By Barbara Kollmeyer
Fresh data in the U.K. show inflation is on the rise, but that wasn’t panicking investors on Wednesday as shares of drug companies rose and some plays on economic reopenings rebounded.
The FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -0.42% inched up 0.2% to 6,872, as the market attempting to stabilize after the worst one-day rout for U.K. stocks since late February. The index slid 2% on Tuesday, as global stocks fell across the board on concerns over rising cases, chiefly in India.
March consumer prices rose 0.7% annually, according to data from the Office for National Statistics. Core inflation rose to 1.1% annually, from a 0.9% gain in February. Clothing, footwear and transport prices provided the biggest upward push for those prices.
But analysts said the price spikes were nothing to worry about yet. “The spike in inflation is nothing to worry about — yet. We always knew inflation was going to rise once we started lapping the beginning of the [COVID-19] pandemic, in particular the steep falls in energy prices witnessed in the spring of last year.
“But CPI [consumer-price index] is still way below target, and this isn’t the kind of embedded, long-term inflation that will cause sleepless nights for anyone at the Bank of England,” said Laith Khalaf, financial analyst at AJ Bell, in a note to clients.
“The Bank has looked through much higher inflation before, so interest rate rises remain very much in the long grass. The big question is whether the economic recovery, combined with fiscal and monetary stimulus, will start to foster a more sustained, inflationary trend that has the potential to get out of hand,” said Khalaf.
“This risk isn’t likely to come home to roost anytime soon, with unemployment expected to rise later this year, thereby acting as a drag on rising wages. But beyond that, the worry is that the powder keg of cheap money could ignite an inflationary spiral,” he said. The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0554% was flat against the dollar at $1.3927.
Supporting London’s gains were shares of drug companies, with shares of AstraZeneca /zigman2/quotes/200304487/composite AZN -1.30% /zigman2/quotes/203048482/delayed UK:AZN -0.78% and GlaxoSmithKline /zigman2/quotes/200381158/delayed UK:GSK -1.09% /zigman2/quotes/209463850/composite GSK -0.50% each gaining 1%. Major oil companies were also higher, with shares of BP and Royal Dutch Shell up at least 0.5% each. That is as oil prices /zigman2/quotes/211629951/delayed CL.1 +1.14% came under pressure.
As well, several stocks bounced back from a fall in stocks across the globe on Tuesday, as soaring COVID-19 cases in countries such as India and elsewhere caused investors to fret about the global economic recovery.
Shares of airline easyJet /zigman2/quotes/202825892/delayed UK:EZJ +3.11% rose 2%, with cruise operator Carnival /zigman2/quotes/200877079/composite CUK +1.40% up 1.8%, while on the pub and dining side, shares of Restaurant Group /zigman2/quotes/207518837/delayed UK:RTN +0.15% climbed 3% and J.D. Wetherspoon /zigman2/quotes/209658419/delayed UK:JDW -0.35% rose 2%.