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July 14, 2021, 11:28 a.m. EDT

U.K. inflation data boosts sterling and hits shares in British multinationals

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Jack Denton

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 /zigman2/quotes/205449809/delayed UK:ULVR +0.16% and Diageo /zigman2/quotes/205611832/delayed UK:DGE +0.86% , telecom Vodafone /zigman2/quotes/202484985/delayed UK:VOD +1.19% , and pharmaceutical groups GlaxoSmithKline /zigman2/quotes/200381158/delayed UK:GSK +0.70% and AstraZeneca /zigman2/quotes/203048482/delayed UK:AZN -1.07% 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 /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0220% rose near 0.4% relative to the dollar, 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.

Also read: European stocks head lower as more consumer price data adds fuel to inflation debate

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 /zigman2/quotes/210598409/delayed UK:UKX +1.47% , 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.

Plus: British banks get good news as pandemic-era curbs on dividends and share buybacks are ended

Barratt Developments /zigman2/quotes/209812640/delayed UK:BDEV +0.70% stock rose 2% 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 /zigman2/quotes/207049334/delayed UK:TUI +1.58% , the world’s largest tourism group and an operator of hotels, airlines, and cruises. TUI stock dropped near 7%, while airlines Ryanair /zigman2/quotes/202851567/delayed UK:RYA +1.02% , EasyJet /zigman2/quotes/202825892/delayed UK:EZJ +0.88% , Wizz Air /zigman2/quotes/210449062/delayed UK:WIZZ +1.37% , and IAG /zigman2/quotes/208070069/delayed UK:IAG +1.87% —the owner of British Airways—also fell.

Bank stocks were relatively strong, with shares in Barclays /zigman2/quotes/208409333/delayed UK:BARC +3.54% , Lloyds /zigman2/quotes/202285510/delayed UK:LLOY +3.54% , and NatWest /zigman2/quotes/209265718/delayed UK:NWG +3.29% 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 /zigman2/quotes/201381512/delayed UK:AAL +3.56% —a dominant producer of platinum—as well as commodities trading titan Glencore /zigman2/quotes/201400686/delayed UK:GLEN +3.91% and integrated iron and steel group Evraz /zigman2/quotes/202291633/delayed UK:EVR +3.38% were among the largest risers on the FTSE 100, as the prices of platinum /zigman2/quotes/210261555/delayed PL00 -0.45% and steel lifted around 1%.

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UK : U.K.: London
4,019.50 p
+6.50 +0.16%
Volume: 2.15M
Sept. 22, 2021 4:35p
P/E Ratio
22.09
Dividend Yield
3.71%
Market Cap
£103.58 billion
Rev. per Employee
N/A
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UK : U.K.: London
3,511.00 p
+30.00 +0.86%
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Sept. 22, 2021 4:35p
P/E Ratio
30.95
Dividend Yield
2.07%
Market Cap
£81.12 billion
Rev. per Employee
£458,302
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115.40 p
+1.36 +1.19%
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607.37
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6.77%
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£31.44 billion
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16.43
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UK : U.K.: London
8,617.00 p
-93.00 -1.07%
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40.60
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2.35%
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£282,763
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1.3621
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Sept. 22, 2021 7:32p
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UK : FTSE UK
7,083.37
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690.60 p
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UK : U.K.: London
314.80 p
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N/A
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£144,389
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UK : U.K.: London
16.77
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N/A
Dividend Yield
N/A
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€18.61 billion
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661.20 p
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N/A
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UK : U.K.: London
5,192.00 p
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N/A
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N/A
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174.50 p
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N/A
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£120,743
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2,562.00 p
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P/E Ratio
6.46
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324.20 p
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29.66
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2.71%
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581.40 p
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13.25%
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