Inflation news sends FTSE downwards

A sharper than expected rise in inflation to 3.1% and the subsequent expectation of an interest rate hike in May has sent shockwaves through the London market.

London's leading shares slipped after the announcement by the Office for National Statistics forced the Governor of the Bank of England to write an open letter to Chancellor Gordon Brown to explain the rise.

The FTSE fell by as much as 60 points on the news before settling 41.3 points lower at 6474.9.

At the same time, the strengthening pound, which hit the US$2 mark for the first time since September 1992, added further pressure to exporters and US-facing companies.

Real estate firms were the biggest losers with Hammerson topping the Footsie fallers' board with a drop of 55p to 1599p, or more than 3%, as the prospect of a further rise in interest rates looked set to impact on the already volatile sector.

Land Securities was off 44p at 2091p and Slough Estates slipped 15.5p to 764p.

Retailers were also feeling the impact with Home Retail Group down 11.25p to 443.75p, Kingfisher off 3.75p to 264.75p and Next 34p lower at 2240p, as investors anticipated further pressure from the prospective rise in the cost of borrowing on consumers.

Meanwhile, shares in credit information group Experian were 15.5p lower at 586.5p after a trading update disappointed analysts.

Tesco was one of just a handful of top tier risers as it delivered another boost to shareholders after reporting annual profits at the top end of market expectations.

Shares lifted 6.5p to 462.5p, as Tesco weighed in with profits of £2.55bn (€3.76bn)and said it would return more cash than expected to shareholders.

Elsewhere, department store Debenhams dived nearly 12%, or 20.25p to 153.75p as it warned profits would not meet expectations after like-for-like sales fell 6.9% over the past six weeks.