Inflation fears put FTSE on back foot

A sharp jump in inflation that dampened hopes of an interest rate cut next month pushed the London market onto the back foot today.

Banks and retailers hoping for a consumer spending boost were the biggest losers after the CPI index rose 0.5% to 3% in April – its biggest monthly jump for nearly six years.

The announcement wiped out early gains for blue-chip shares and drove the FTSE 100 Index down 75.2 points to 6145.4 by mid-morning.

All the major banks were heavily in the red, with Alliance & Leicester the index’s worst casualty after a disappointing trading update. Its shares lost nearly 12%, or 61p to 449.5p, after it took a £192 million from investments linked to the credit crunch and said mortgage balances deteriorated in the first four months of the year.

Britain’s biggest mortgage lender Halifax Bank of Scotland was next in line, down more than 5%, or 29p to 476.5p. Barclays also lost 14p to 430.75p, with Royal Bank of Scotland off 8.75p at 336p.

Several retailers also slid as hopes of a Bank of England boost for consumer spending next month faded. Clothing chain Next was 38p off at 1271p, B&Q owner Kingfisher losing 3.6p to 148.1p and Argos parent Home Retail Group down 6p to 260.75p.

FTSE 250 Index housebuilder Redrow compounded the gloom after issuing a grim update and said cancellation rates had picked up since Easter. Its shares dipped more than 5%, or 15.75p to 277p, with top tier rival Persimmon also off 15.5p to 584.5p.

TUI Travel was the morning’s stand out winner after revealing demand for its holidays remained strong in the face of economic uncertainty.

The Thomson and First Choice owner said households were refusing to change their travel plans, with shares 2% ahead, or 5p to 264.25p.