FTSE 100 falls 1 point to 9,188
UK inflation rises to 3.8%, highest since Feb 2024
UK house prices rise 3.7%
10.16m: Anglo still falling
Anglo American PLC (LSE:AAL) shares continue to fall after US rival Peabody yesterday pulled out of a $3.8 billion deal to buy its coking coal assets.
This follows an explosion at the Moranbah North mine in Australia earlier this year, with the site still closed.
Peabody had agreed to buy the assets in a competitive bidding process last year.
Anglo’s position has been that the gas ignition event on the 31st Mar ’25 does not constitute a material adverse change under the agreement, and said yesterday they reserve their rights and legal position under the agreement and will shortly initiate an arbitration to seek damages for wrongful termination.
Citi analysts say: “This has largely been expected by the market over the last couple of months in our view.
“While it does delay the process of simplifying the portfolio by selling steel making coal assets, Anglo’s statement suggests there could be alternative buyers for the assets already and the transaction may proceed, albeit to a different party.”
9.44am: UK house prices spike
UK house prices grew 3.7% compared to last year, in June, according to the ONS official house price data.
This annual growth rate is up from 2.7% in May.
ONS Head of Housing Market Indices Aimee North said: “House price annual inflation continues to pick up with the average UK house price now at around £269,000.
“Annual private rents inflation has slowed across the whole of the UK for the seventh consecutive month.”
Meanwhile, rises in rents eased.
Average UK monthly private rents increased 5.9% in July, down from the 6.7% annual rate in June.
9.05am: European markets down – defence and tech in focus
Why are markets down?
European markets are echoing declines in Japan and on Wall Street, says market analyst Victoria Scholar at Interactive Investor.
Defence and aero stocks are under pressure, extending losses after their worse day in over a month, she also notes, with Rolls, Melrose Industries and Babcock down, a theme also seen on the Continent, where Rheinmettal and Hensoldt are under pressure in Germany as Ukraine peace talks continue.
In terms of other movers, Convatec is at the top of the FTSE 100 after announcing a $300 million share buyback.
US futures are pointing to losses being extended after yesterday’s tech driven sell-off.
Scholar notes that Palantir led the declines, shedding over 9%, while Nvidia and Arm were also lower, “sparked by concerns about overexcitement and overvaluations in AI stocks”.
A report from MIT and comments from OpenAI’s CEO Sam Altman about ‘over-excitement’ fuelled those concerns.
Danni Hewson at AJ Bell notes that the AI theme has been pretty much on a “one-way track upwards but there have been occasions when the enthusiasm has been punctured”, such as the Deepseek shock earlier this year.
A report produced by a branch of the Massachusetts Institute of Technology (MIT) is being pegged as the culprit, she says, after several AI-related names slumped overnight.
“The research strikingly suggested 95% of companies are getting zero return on their investment in generative AI.”
While it comes hot on the heels of comments from Altman’s comments that suggested investors are ‘over excited’ in this area, Hewson feels this “looks like a mild and possibly necessary correction after an extremely strong run for this space and the companies within it.
“Investors will be watching closely to see if AI stocks stabilise from here or the selling continues. Nvidia’s quarterly earning next week now look even more crucial than they already were.”
8.37am: Costain shares crumble
Costain is one of the big fallers this morning, down 15% despite hiking its dividend and launching a new £10 million buyback.
Analyst Andrew Nussey at Peel Hunt says weaker-than-expected performance from the Transportation division, including HS2 rail work being pushed back, was mitigated by a stronger-than-expected Natural Resources result to leave operating profit up 3%.
“The outlook is confident, supported by the quality and shape of the growing order book. The margin target was reiterated. Growth step up in 2027 still expected.”
Nussey says he is keeping his profit forecasts unchanged for the next two years, noting also that the shares had risen 54% in the year to date to trade at 10.4 times forecast 2026 earnings.
8.15am: Footsie starts lower
The FTSE 100 has started in the red, as expected, dropping 14 points to 9,176.
Biggest fallers are led by housebuilder Berkeley Group, engine maker Rolls-Royce, and Polar Capital Tech Trust, followed by more housebuilders, aerospace names, investments groups and retailers.
The FTSE 250 is down too, falling 77 points to 21,756.
Challenger bank OSB is bottom of the pile there, down 2.8%.
7.46am: Pound rises, BoE will be watching CPI
The pound is up 0.1% against the euro and after an initial spike against the dollar is back to where it was.
Inflation data for both June and July have surprised on the upside, notes Jeremy Batstone-Carr, European strategist at Raymond James.
Today’s July data is a reflection of both rising fuel and food prices, with groceries “now on a clear upward trajectory which may not peak until later in the year”, he says.
“With the Bank of England’s Monetary Policy Committee (MPC) paying close attention to trends in service sector inflation, today’s confirmation that prices nudged higher again last month, from 4.7% to 5%, will cause concern.”
While the MPC cut interest rates at this month’s meeting, it was accompanied by a “hawkish tilt” in the Committee’s statement to reflect concerns about rising price pressures.
“Today’s data is likely to harden rate-setters’ resolve that any future rate cuts will be conditional on consumer prices adjusting to a lower pathway.
“With a peak in prices not anticipated until later in the year, the Bank’s scope to provide much by way of monetary policy offset will be severely limited, in the wake of what looks likely to be another tough Budget.”
7.23am: ONS corrects error
The ONS says it has “identified a minor error” but that it has “no impact” on the headline inflation rates.
It said the error was “in the imputation of missing seasonal item indices”, which has now been redesigned as part of a modernisation process.
Looking at the details, the statistical body’s explanation is that there was a 0.1 percentage point impact on annual growth of two ‘divisions’ of price data – furniture, household equipment and maintenance, and recreation and culture – for the period between February to June 2025.
As per its normal correction practice, the ONS said the indices have not been corrected for those months, but the correction of the error is reflected in the July indices.
Away from that, ONS chief economist Grant Fitzner noted that inflation rose to its highest annual rate since the beginning of last year.
“The main driver was a hefty increase in air fares, the largest July rise since collection of air fares changed from quarterly to monthly in 2001. This increase was likely due to the timing of this year’s school holidays,” he said.
Petrol and diesel prices also increased, compared with a drop this time last year, while food price inflation continues to climb.
He said items such as coffee, fresh orange juice, meat and chocolate saw the biggest rises.
7.13 am: Inflation print surprises… and not in a good way
Morning all. The major economic talking point of the morning is likely to be the latest inflation print, which has come in at a worse-than-expected 3.8%. This is likely to dampen expectations for further cuts to the base rate – at least in the near term.
The main driver, according to the ONS data, was rising air fares, an anomaly linked to the timing of the school holidays.
Ahead of the open, the spread betting firms are calling the FTSE 100 13 points lower at 9,173.22, reflecting the declines seen in Asia overnight and on Wall Street rather than the surprise cost of living news.