LONDON MARKETS: FTSE 100 Tilts Lower As Traders Brace For Inflation Report

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Consumer price growth expected to hit 5-year high

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U.K. stocks leaned lower Tuesday, with investors seeming cautious before the release of inflation data that could harden the case for the Bank of England to raise British borrowing costs.

The FTSE 100 index shed 0.1% at 7,522.45, with basic materials and health care shares losing the most. But consumer goods and utility shares were moving higher. The index on Monday ended 0.1% (http://www.marketwatch.com/story/miners-lift-ftse-100-but-pound-strength-keeps-gain-in-check-2017-10-16) lower after a choppy session.

Among big movers Tuesday, shares of Merlin Entertainments PLC (MERL.LN) tumbled 19%. 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 will be a reading on consumer price inflation for September, which could hit the highest level since April 2012, according to FactSet data. Headline annual inflation is expected to hit 3%, a full percentage point above the Bank of England's target.

"Such a reading would put even more pressure on the Bank of England to raise rates, though that hawkish urge may be tempered by the continued fall in real wages (set to be confirmed tomorrow) and a sharp month-on-month drop in retail sales (coming on Thursday)," said Connor Campbell, financial analyst at Spreadex, in a note. "For now, however, the pound is focused on inflation."

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The pound bought $1.3258 ahead of the inflation report, not far off from $1.3250 late Monday in New York.

The inflation data from the Office for National Statistics are set for release at 9:30 a.m. London time, or 4:30 a.m. Eastern Time.

BOE's Carney on deck: Bank of England Governor Mark Carney is slated to appear before a Treasury committee at 11:15 a.m. London time. An inflation reading above 3% would require Carney to write a letter to the U.K.'s Treasury chief explaining why the central bank hasn't been able to rein in consumer-linked costs.

The Bank of England has previously warned that inflation will peak around 3%, driven in part by a slide in the pound's value since the last year's Brexit referendum. Sterling's decline against the U.S. dollar, the euro and other currencies has made imported items more expensive for consumers and businesses to purchase.

Bank stocks rose on the prospect of a U.K. rate hike, as it could prompt to charge more for loans. Barclays PLC (BCS) (BCS) was up 1.1%, Standard Chartered (STAN.LN) rose 0.6%, while Royal Bank Of Scotland Group PLC (RBS.LN) (RBS.LN) picked up 0.5%. Also, Lloyds Banking Group PLC (LLOY.LN) (LLOY.LN) moved up 0.3%, and HSBC Holdings PLC (HSBA.LN) (HSBA.LN) was 0.2% higher.

Stock movers: Pearson PLC shares (PSON.LN) sprang up 7% after the educational materials publisher raised the lower end of its full-year earnings outlook.

Brexit still stuck: British Prime Minister Theresa May failed to achieve any breakthrough over stalled Brexit talks during a dinner Monday with top European Union officials in Brussels. A fifth round of talks ended last week with the EU's Brexit negotiator, Michel Barnier, saying that progress is still insufficient for talks 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)

(END) Dow Jones Newswires

October 17, 2017 04:01 ET (08:01 GMT)