London’s leading share index sank into the red today as a shock rise in UK inflation unnerved investors.
News that the official rate of inflation – the Consumer Prices Index (CPI) - had soared to 3% last month sent the FTSE 100 Index more than 1% lower at one stage.
However, renewed speculation of a potential deal between mining majors BHP Billiton and Rio Tinto lent some late session support to the Footsie, which closed down 8.7 points at 6211.9.
Retailers had been among the worst affected in the early session sell-off as inflation’s surprise jump in April dampened hopes of an interest rate cut in June.
Among retailers, clothing chain Next was off 43p at 1266p, or 3%, followed by B&Q owner Kingfisher, down 3.2p at 148.5p. Marks & Spencer fell 7p to 398.5p.
Argos owner Home Retail Group slipped 7p to 259.75p, while pubs group Enterprise Inns maintained its cautious outlook after an 11% fall in first-half profits, sending shares 7p lower to 480.25p.
Meanwhile, major banks were heavily in the red, with Alliance & Leicester the Footsie’s worst casualty after a disappointing trading update.
Its shares lost more than 10%, or 51.75p to 458.75p, after it took a £192 million hit 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 also on the back foot, down 4%, or 20.5p to 485p.
HSBC shrugged off the gloom as it continued to benefit from its well-received update yesterday, up 13.5p to 895.5p. But other losers included Lloyds TSB, down 6.75p to 418p, while in the FTSE 250 Index Bradford & Bingley shipped 14.25p to 158.75p, a loss of more than 8%.
Fellow second-tier company Redrow compounded the downbeat sentiment after issuing a grim update and said cancellation rates had picked up since Easter.
The housebuilder’s shares dipped 8%, or 22.25p to 270.5p, with top-flight rival Persimmon shedding 19.5p to 580.5p.
Among the few Footsie stocks in positive territory Lambert & Butler maker Imperial Tobacco was one of the leading risers, up nearly 2% or 40p to 2540p, after an upgrade from brokers at Credit Suisse.
Miners led the risers board, with Rio ahead 236p at 6645p and BHP Billiton up 27p at 2020p on the market chatter over a potential deal.
Thomson and First Choice owner TUI Travel, which had been buoyant after revealing demand for its holidays remained strong in the face of economic uncertainty, closed down 4.25p at 255p in a choppy trading day.
The biggest Footsie risers were Rio Tinto ahead 236p at 6645p, Vedanta Resources up 73p at 2423p, Eurasian Natural Resources up 41p at 1377p and Imperial Tobacco up 40p at 2540p.
The biggest Footsie fallers were Alliance & Leicester down 51.75p at 458.75p, G4S group down 15p at 225p, HBOS off 20.5p at 485p and Cairn Energy down 133p at 3348p.