FTSE 100 close: Wage growth fuels rate fears as M&S soars and B&M drops on Wilko speculation
London’s FTSE 100 ended Tuesday down more than 1.6 per cent, as record-breaking wage growth fueled speculation of a 15th straight Bank of England rate hike.
The capital’s blue-chip index was down 1.63 per cent by close of play to to 7,384.94, weighed down by listed investment firm Abrdn, down three per cent, alongside Pheonix and Antofagasta.
Legal and General initially led losses down three per cent in the morning, before recovering slightly to fall under three.
Legal & General this morning beat market expectations as it posted profits of £941m for the first six months of the year despite new accounting rules putting a dent in the insurance giant’s accounts.
Analysts warned that L&G “may be on track from its own perspective as it beat expectations but the reaction of the market suggests investors aren’t fully on board. The company is one of the biggest investors in the UK stock market and what may be creating disquiet is the material drop in assets under management.
“This is a result of both market conditions but also net outflows. As a domestic facing stock Legal & General could also be vulnerable thanks to the latest wage growth data suggesting inflation is becoming more entrenched”, said AJ Bell investment director Russ Mould.
London’s FTSE 250 index, which is more aligned with the UK domestic market, was also down throughout the day at 0.65 per cent, to 18,639.18.
High street stalwart Marks & Spencer however flourished, with its share price up more than 6.6 per cent, after being up more than 8.5 per cent at the open, following a lifting of its profit outlook this morning.
The embattled retailer benefited from a fresh boost in its clothing and retail, as it posted an 11 per cent hike in sales.
Mould said “there have been so many false dawns for Marks & Spencer over the years that it would be understandable if some observers remain sceptical, but its latest unscheduled update upgrading guidance is further evidence that something real is happening at the retailer.
B&M were also up more than 1.5 per cent on FTSE 100 amid speculation it may be in the running to buy-out troubled low-cost retailer Wilko, which has gone into administration and is on the verge of collapse. More than 12,000 jobs are thought to be at risk.
Unemployment and wages figures weight down FTSE
This comes after London was weighed down by fresh figures released by the Office for National statistics this morning, and ahead of Wednesday’s inflation figures.
The ONS reported a mixed bag, with unemployment slightly increasing to 4.2 per cent, as real wages increased by the highest rate since its records began in 2001.
The wage increase to 7.8 per cent will be a feather in the cap of millions of Brits battling high costs of living and inflation.
The wage figures will however likely add to fears that the economy is overheating as the Bank of England continues to struggle to bring down inflation, according to Hargreaves Lansdown.
Brits got another welcome boost this morning, with grocery price inflation recording its second sharpest fall since 2008, down 2.2 percentage points to 12.7 per cent for the four weeks to 6 August.
The Bank of England has raised interest rates for 14 consecutive occasions in its bid to bring out-of-control inflation under wraps. When the Bank’s Monetary Policy Committee meets in September, analysts are predicting this latest bump in real wages is likely to lead to another hike in rates.
“Alarm bells are ringing on UK inflation once more as the latest figures from the Office for National Statistics show record wage growth,” said Mould.
“This builds pressure on the Bank of England and has prompted an increase in sterling and gilt yields, as well as a big fall in UK stocks, as it suggests inflation is becoming increasingly entrenched in the economy. However, it is a fine balance. Other elements of the ONS data show signs the labour market could be cooling, with an increase in unemployment and a drop in the number of vacancies.
Elsewhere, a broad array of Chinese data on Tuesday highlighted intensifying pressure on the economy from multiple fronts, prompting Beijing to cut key policy rates to shore up activity but analysts say more support is needed to revitalise growth, according to Reuters.
The People’s Bank of China made a surprise cut to interest rates on Tuesday as it looked to stimulate economic demand amid a sputtering recovery.
Investors will also look to the US today where retail figures are to be published, expecting to show that growth increased from 0.2 to 0.4 per cent last month.
Like with the Bank of England, growth is likely to intensify pressure on the US’ central bank the Federal Reserve, as to whether it will pause its interest rate hiking cycle.