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London stocks closed weaker on Tuesday after a slew of economic data, as it emerged that the squeeze on households would be ratcheted further with a more-than-£800 rise in the energy price cap.
The FTSE 100 ended the session down 0.39% at 7,484.35, and the FTSE 250 was off 1.47% at 19,849.82.
Sterling was also in the red, last falling 0.32% on the dollar to $1.2548, and weakening 0.83% against the euro to change hands at €1.1677.
“The FTSE 100 has seen only slight losses, holding close to its highs of the week,” said IG chief market analyst Chris Beauchamp, comparing the performance of London’s top-flight index to its peers across the pond.
“It has rarely been a better time to be an index dominated by commodity-linked stocks, which once again have held the pass while almost every other index heads sharply into the red.”
Energy bills were at the top of the agenda, with the head of Ofgem telling politicians that the price cap was on course to rise by more than £800 in October.
Appearing before the Business, Energy and Industrial Strategy committee, the regulator’s chief Jonathan Brearley said that while the next price cap review was ongoing, early indications were for a significant increase.
"We are expecting a price cap in October in the region of £2,800," he said.
The price cap - the maximum price suppliers can charge customers - is currently at a record £1,971 after Ofgem increased it by 54% in April, to better reflect surging wholesale costs.
Brearley warned that 12 million households could end up in fuel poverty as a result, and called on the government to take action.
"We need the government to step in," he added.
Wholesale oil and gas prices had soared over the last year, with volatility further ramped up following Russia’s invasion of Ukraine on 24 February.
On the economic front, a survey released earlier showed business activity in the UK slowing sharply in May as inflationary pressures and geopolitical uncertainty weighed on customer demand.
The S&P Global/CIPS composite purchasing managers’ index - which measures activity in the services and manufacturing sectors - fell to 51.8 from 58.2 in April, hitting a 15-month low.
That was below expectations for a reading of 56.5 and marked the slowest rise in business activity since the current phase of the recovery began in March 2021.
Meanwhile, the services PMI slid to 51.8 in May from 58.9 in April, missing consensus expectations of 57.0.
The manufacturing PMI declined to 54.6 from 55.8, also below the consensus expectations, of 55.0.
“The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“Meanwhile, the inflation picture has worsened as the rate of increase of companies' costs hit yet another all-time high.
“The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels.”
Elsewhere, another survey suggested retailers were expecting sales to soften in June, as high inflation and the weakening economic outlook weigh on consumers.
According to the Confederation of British Industry’s latest quarterly distributive trades survey, retail sales were broadly average for the time of year in May, with a balance of 0% compared to -24% in April.
Year-on-year, the reported sales balance rose to -1% from -35%, significantly ahead of expectations, for -30%.
But sentiment fell at the quickest pace since November 2020, and a net balance of -13% expected sales to be below seasonal norms in June.
Investment intentions for the year ahead were also at their weakest level since the early stages of the pandemic, in May 2020.
“The outlook for the sector has worsened, due to high inflation and broader economic uncertainty,” said Martin Sartorius, the CBI’s principal economist.
“As a result, retailers are reining in their investment plans for the year ahead to the greatest extent since May 2020.”
Still on data, industry research showed grocery inflation hitting its highest level in 13 years in May.
According to retail consultancy Kantar, like-for-like grocery inflation was 7% in the past four weeks, the highest since May 2009.
In the 12 weeks to 15 May, grocery inflation was 5.7%, with prices rising fastest in dog food, savoury snacks and beef, and falling in spirits.
“People are really feeling the squeeze at the supermarket tills and they’re having to stretch their budgets further to accommodate rising prices,” said Fraser McKevitt, head of retail and consumer insight at Kantar.
“Understandably, only a third of consumers now think of themselves as being in a comfortable financial position.”
Finally, UK government borrowing fell more than expected in April, but remained above pre-Covid levels, according to the Office for National Statistics.
Government borrowing fell by £5.6bn from the previous year to £18.6bn, coming in below analysts’ forecasts of £18.8bn and the Office for Budget Responsibility’s forecast of £19.1bn.
It still, however, remained above pre-Covid levels - up by £7.9bn compared to April 2019 - and was the fourth-highest April borrowing since monthly records began.
The ONS cut its estimate for borrowing in 2021 and 2022 by £7.2bn to £144.6bn.
Paul Dales, chief UK economist at Capital Economics said the lower-than-expected public borrowing and the downward revisions to borrowing in 2021/22 "will only add to the pressure on the Chancellor to go big when finalising the imminent support package for households".
"We think any support will be small and targeted rather than big and widespread," he added.
In equity markets, SSE slid 7.85%, Drax Group tumbled 13.79%, and Centrica lost 7.19% following a Financial Times report that Chancellor Rishi Sunak had ordered a plan for a windfall tax on electricity generators.
In addition, SSE and Drax were knocked lower by downgrades to ‘neutral’ and ‘sell’ respectively at Citi.
Elsewhere, Royal Mail was on the back foot by 5.51%, after a downgrade to ‘sell’ at Peel Hunt, while drugmaker Hikma Pharmaceuticals lost 3.9% after it announced the resignation of chief executive Siggi Olafsson.
On the upside, banks gained, with Barclays up 3.2%, HSBC adding 3.57% and Standard Chartered ahead 2.26%.
SSP Group rallied 3.52% after the Upper Crust owner said it swung to an interim core profit as the travel sector rebounded from Covid restrictions but warned inflationary pressures would increase in the second half.
Convenience food manufacturer Greencore Group also rose, advancing 2.89% after it swung to an interim profit as revenues grew and said it would resume the return of £50m to shareholders.
Assura was 2.27% firmer after it reported "another year of significant progress", with pre-tax profit up 44% to £155.8m.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk and Abigail Townsend.
FTSE 100 (UKX) 7,484.35 -0.39% FTSE 250 (MCX) 19,849.82 -1.47% techMARK (TASX) 4,407.86 -0.17%
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