Stocks were stagnant in morning trade with investors digesting the annual UK inflation rate topping 10% in July, firming up expectations of another chunky interest rate hike from the Bank of England.
On the corporate side, shares in Cineworld plunged after warning of possible shareholder dilution as it tries to bolster its balance sheet following ‘lower levels’ of cinema goers. Balfour Beatty topped the FTSE 250 index after lifting guidance, and Entain shares were hit by a £17 million fine from the UK Gambling Commission.
The FTSE 100 was up 6.38 points, or 0.1%, at 7,542.44. The FTSE 250 index was up 35.07 points, or 0.2%, at 20,371.48. The AIM All-Share index was up just 0.30 of a point at 931.84.
The Cboe UK 100 index was flat at 753.59. The Cboe 250 was up 0.1% at 17,666.15. The Cboe Small Companies was up 0.1% at 14,464.78.
In Paris, the CAC 40 was up 0.1%, while the DAX 40 in Frankfurt was down 0.1%.
UK inflation accelerated at the fastest pace in 40 years in July, numbers on Wednesday showed, hitting double-digits and heaping more pressure on the Bank of England.
The consumer price index surged 10.1% on an annual basis in July, topping FXStreet-cited market consensus of 9.8% and quickening from 9.4% in June.
According to the Office for National Statistics, it was a fresh high for the annual inflation rate in the current series, which began in January 1997. Modelling would suggest the last time inflation was this red-hot was in 1982, 40 years ago.
‘The usual culprits of energy bills, mortgage costs and food prices all took the figure up, with prices now rising at five times the rate they were this time last year,’ AJ Bell analyst Laura Suter commented.
‘Food inflation reached 12.7% in July, having seen the highest monthly growth in more than 20 years. And there's no option of hunting out food that hasn't risen in price, as costs went up in every category the ONS records, with dairy, bread and cereals seeing the biggest uptick. We've seen swathes of shoppers switching to discount supermarkets or trading down from branded products to own brands, and that will accelerate as food prices continue their climb upwards.’
The pound was quoted at $1.2100 early Wednesday in London, flat from $1.2099 late Tuesday. It traded at roughly $1.2120 shortly before the inflation reading, however.
The red-hot inflation figure lifts expectations for another big rate hike by the Bank of England. However, foreign exchange traders also weighed the prospect of slower growth for the UK as a result, meaning sterling struggled to get a boost from the CPI data.
The euro stood at $1.0157 early Wednesday, down from $1.0177 late Tuesday. Against the yen, the dollar was trading at JP¥134.57, up from JP¥134.28.
In Tokyo on Wednesday, the Nikkei 225 closed 1.2% higher, while the S&P/ASX 200 in Sydney rose 0.3%. In China, the Shanghai Composite was 0.4% higher in late dealings. The Hang Seng in Hong Kong was up 0.8%.
In London, Cineworld shares plunged 37% in early trade.
The Picturehouse chain operator said the number of film goers has been ‘below expectations’ recently.
‘These lower levels of admissions are due to a limited film slate that is anticipated to continue until November 2022 and are expected to negatively impact trading and the group's liquidity position in the near term,’ it warned.
‘Consequently, the group has been taking proactive steps to ensure it has the balance sheet strength and flexibility to adapt to market conditions. This includes significant previously disclosed operational and financial initiatives to manage costs and enhance liquidity.’
Cineworld said it is in ‘active discussions with various stakeholders’ to mull ways to bolster its coffers and possibly restructure its balance sheet, though a ‘comprehensive deleveraging transaction’.
It warned that any deleveraging is likely to dilute the value of its shares.
Cineworld added: ‘The group's business operations are expected to remain unaffected by these efforts and Cineworld expects to continue to meet its ongoing business counterparty obligations. Cineworld continues to welcome guests to its cinemas across its global markets as normal, without disruption.’
Peer Everyman was 1.8% lower.
On AIM, Revolution Beauty surged 19%, while boohoo was down 0.1%.
Online-only retailer boohoo said it has made a ‘strategic investment’ in beauty products seller Revolution Beauty Group. It now has a 7.1% stake.
‘The investment builds upon the existing relationship between boohoo and Revolution Beauty, under which Revolution Beauty products are sold through several of the group's direct to consumer brand websites and its online digital department store, Debenhams. The investment reflects boohoo's belief in the growth potential of Revolution Beauty and it intends to be a supportive stakeholder and long-term partner,’ boohoo explained.
Revolution Beauty stock has been hit in recent weeks by a warning on cost inflation and a statement that its auditors found ‘certain accounting issues’ that could have a ‘material impact’ on results for the year ended February 28, 2022.
Entain shares were 3.1% lower, the worst large-cap performer. The Ladbrokes and Coral owner has been fined for its failures in social responsibility and anti-money laundering, according to a UK regulator.
The UK Gambling Commission said the FTSE 100-listed firm will pay £17 million, for failures at its online business and land-based businesses.
Balfour Beatty topped the FTSE 250s, surging 9.5% after lifting yearly profit guidance.
For the half year ended July 1, the construction firm's revenue was largely unchanged year-on-year at £4.15 billion. Pretax profit more than doubled to £83 million from £35 million.
Balfour raised its dividend by 17% to 3.5 pence per share from 3.0p.
‘Driven by this performance and also the strength of the order book, the board expects underlying profit from operations to be ahead of its previous expectations,’ Balfour said.
Asos slid 4.7%, the worst mid-cap performer. The retailer said Mat Dunn will step down from his roles of chief operating officer and chief financial officer. Asos will restructure its executive team.
Dunn will remain in his role until at least the end of October and then stick around until the end of 2022 to aid the transition. Dunn joined Asos as CFO in April 2019 and took on the COO role in October of last year.
Gold stood at $1,775.09 an ounce early Wednesday, up slightly from $1,774.80 at the London equities close on Tuesday. Brent oil was quoted at $92.79, down from $93.04.
Still to come in the international economics calendar on Wednesday, there are eurozone GDP and employment figures at 1000 BST, and US retail sales at 1330 BST. In the evening, the US Federal Reserve will release the minutes from its latest monetary policy meeting at 1900 BST.
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