U.K. stocks fell as investors weighed Federal Reserve Chair Janet Yellen’s testimony and as inflation data in Britain fueled speculation the Bank of England may raise interest rates within months.
Imperial Tobacco Group Plc dropped 3.7 percent after saying it will acquire some brands from Reynolds American Inc and Lorillard Inc. Provident Financial Plc fell 1.6 percent after JPMorgan Chase & Co. downgraded its recommendation on the stock. African Barrick Gold Plc rose 2.5 percent. Michael Page International Plc climbed 2.4 percent after the recruitment consultancy posted an 8.9 percent increase in second-quarter gross profit.
The FTSE 100 Index slid 35.69 points, or 0.5 percent, to 6,710.45 at the close in London. The gauge lost 2.6 percent last week amid signs of financial stress among some Portuguese banks. The broader FTSE All-Share Index slipped 0.6 percent today, while Ireland’s ISEQ Index climbed 0.2 percent.
Yellen told lawmakers the Fed must press on with monetary stimulus as significant slack remains in labor markets and inflation is still below the central bank’s goal.
“A high degree of monetary policy accommodation remains appropriate,” Yellen said in semi-annual testimony to the Senate Banking Committee. “Although the economy continues to improve, the recovery is not yet complete.”
U.K. consumer prices rose 1.9 percent in June from a year earlier, up from 1.5 percent in May, the Office for National Statistics said in London. Last month’s pace was the fastest since January. The median forecast of 35 economists in a Bloomberg News survey had called for 1.6 percent.
The inflation number, coupled with economic growth and job creation, is leading to an erosion of spare labor capacity in the British economy, James Knightley, a senior economist at ING Bank NV in London, said in a note. That may push the BOE to increase interest rates in November, he said.
The medium-term outlook for the BOE’s rates has not changed, Governor Mark Carney told the House of Commons Treasury Committee. The central bank has no preset path for rate changes and will decide based on economic data, he said.
In the U.S., Federal Reserve Chair Janet Yellen delivers her semi-annual testimony to the Senate today and to the House Committee tomorrow. She said last month that the Fed will keep interest rates low for a considerable time after ending its asset-purchase program.
Imperial Tobacco fell 3.7 percent to 2,638 pence, posting the biggest decline on the FTSE 100. The company will acquire brands such as Kool and Blu e-cigarettes from Reynolds-Lorillard for $7.1 billion. Imperial said it has raised 4.2 billion pounds ($7.2 billion) to finance the all-debt deal.
Provident Financial dropped 1.6 percent to 2,130 pence. JPMorgan lowered its rating to neutral from overweight, similar to a change to hold from buy, citing the recent rally in the stock. Provident rose 33 percent this year through yesterday.
African Barrick rallied 2.5 percent to 232.2 pence. Vedanta Resources Plc added 0.8 percent to 1,097 pence.
Michael Page International rose 2.4 percent to 438 pence. The company said second-quarter gross profit at constant currency rates increased to 137.2 million pounds ($235 million). Michael Page also maintained its full-year growth forecast. Canaccord Genuity Group Inc. advised investors to buy the stock.
Intermediate Capital Group Plc advanced 6.1 percent to 400.8 pence. JPMorgan raised its recommendation on the stock to overweight, or buy, from neutral.