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Pound and FTSE 100 rise as inflation hits two-year high

Published 18/10/2016

The FTSE 100 rose 1% or 69.3 points to 7016.8 after losses on Monday
The FTSE 100 rose 1% or 69.3 points to 7016.8 after losses on Monday

The pound surged and the FTSE 100 leapt back above the 7000 mark as inflation hit its highest level in nearly two years.

Sterling rose more than 1.1% to 1.23 US dollars and 1.0% to 1.03 euros.

Equity markets also made gains, with the FTSE 100 closing 0.8% or 52.5 points higher at 7000 points.

It comes after data showed consumer prices index inflation jumped to 1% last month, up from 0.6% in August, marking the highest inflation rate since November 2014.

However, the Office for National Statistics (ONS) said there was "no explicit evidence" that sterling's near 20% slump since the Brexit vote had impacted prices.

Sterling's woes since the Brexit vote were in sharp focus among stocks, with airline Ryanair blaming the pound's slump as it warned over profits, while luxury fashion firm Burberry was enjoying contrasting fortunes thanks to a surge in spending by overseas tourists in the UK.

However, Ryanair shares shrugged off the Irish carrier's move to cut its annual earnings forecast by 5%, with its Irish-listed shares closing 4.9% or 0.5 euros higher at 12.39 euros

Rival easyJet was also flying high despite more bad news from the industry, with shares rising 5.1% or 44.5p to 918p, making it one of the biggest gainers on the blue-chip index.

Across Europe, the French Cac 40 and German Dax closed higher, rising 1.3% and 1.2%, respectively.

A rising US dollar knocked oil prices, with Brent crude reversing earlier gains to trade lower by over 0.5% at 51.36 US dollars. A stronger greenback makes dollar-denominated crude more expensive for overseas investors.

Meanwhile, Burberry dragged on the FTSE 100, with shares dropping 7.2% or 109p to 1403p despite revealing that UK sales rocketed by more than 30% in its second quarter due to a luxury shopping spree sparked by the plunging pound.

However, wholesale sales were still deep in the red, down 14% on an underlying basis in the first half.

Online retailer Asos also took a major hit, dropping 471p to 4861p, despite reporting pre-tax profits of £63.7 million, up 37% compared to last year. Sales grew 26% to £1.4 billion, helped by a 50% rise in US revenue.

Ladbrokes shares rose by 2.5p to 140.4p after reporting a 12.1% jump in net revenue in three months to the end of September, boosted in part by the European Championships. Shares also rose as Ladbrokes and Gala Coral moved one step closer to sealing their £2.3 billion merger.

Sector peer William Hill closed relatively flat at 304.6p after the betting company and Canadian poker firm Amaya called time on talks over a potential £4.6 billion merger, following negative feedback from shareholders.

The biggest gainers on the FTSE 100 were Next up 240p at 4744p, EasyJet up 44.5p at 918p, Marks and Spencer Group up 13.8p at 333.7p, and Royal Bank of Scotland Group up 7.2p at 177.6p.

The biggest losers on the FTSE 100 were Burberry down 109p at 1403p, Pearson down 17.5p at 745p, Rolls-Royce Holdings down 12.5p at 761p, and Johnson Matthey down 33p at 3456p.

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