary vote on her Brexit bill, although not without significant resistance -- from both sides -- and the likelihood of major amendments being attached," the Accendo analysts said.

Critics argued the bill hands too much power to the prime minister and her cabinet -- what has been described as "Henry VIII powers" -- because it allows them to alter laws without parliamentary approval.

(END) Dow Jones Newswires

September 12, 2017 06:19 ET (10:19 GMT)