UK stocks lower as core inflation jumps

UK CPI has put further pressure on the BoE, with the rise in sterling helping pull the FTSE lower. Meanwhile, TUI has outperformed, thanks to a jump in demand for holidays in Turkey and on cruise ships.

• Indices tick lower, as recovery comes under pressure

• UK inflation puts pressure on BoE, as core reading hits highest level since 2011

• TUI leads travel sector higher, as demand for cruise and turkey holidays return

European markets are back in familiar negative territory, after yesterday’s rebound in stocks failed to carry through into a second session. While today’s losses are relatively minimal, it is the precedent that is being set which carries more weight, for given the size of last week’s losses, the bulls would be hoping to see a significantly more forthright and constant upward pressure.

UK inflation looks like it is here to stay, as expectations of a fall in UK CPI were blown away this morning. While traders were fixated on whether the headline figure would drop back below 3%, the real head turner turned out to be the core CPI reading, which jumped back to 2.7% to negate last month’s 0.2% fall. With core CPI now back to the joint highest level since 2011, the intense price pressures remain on the BoE to raise rates, with markets factoring in a greater than 50% chance of two or more rate rises in 2018. Unfortunately for Mark Carney, his recent reasoning that inflation could rise over the short term due to energy prices appears to be undermined, with the core reading showing
that UK inflation is on the rise irrespective of energy prices.

TUI has blazed a trail for the travel and tourism stocks today, with easyJet also gaining as it rises in the slipstream of today’s TUI earnings figures. TUI’s outperformance over what is typically a notoriously difficult quarter bodes well for the upcoming holiday period, with the re-emergence of Turkish tourism providing a boost to EasyJet shares (up 1.6%). Also notable was the return of demand for cruise holidays, which took a nosedive in the wake of accidents such as the Costa Concordia.

Ahead of the open we expect the Dow Jones to open 165 points lower, at 24,436.