Pound dips and FTSE rises after inflation unexpectedly falls
A lower inflation reading eases pressure on the Bank of England to hike interest rates next month.
Sterling took a knock on Wednesday after inflation came in lower than expected, while the FTSE 100 was lifted by the weaker pound and a strong performance from mining stocks.
The pound, which had been riding high all week, tumbled following news that inflation unexpectedly dipped to a one-year low in March with a reading of 2.5%, down from 2.7% in February.
Sterling was down 0.4% to 1.422 US dollars at the end of the session, and down 0.5% versus the euro at 1.149.
While providing relief for cash-squeezed households, a lower inflation reading also eases pressure on the Bank of England to hike interest rates next month.
Economists were expecting inflation to hold steady at 2.7%.
Jasper Lawler, head of research at London Capital Group, said: “The losses for sterling mounted after UK inflation data for March came in much softer than expected.
“It was the size of the inflation downturn that caught some off-guard. The prospect of inflation heading back below the Bank of England’s target of 2% means doubt is creeping back in about the May rate rise.”
The pound’s fall helped the FTSE 100 notch up strong gains, with the top flight ending the day 91.29 points, or 1.26%, up at 7,317.34.
It was the first time since February the index closed above 7,300 points.
Mining and energy stocks led the charge, with Glencore, Anglo American, BHP Billiton and Rio Tinto making up four of the top five stocks.
It came as copper prices rose and off the back of positive research notes issued by HSBC.
Brent crude was up 1.8% to 72.9 US dollars a barrel, its highest level since 2014, providing a boost for energy firms.
David Madden, market analyst at CMC Markets, said: “WTI and Brent Crude oil reached fresh 41 month highs after the latest energy information administration (EIA) figures showed a drop in US oil and gasoline stockpiles.
“The oil inventories fell by 1.07 million barrels and gasoline inventories dropped by 2.96 million barrels.
“The energy market is already strained by uncertainty in the Middle East, and the EIA report just adds to the upward pressure.”
As a result, shares in BP rose 12.9p to 509.6p, while Shell was up 59p to 2,488p.
On the FTSE 250, Hammerson’s share price closed up by more than 4%, or 20.6p, at 514.2p after it walked away from its takeover of rival Intu.
Hammerson said it hopes to ditch its £3.4 billion takeover of Intu by urging a shareholder vote against the acquisition amid growing dismay over the health of the UK retail property market.
Intu, meanwhile, fell towards the bottom of the index, ending the day down 8.5p at 199.9p.
Shares in the owner of Clydesdale and Yorkshire banks were languishing at the foot of the FTSE 250 after detailing an extra £350 million hit after seeing soaring payment protection insurance (PPI) claims ahead of the complaints deadline.
Shares in Glasgow-based CYBG fell 15.2p to 289.2p after the lender said it would increase money set aside for “legacy PPI costs”, which would have an impact on its half-year results.
The FTSE 250 ended the day up 0.92%, or 182.62 points, at 20,012.01.
In Europe, Germany’s Dax was broadly flat and the CAC 40 nudged up 0.5%.
The biggest risers on the FTSE 100 were Medicinic International up 57.2p to 682p, Glencore up 26.6p to 374.1p, Anglo American up 104.4p to 1,802.6p and BHP Billiton up 79.6p to 1,527.2p.
The biggest fallers on the FTSE 100 were British American Tobacco down 106p to 3,859.5p, easyJet down 33.5p to 1,588.5p, Hargreaves Lansdown down 24.5p to 1,722.5p and Whitbread down 50p to 4,150p.