London close: FTSE ekes out small gain as government borrowing costs jump

(Sharecast News) - London stocks ended just a smidgen higher on Tuesday, unable to make any meaningful headway as government borrowing costs hit multi-year highs amid worries about inflation and the impact of the Iran war.

The FTSE 100 closed up just 0.1% at 10,728.04, while Brent crude was up 0.6% at $91.44 a barrel and West Texas Intermediate was 0.9% higher at $85.23.

The 60-day memorandum of understanding between the US and Iran expired on Monday, with both sides rejecting any potential extension. In addition, Trump told Fox News on Monday that the US would bomb Oman if it gets in the way of ending the war.

The US and Oman have been negotiating separately with Tehran to reopen the vital Strait of Hormuz.

Danni Hewson, head of financial analysis at AJ Bell, said: "It's been a tough day for global markets as long-dated bond yields marched higher.

"Investors are watching the unfolding situation in the Middle East and factoring in the potential of an inflation spike that runs hotter and lasts longer than had previously been hoped.

"The UK's 30-year gilt yield jumped to levels approaching those seen at the height of political instability back in May, despite reassuring noises made by the new PM in recent weeks and disappointing jobs vacancy numbers which could persuade rate setters to hold firm at the Bank or England's next meeting in September.

"With Brent crude rising back above the $91 a barrel mark, many UK investors will be treading water ahead of tomorrow's inflation figures. The expectation is that prices jumped up again in July.

"Mixed messages on the Strait of Hormuz and Donald Trump's assertion that talks with Iran are not taking place nor planned deflated hopes after positive noises from the president's son-in-law and envoy yesterday. The longer the conflict runs, the more delays to free shipping and the more pressure central banks are likely to come under as price volatility has to be considered and combatted."

On home shores, figures from the Office for National Statistics showed the unemployment rate was unchanged in June, while earnings growth in the private sector slowed and vacancies were at their lowest in more than five years.

The unemployment rate unexpectedly remained at 4.9% in the three months to June, versus expectations for a dip to 4.8%. Meanwhile, vacancies fell by 6,000 to 707,000 - the lowest level since 2021.

Liz McKeown, director of economic statistics at the ONS, said: "Vacancies remain broadly flat, though a small fall in the latest period puts them at the lowest level in more than five years.

"The latest decrease was driven mainly by smaller businesses, which cite labour and operating costs as reasons for not hiring new staff or replacing leavers."

Growth in total earnings, including bonuses, fell to 4.1% in the three months to June from 4.3% in the three months to May. Economists had been expecting a decline to 4%. Pay growth excluding bonuses ticked up to 3.5% from 3.4%, versus expectations for it to be unchanged.

Regular wage growth in the private sector fell to a six-year low of 2.8% in the three months to June from 2.9% in the previous quarter, while public sector pay was up 6.1%, having risen 5.5% in the previous three months.

Liz McKeown said: "Regular wage growth has remained broadly stable in recent months. However, private sector pay growth has continued to ease, while public sector pay growth remains elevated due to the timing of the latest NHS pay awards."

ING economist James Smith said "the basic story here is that the jobs market is cool".

"We can see that in the vacancy numbers, which are still gradually falling and are well down on pre-Covid levels," he said. "We can see that in the unemployment rate, notwithstanding the latest reliability issues. And crucially for the Bank of England, there is little sign that wage growth is about to turn higher.

"Barring a severe and persistent spike in energy prices, we think the Bank will keep rates on hold until next spring, before cutting rates at least twice in 2027."

In equity markets, BP was among the top risers on the FTSE 100 as oil prices crept higher again.

Premier Inn owner Whitbread was boosted by an upgrade to 'market perform' from 'underperform' at Bernstein, which said it was "time to adopt a more constructive stance".

IT services provider Kainos surged as it said full-year revenue and adjusted pre-tax profit were set to be "comfortably ahead" of current market expectations.

Market Movers

FTSE 100 (UKX) 10,728.04 0.07%

FTSE 250 (MCX) 24,561.43 -0.58%

techMARK (TASX) 6,169.06 0.35%

FTSE 100 - Risers

Relx plc (REL) 2,540.00p 2.83%

Experian (EXPN) 2,875.00p 2.72%

BP (BP.) 533.50p 2.68%

Burberry Group (BRBY) 1,074.50p 2.33%

AstraZeneca (AZN) 11,806.00p 2.13%

Marks & Spencer Group (MKS) 389.60p 2.10%

Smith & Nephew (SN.) 1,110.50p 2.07%

GSK (GSK) 1,888.00p 1.97%

United Utilities Group (UU.) 1,415.00p 1.95%

National Grid (NG.) 1,211.00p 1.81%

FTSE 100 - Fallers

Halma (HLMA) 3,570.00p -3.57%

Babcock International Group (BAB) 1,138.50p -3.27%

Weir (WEIR) 2,586.00p -3.22%

Lion Finance Group (BGEO) 12,910.00p -3.08%

Diploma (DPLM) 7,150.00p -2.79%

Land Securities Group (LAND) 686.00p -2.70%

International Consolidated Airlines Group SA (CDI) (IAG) 425.10p -2.61%

Anglo American (AAL) 3,831.00p -2.47%

Metlen Energy & Metals (MTLN) 48.12p -2.43%

Fresnillo (FRES) 2,861.00p -2.35%

FTSE 250 - Risers

Kainos Group (KNOS) 1,186.00p 21.95%

Ocado Group (OCDO) 250.00p 6.47%

THG (THG) 33.06p 3.96%

AEP Plantations (AEP) 186.40p 3.56%

Ithaca Energy (ITH) 251.60p 2.86%

Cranswick (CWK) 5,310.00p 1.92%

Frasers Group (FRAS) 808.50p 1.76%

Worldwide Healthcare Trust (WWH) 390.50p 1.69%

WPP (WPP) 391.40p 1.64%

Premier Foods (PFD) 195.60p 1.56%

FTSE 250 - Fallers

Raspberry PI Holdings (RPI) 635.50p -6.54%

Ceres Power Holdings (CWR) 411.80p -4.85%

Polar Capital Technology Trust (PCT) 657.00p -4.23%

Keller Group (KLR) 2,972.00p -3.88%

Telecom Plus (TEP) 872.00p -3.75%

Seraphim Space Investment Trust (SSIT) 181.00p -3.72%

JPMorgan Japanese Inv Trust (JFJ) 829.00p -3.72%

CMC Markets (CMCX) 707.00p -3.55%

Allianz Technology Trust (ATT) 708.00p -3.54%

Pacific Horizon Inv Trust (PHI) 1,090.00p -3.54%