By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- U.K. stocks broke a two-day losing
streak and moved higher on Tuesday, after weaker-than-expected
inflation data for May eased pressure on the Bank of England to
hike interest rates.
The FTSE 100 index closed 0.2% higher at 6,766.77, supported by
the latest consumer-price data from the Office for National
Statistics.
The ONS reported annual inflation of 1.5% last month, down from
1.8% in April and missing expectations of a 1.7%-1.8% print. The
lower-than-forecast growth in consumer prices could ease pressure
on the BOE to raise interest rates, as tighter monetary policy
tends to add downward pressure on inflation.
After a string of solid data in the U.K. -- including strong
economic growth and a rapid decline in unemployment -- economists
have speculated about when the U.K. central bank will start to hike
rates in response to the better economic climate.
BOE Governor Mark Carney last week surprised most market
observers and said during the Mansion House speech that higher
rates could come sooner than markets currently expect. The comments
sent the pound (GBPUSD) rallying, with the currency briefly
breaching the $1.70 on Monday for the first time since 2009.
After the inflation data on Tuesday, the pound fell to $1.6963,
down from $1.6983 in late North American trade on Monday.
Meanwhile, another report from the ONS showed U.K. house prices
jumped 9.9% in the year to April, up from 8% in the year to
March.
"The divergent data will further complicate the discussion about
the appropriate timing of the first increase in interest rates from
their current record low," Chris Williamson, chief economist at
Markit, said in a note.
Investors will get insight into rate discussions at the BOE when
minutes from its June policy meeting are released on Wednesday.
Expectations are mixed, with some economists suggesting that one or
two of the Monetary Policy Committee members voted in favor of
hiking rates in June. Read: Time to read the BOE's tea leaves on
rate hikes
"While we expect a split vote in the near-term future, it is in
our view more likely to happen in the next month or two," analysts
at UBS said in a note on Tuesday. "Nonetheless, we would advocate
caution heading into the latest minutes."
Among notable stock movers in London, shares of Whitbread PLC
added 2.2% after the hotel and restaurant operator reported a 6.9%
rise in first-quarter comparable sales, boosted by strong customer
demand at both its Premier Inn and Costa Coffee divisions.
Shares of Shire PLC put on 3.5% after Reuters reported that the
drug maker has hired investment bank Citi in preparation for
potential takeover approaches.
Wm. Morrison Supermarkets PLC gained 2.3% after the company it
is cutting 2,600 jobs as part of a plan to simply its management
structure.
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