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London midday: Stocks keep grip on gains after softer inflation data
London stocks were holding on to gains by midday on Tuesday, helped along by more deal news and with analysts divided over whether the softer-than-expected UK inflation print will ease pressure on the Bank of England to raise rates in May.
The FTSE 100 was up 0.5% to 7,074.88, while the pound was down 0.1% versus the dollar at 1.4009. Sterling was up 0.2% against the euro at 1.1393 as it still enjoyed some support from the agreement on terms of a Brexit transition period the day before.
Data released on Tuesday morning showed UK inflation cooled off more than expected last month, with February's consumer price index rising 2.7% compared to the same month last year, down from 3.0% a month earlier and lower than the market's expectation of 2.8%.
The fall was due to a decline in core CPI, which excludes more volatile prices such as fuel as food. The Office for National Statistics revealed core CPI eased to 2.4% in February from 2.7% in January, again lower than the market consensus, which had pointed to 2.5%.
CPIH, the measure preferred by the ONS as it takes account of owner-occupiers' housing costs, came in at 2.5% versus the 2.6% expected. The much maligned retail price index was up 3.6% year on year, down from 4.0% and below the 3.7% forecast.
Ahead of the BoE's monetary policy committee meeting this week, inflation came in well below the MPC's 2.9% forecast for the month, which opened the doors to speculation around policymaker's plans for interest rates and the market's expectations of a May hike.
Samuel Tombs at Pantheon Macroeconomics said the MPC probably wouldn't change course if February's CPI figures had been the only data to surprise to the downside.
"But since the MPC last met in February, GDP, labour market and retail sales data all have been weaker than the consensus anticipated, while the latest PMIs and the recent heavy snow suggest that Q1 GDP growth will undershoot the MPC's forecast. Accordingly, we think that the MPC will refrain from ratcheting up its guidance and won't clearly signal an imminent rate rise in the minutes of Thursday's meeting, prompting markets to reassess their view that the chances of a May rate hike are as high as 80%."
However, Capital Economics economist Paul Hollingsworth said the CPI outcome does not significantly reduce the chance of an interest rate hike in May.
In corporate news, housebuilder Bellway rose after saying it was on track to build more than 10,000 homes in a year for the first time as half year pre-tax profits rose 16.6% to £288.7m. Peer Crest Nicholson also rallied on the news.
British Land, the retail and office property developer, was top of the FTSE leaderboard as M&A interest in the sector is piqued by the offer for retail developer Hammerson from France's Klepierre.
In other M&A news, engineering group Fenner surged after agreeing to be bought by French tyre manufacturer Michelin in a deal worth around £1.3bn.
Glencore was higher after it agreed to buy Rio Tinto's 82% interest in the Hail Creek coal mine and adjacent coal resources, as well as its 71.2% interest in the Valeria coal resource in central Queensland for $1.7bn.
TUI was higher as the tour operator said it continued strong growth in cruises and planned to boost capacity.
On the downside, Wood Group fell after saying it expects to see modest earnings growth in 2018, while Imperial Brands edged down after announcing the disposal of its other tobacco products business in the US.
Industrial property investor Hansteen Holdings lost ground as it said it would return £145m in cash to shareholders and posted an 87% jump in full-year IFRS profit to £204.3m.
Engineer GKN - which is currently fending off a hostile bid from Melrose Industries - was a little weaker as it said the turnaround specialist's claims about its pension schemes were "misleading".
Ocado was on the back foot as it said first-quarter revenues fell from the preceding quarter but improved compared to the start of last year as heavy snow across Britain disrupted the final week.
Online gaming specialist 888 Holdings retreated despite reporting full-year earnings ahead of expectations, while plastic pipe-maker Polypipe was down after it said that a strong UK performance against a challenging backdrop helped it to record a 3.9% rise in full year pre-tax profits to £55.6m.
In broker note action, Gem Diamonds and Petra Diamonds were lifted to 'buy' at Citi, while Micro Focus was upgraded to 'neutral' at Credit Suisse and IMI was boosted to 'neutral' at UBS.
National Grid was initiated at 'buy' at Societe Generale, while Fenner was lifted to 'hold' at Investec.
Barclays was downgraded to 'hold' at Investec.
Market Movers
FTSE 100 (UKX) 7,074.88 0.45%
FTSE 250 (MCX) 19,743.66 0.25%
techMARK (TASX) 3,248.13 0.18%
FTSE 100 - Risers
British Land Company (BLND) 661.40p 2.07%
Micro Focus International (MCRO) 1,031.00p 1.98%
TUI AG Reg Shs (DI) (TUI) 1,563.00p 1.96%
London Stock Exchange Group (LSE) 4,035.00p 1.92%
Old Mutual (OML) 247.10p 1.77%
Prudential (PRU) 1,910.65p 1.71%
Land Securities Group (LAND) 952.80p 1.71%
Legal & General Group (LGEN) 265.30p 1.65%
3i Group (III) 907.00p 1.55%
Rolls-Royce Holdings (RR.) 905.80p 1.50%
FTSE 100 - Fallers
Just Eat (JE.) 724.40p -1.52%
Mediclinic International (MDC) 570.60p -1.45%
Paddy Power Betfair (PPB) 7,535.00p -1.44%
Centrica (CNA) 134.10p -1.18%
Imperial Brands (IMB) 2,391.00p -0.95%
GKN (GKN) 421.00p -0.75%
United Utilities Group (UU.) 687.20p -0.43%
Severn Trent (SVT) 1,738.50p -0.37%
Reckitt Benckiser Group (RB.) 5,656.00p -0.37%
National Grid (NG.) 763.50p -0.31%
FTSE 250 - Risers
Fenner (FENR) 614.67p 25.29%
Crest Nicholson Holdings (CRST) 455.60p 3.83%
IP Group (IPO) 105.40p 3.33%
Nex Group (NXG) 901.00p 3.33%
Bellway (BWY) 3,140.00p 2.95%
BGEO Group (BGEO) 3,620.00p 2.55%
ZPG Plc (ZPG) 330.00p 2.48%
Charter Court Financial Services Group (CCFS) 316.00p 2.43%
SSP Group (SSPG) 625.50p 2.12%
Virgin Money Holdings (UK) (VM.) 269.90p 2.08%
FTSE 250 - Fallers
Sophos Group (SOPH) 427.60p -6.84%
888 Holdings (888) 279.80p -5.41%
Wood Group (John) (WG.) 610.00p -4.87%
Provident Financial (PFG) 902.20p -3.16%
Renewi (RWI) 82.50p -2.83%
Contour Global (GLO) 249.00p -2.73%
Greencore Group (GNC) 131.60p -2.16%
BCA Marketplace (BCA) 148.80p -2.11%
GVC Holdings (GVC) 937.50p -2.09%
Clarkson (CKN) 3,265.00p -1.95%