LONDON MARKETS: FTSE 100 Ends Lower As U.K. Inflation Hits 5-year High

By Carla Mozee and Sara Sjolin, MarketWatch Features Dow Jones Newswires

Consumer price inflation now a full percentage point above target

Continue Reading Below

U.K. stocks finished lower on Tuesday after investors received inflation data that could harden the case for the Bank of England to raise British borrowing costs.

The FTSE 100 index fell 0.1% to close at 7,516.17, after darting between small gains and losses through the day.

Among big movers Tuesday, shares of Merlin Entertainments PLC (MERL.LN) tumbled 16%. The theme-park operator reported that its year-to-date comparable-revenue growth was flat, (http://www.marketwatch.com/story/merlin-says-revenue-hit-by-weather-terror-attacks-2017-10-17) saying its London sites were hurt by bad weather and the effect of terrorist attacks.

Accelerating inflation: The key focus for U.K. assets Tuesday was the reading on consumer price inflation for September, which at 3% is the strongest level since March 2012 and above the Bank of England's 2% inflation target.

The report may contribute to the Bank of England deciding to raise its key interest rate, which stands at a record low 0.25%.

Continue Reading Below

Bank stocks mostly held to gains on the prospect of a U.K. rate increase, as it could prompt banks to charge more for loans. Barclays PLC (BCS)(BCS) climbed 1.1%, while Lloyds Banking Group (LLOY.LN) (LLOY.LN) added 1.1%. Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN), however, slipped 0.3%.

"While the market now expects the first hike in November, having recently brought forward its expectations from as late as 2019, current pricing suggests the market is anticipating only one further hike in 2018," said Kallum Pickering, senior U.K. economist at Berenberg, in a note.

"We therefore expect the BoE to strengthen its guidance after the first hike, leading to a somewhat steeper gilt curve and possibly a stronger sterling on a trade-weighted basis by the turn of the year," he said.

Read:'Might finally be time to get on with rate rises'--analysts on BOE's next move after inflation report (http://www.marketwatch.com/story/might-finally-be-time-to-get-on-with-rate-rises-analysts-on-boes-next-move-after-inflation-report-2017-10-17)

The pound traded sharply lower at $1.3180, compared with $1.3250 late Monday in New York as traders appeared to focus more on Prime Minister Theresa May failing to break the deadlock in Brexit talks (http://www.marketwatch.com/story/uk-leader-theresa-may-fails-to-make-brexit-breakthrough-at-brussels-dinner-2017-10-17) than. In an unusual move, May traveled to Brussels Monday to have dinner with the head of the European Commission, Jean-Claude Juncker and the bloc's Brexit negotiator, Michel Barnier, to move divorce proceedings along.

A fifth round of talks ended last week with the EU's Barnier, saying progress is still insufficient for negotiations to move to the next phase.

Read:Brexit is far from the only worry for U.K. stocks (http://www.marketwatch.com/story/brexit-is-far-from-the-only-worry-for-uk-stocks-2017-10-14)

Stock movers: Pearson PLC shares (PSON.LN) sprang up 7.3% after the educational materials publisher raised the lower end of its full-year earnings outlook.

(END) Dow Jones Newswires

October 17, 2017 12:38 ET (16:38 GMT)