By Carla Mozee, MarketWatch
LONDON (MarketWatch) -- U.K. stocks fell Tuesday as British
luxury-good maker Burberry Group PLC sounded a cautious note about
demand, while an unexpected decline in inflation stoked concerns
about the U.K. economy.
The FTSE 100 benchmark index reached intraday lows after the
release of U.K. government data showing the annual headline rate of
inflation fell to 1.2% in September, stemming largely from a 6%
drop in the price of motor fuels. The result was well below
expectations of a 1.4% reading, and marked the lowest inflation
rate since September 2009.
Core inflation -- which strips out the price of energy, food,
alcoholic beverages and tobacco -- rose 1.5%, the lowest reading
since April 2009.
Markets: The FTSE 100 was down 0.5% at 6,335.47; a loss on
Tuesday would mark the FTSE's fifth decline in six sessions. The
pound (GBPUSD) fell against the U.S. dollar, buying $1.5960 versus
$1.6076 late Monday. Sterling fell below $1.60 in the wake of the
inflation results.
Leading losses on the FTSE, Burberry shares fell 4.4%. The
luxury fashion company said sales in the first half of the year
climbed 14% to 1.1 billion pounds ($1.8 billion). Same-store sales
growth of 12% in the first quarter was in line with its
expectations, but comparable sales in the second quarter slowed to
8%, "affected by external factors in some markets," Burberry
said.
Off the FTSE 100, Mulberry sank following the company's warning
that pretax profit for the full year to March 2015 will likely come
in "significantly below current expectations." The shares were down
10%, but had been down by more than 20% during the session.
Miners for a second straight trading session scored gains on the
main benchmark, with Rio Tinto PLC higher by 2.1%, Anglo American
PLC up 1.6% and BHP Billiton PLC tacking on 1%.
Data thoughts: The downside inflation surprise and "next to no
growth" in the euro zone -- the U.K.'s largest trading partner --
over the next six months "will weigh on U.K. rate setters'
decisions," said Rob Wood, chief U.K. economist at Berenberg, in a
note. "Those trends remove the already very slim chances of a rate
hike before next year, and could stay the [Bank of England's] hand
next February, if eurozone sentiment does not pick up by then."
The BOE's benchmark interest rate currently stands at a record
low of 0.5%.
Meanwhile, Rabobank senior currency strategist Jane Foley said
they see "risks of the BOE delaying a rate hike beyond May as
rising," in the face of weakening CPI inflation and the absence of
a rise in real wages in the U.K.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires