London stocks had pared earlier losses by midday on Tuesday, helped along by some well-received results and a strong showing in the housebuilding sector, as the latest PMIs reinforced expectations of a rate hike next month.
The FTSE 100 was down just 0.1% at 7,247.67, while sterling was 0.3% lower against the dollar at 1.3362 after the latest survey from IHS Markit CIPS showed that consumer demand jumped alongside surging input costs in November.
The flash composite output index was 57.7 in November, marginally down on October’s 57.8 but otherwise above the third-quarter average of 56.3. It also beat consensus for 57.5.
Within that, the UK services business activity index was 58.6, compared to 59.1 in October, while the manufacturing output Index rose to 52.9 from 51.3 a month previously.
Manufacturing PMI also rose, to a three-month high of 58.2 from 57.8. Analysts had been expecting 57.5.
But while customer demand continues to rise sharply, helped by improving economic conditions and the relaxation of pandemic restrictions, the increase in input price inflation was the fastest since the index began in January 1998.
Around 63% of private sector companies reported an increase in their average cost burdens, and only 1% saw a decline.
Chris Williamson, chief business economist at IHS Markit, said: “A combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rate rises in December.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The persistence of Markit’s composite PMI above its third-quarter average, and its 54.3 average in the 2010s, will likely reassure wavering Monetary Policy Committee members that the economy can withstand a modest increase in interest rates at its next meeting, on 16 December.”
Stocks had kicked off the session in the red amid worries about rising Covid cases and tightening restrictions in Europe.
In equity markets, online electrical retailer AO World tumbled as it warned that supply chain issues and higher costs would hit full-year earnings and revenue.
Richard Hunter, head of markets at Interactive Investor, said: “The company is currently in a parlous position. The well-publicised supply chain disruptions have had a severe impact, with a shortage of delivery drivers a particular issue.
“At the same time, the group’s foray into the German market is not only in the early stages of establishing the brand, but is also being faced by significantly increased competition.”
On the upside, housebuilders shone, with Barratt Developments the standout performer of the sector as Berenberg lifted the shares to ‘buy’ from ‘hold’.
Berenberg said: “The UK housebuilding sector just cannot seem to catch a break: despite a booming housing market, the sector has underperformed the UK market by 10% year-to-date.
“Demand remains high, pricing continues to offset costs, balance sheets are as strong as they have ever been, valuations are cheap and forecasts achievable, so we are confident that – despite rising rates – this underperformance will reverse.”
Elsewhere, building materials group CRH was the top gainer on the FTSE 100 after saying it was on track to deliver “another record performance” for the full year.
Caterer Compass Group rallied after saying it was reinstating its dividend and that full-year pre-tax profits had more than doubled.
Telecom Plus was on the rise after it reported a drop in half-year profit but a 6% jump in revenue thanks in part to a colder spring relative to the prior year.
Pets at Home advanced after it backed its full-year profit guidance as it posted a jump in interim profit and revenue, highlighting a rise in pet ownership.
FTSE 100 (UKX) 7,247.67 -0.11%
FTSE 250 (MCX) 23,304.48 -0.53%
techMARK (TASX) 4,503.05 -0.82%
FTSE 100 – Risers
CRH (CDI) (CRH) 3,789.00p 3.61%
Compass Group (CPG) 1,519.00p 3.16%
Rio Tinto (RIO) 4,644.00p 2.30%
International Consolidated Airlines Group SA (CDI) (IAG) 151.54p 2.30%
BHP Group (BHP) 1,986.60p 2.25%
Barratt Developments (BDEV) 698.40p 1.90%
Taylor Wimpey (TW.) 159.30p 1.56%
Rolls-Royce Holdings (RR.) 137.74p 1.41%
Imperial Brands (IMB) 1,632.50p 1.37%
BAE Systems (BA.) 570.60p 1.21%
FTSE 100 – Fallers
Halma (HLMA) 3,049.00p -2.74%
Flutter Entertainment (CDI) (FLTR) 11,070.00p -2.68%
Spirax-Sarco Engineering (SPX) 16,015.00p -2.61%
SEGRO (SGRO) 1,373.50p -2.42%
BT Group (BT.A) 160.85p -2.34%
Ocado Group (OCDO) 1,851.50p -2.30%
Hargreaves Lansdown (HL.) 1,453.50p -2.29%
Polymetal International (POLY) 1,378.00p -2.17%
Johnson Matthey (JMAT) 2,187.00p -2.15%
Smith & Nephew (SN.) 1,247.00p -2.00%
FTSE 250 – Risers
Telecom Plus (TEP) 1,442.00p 11.27%
Pets at Home Group (PETS) 487.80p 6.46%
Mitie Group (MTO) 66.70p 3.09%
Ferrexpo (FXPO) 292.20p 2.74%
Bodycote (BOY) 858.50p 2.63%
Wizz Air Holdings (WIZZ) 4,294.00p 2.63%
Crest Nicholson Holdings (CRST) 357.00p 2.29%
Big Yellow Group (BYG) 1,597.00p 2.11%
Babcock International Group (BAB) 321.60p 2.10%
SSP Group (SSPG) 256.00p 1.91%
FTSE 250 – Fallers
AO World (AO.) 106.50p -14.11%
Hochschild Mining (HOC) 110.00p -8.18%
Diploma (DPLM) 3,252.00p -6.01%
Reach (RCH) 285.50p -5.46%
Hammerson (HMSO) 30.76p -5.09%
Allianz Technology Trust (ATT) 357.00p -3.51%
Spire Healthcare Group (SPI) 235.50p -3.48%
Auction Technology Group (ATG) 1,330.00p -3.48%
Aston Martin Lagonda Global Holdings (AML) 1,559.50p -2.77%
Mediclinic International (MDC) 308.80p -2.77%