THE market yesterday made a brave attempt to regain its poise following Wednesday's quarter of a percentage point rise in base rates, but there was no hiding the fact that inflation is now back as an issue for investors.
Strategists continued to discuss the implications of the chancellor's move and many believe a give-away budget later this month is now more likely, particularly after a new opinion poll showed the Labour party with a commanding 28 percentage point lead. However, it was concerns about the inflationary pressures in the economy that moved centre stage.
The FT-SE 100 index opened some 11.6 points down on the back of those concerns, although Wednesday's fall in the US equity market also played its part in denting sentiment.
The early morning weakness of the market all changed in the afternoon. The early firmness on Wall Street following the release of sluggish US economic data helped trigger a turnaround in London's fortunes.
A firm futures contract, which was trading at a premium to fair value, helped the cash market shake off some of its recent gloom. Footsie moved steadily ahead to close at the best level of the day, although dealers suggested a further advance had been checked by continued nervousness about inflation.
With activity having picked up in the afternoon, volume at the 6 p.m. count was 659.5 million shares, down on Wednesday's 720.8 million shares. The value of customer business transacted on Wednesday was £1.3 billion.
There was renewed interest in the food retailers, which analysts suggest is a defensive sector in the new climate on interest rates. Earlier this week, Charterhouse Tilney suggested investors go overweight in the sector. Asda advanced on favourable AGB marketshare data.
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