Shares in some of the U.K.’s largest multinational companies declined on Wednesday, depressed by a stronger pound after data showed that inflation jumped by more than expected in June.
Consumer product makers Unilever
pharmaceutical groups GlaxoSmithKline
and tobacco giants Imperial Brands
and British American Tobacco
were among the stocks that declined in London.
These companies do business in dollars and come under pressure when the British pound strengthens relative to the U.S. currency. Sterling
rose around 0.4% relative to the dollar by midday in London, nearing $1.39.
The British currency lifted after the U.K. consumer price index showed inflation rising 2.5% year-over-year in June, outpacing estimates of a 2% rise as transport, clothing, and cakes led CPI higher.
This added to the debate over inflation concerns stoked up on Tuesday, when markets were met with a basket of key price data from the U.S., France, and Germany.
“As inflation keeps rising, more questions are being asked over how transitory this spike actually is. Inflation concerns have been hovering over the financial markets for some time. Persistently higher prints are only adding to the unease,” said Sophie Griffiths, an analyst at broker OANDA.
However, the U.K.’s producer price index, which measures inflation from the perspective of producers, showed signs of cooling. U.K. PPI rose 4.3% year-over-year, down from 4.4% in the month prior and below expectations of 4.8%.
Michael Hewson, an analyst at CMC Markets, noted that “the first signs of a slowdown in inflationary pressure are likely to be seen in PPI, as companies start to see the prices they pay at the point of manufacture or delivery start to come down, as supply chain constraints ease.”
The pressure on multinationals weighed on the FTSE 100
the index of London’s top stocks by market capitalization, which fell 0.5%.
“The jump in inflation boosted the pound, pulling the internationally-focused FTSE lower. The U.K. index is underperforming its European peers,” Griffiths said.
stock rose more than 1.5% as one of the U.K.’s largest housing developers said in a trading update that it expects full-year profit before tax to be above the top end of the range of market expectations. The group noted strong housing demand across the country.
The travel sector was taking a beating, led down by shares in TUI
the world’s largest tourism group and an operator of hotels, airlines, and cruises. TUI stock dropped 7.5%, while airlines Ryanair
—the owner of British Airways—also fell.
Bank stocks were relatively strong, with shares in HSBC
higher. On Tuesday, the British banks welcomed good news as the Bank of England ended COVID-19 pandemic-era curbs on dividends and share buybacks, noting the resilience of the sector.
Shares in some of London’s metal and mining giants also climbed as the prices of select commodities rose. Anglo American
—a dominant producer of platinum—as well as commodities trading titan Glencore
and integrated iron and steel group Evraz
were among the largest risers on the FTSE 100, as the prices of platinum
lifted around 1%.