FTSE investors cautious despite positive inflation data

Reassuring data showing that UK inflation remained unchanged last month failed to tempt investors into the London market today.

Analysts said the data relieved fears that inflation is building more strongly and would reduce the pressure on the Bank of England to hike interest rates.

However, heavy falls by a string of mining companies contributed to the FTSE 100 Index weakening 19.3 points to 4914.2 by mid-morning.

Miners were in focus despite Goldman Sachs describing the sector as attractive. The investment bank rated BHP Billiton as “outperform” and said it offered the greatest potential improvement over the next 12 to 18 months, but this failed to lift the stock, which slipped 14p to 740p.

It also said iron ore prices would offset a fall in returns at Rio Tinto. Rio weakened 31p to 1768p while rival Antofagasta fell 31p to 1277p.

Mobile phone group O2 was another stock anchoring the market in negative territory by revealing a maximum hit of £45 million from up to 500 job cuts.

Its shares fell 4% or 4.5p to 118.5p as it flagged that revenues growth would slow to mid-single digits in its next financial year.

Negative momentum from across the Atlantic was also rubbing off on London. The Dow Jones Industrial Average was expected to open another 15 points later today after slipping 64 points last night.

Back at home, retailers were trying to lighten the mood as they recovered ground lost in the wake of a profits warning from photographic specialist Jessops yesterday. Dixons added 0.25p to 150.25p and Boots lifted 6p to 620.5p. But outside the top flight, Jessops fell deeper into the red, losing another 8% or 9p to 98p.

Budget airline easyJet climbed 15.75p to 214p after forecasting first-half operating margins in line with last year despite high fuel prices.

And computer games maker Eidos rose more than 17% or 8p to 52.75p after agreeing a £71 million takeover deal with a private equity firm involving U2 frontman Bono.