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Pound tumbles as inflation comes in lower than forecast

Data from the Office for National Statistics showed the Consumer Price Index (CPI) fell to 2.4%.

Money stock

The pound tumbled to a five-month low on Wednesday after inflation fell to its lowest level for more than a year, knocking chances of an imminent rise in interest rates.

Sterling shed 0.7% against the dollar to end the session at 1.334, the lowest it has been against the greenback since January.

Versus the euro, the pound was flat at 1.141.

It came after figures from the Office for National Statistics (ONS) showed the Consumer Price Index (CPI) fell to 2.4% last month, down from 2.5% in March.

This was despite surging fuel costs and record price rises on soft drinks after the sugar tax came into force.

Economists had been expecting inflation to stay steady at 2.5%.

Falling inflation will ease pressure on the Bank of England to raise rates in the short term.

Threadneedle Street held rates at 0.5% in May, backing away from an expected hike after a sharp slowdown in growth at the start of the year.

Lukman Otunuga, research analyst at FXTM, said: “Although the drop in inflation last month is good news for consumers since it bolsters the value of real wages, this could be terrible news for the pound.

“With the currency well known for its sensitivity to monetary policy speculation, further losses may be witnessed as investors scale back bets of a BoE rate hike in August.”

The FTSE 100 also ended the day in the red, dropping 89 points, or 1.13%, to close at 7,788.44.

London’s top flight followed US and Asian indexes into reverse following comments from US president Donald Trump regarding his displeasure with the latest round of trade talks with China.

Russ Mould, investment director at AJ Bell, said: “The commodities sector was worst hit with shares in miners and oil producers taking a tumble, not helped by talk that Chinese authorities want to intervene in the coal market to bring down prices.”

Mining giants Anglo American, Rio Tinto and Antofagasta ended the day at the foot of the FTSE 100.

In stocks, Marks & Spencer was the biggest riser, gaining 15.1p to close at 306.9p.

The retailer reported a 62.1% fall in pre-tax profit to £66.8 million in the year to March 31 as it was dragged down by £321.1 million in costs linked to store closures.

But the results were not as bad as feared and investors warmed to details of a radical transformation plan being undertaken by boss Steve Rowe that will see 100 outlets close by 2022.

Shares in the Restaurant Group were up 10.6p to 324.2p, even as sales with the Frankie & Benny’s owner were chilled by the wintry weather in the first quarter.

The company, which also owns brands including Garfunkel’s, Joe’s Kitchen and Chiquito, booked a 4.3% fall in like-for-like sales in the 20 weeks to May 20.

But the group said it was “comfortable with the performance” and expects to see “further benefit” from a host of strategic initiatives as the year progresses.

In Europe, France’s CAC 40 was down 1.32% and Germany’s DAX was 1.47% in the red.

The price of oil was also in negative territory, with Brent crude trading 0.25% lower at 79 US dollars per barrel.

The biggest risers were Marks & Spencer up 15.1p at 306.9p, Imperial Brands up 33.5p at 2,817p, Reckitt Benckiser up 61p to 5,982p and NMC Health up 38p at 3,774p.

The biggest fallers were Anglo American down 99.6p to 1,829.8p, WPP down 57.5p to 1,302.5p, Royal Dutch Shell down 91.5p to 2,648p and Rio Tinto down 140p to 4,275p.