Inflation data give market respite before another slide

Not even some surprisingly weak inflation data for November, seen by many as opening the way for another reduction in domestic interest rates, could prevent a further decline in UK stocks yesterday.

The inflation news, which showed the headline retail price index up just 0.9 per cent year-on-year, its lowest level since July 1963, and the core figure at 1.8 per cent, gave the market some brief respite only for sentiment to deteriorate again.

After a relatively sedate session, in terms of volatility, the FTSE 100 index was left with a 24.2 decline at 5,160.8, its third straight loss.

At its best, briefly in mid-morning, the index was up 9.4 at 5,194.4 but never really looked like pushing back through the 5,200 level.

At its worst, only minutes before the inflation data were published, the index was down 41.2.

While the FTSE 100 managed to struggle into positive ground, albeit only briefly, the FTSE 250 was always under pressure and finally 22.5 off at 5,972.1, having been down to 5,950.1 at its worst. It was a similar story with the FTSE SmallCap index, which settled 15.6 off at 2,647.1, after 2,646.5.

The Techmark 100, meanwhile, did manage to scramble into the black, registering a 4.24 rise at one stage, only to drop back to close a net 3.4 off at 1,560.98.

Behind the latest weakness in London stocks was a poor showing by Wall Street on Monday evening, when the Dow Jones Industrial Average posted a three-figure decline, dropping back below 10,000 as it did so. The Nasdaq Composite was also unimpressive, losing the 2,000 level.

And US markets gave another sluggish performance at the opening yesterday, despite strong expectations of an interest rate cut from the US Federal Reserve last night.

As London closed for the day, the Dow had rallied to show a 30 points gain, while the Nasdaq was up 26 points.

Commenting on the UK inflation numbers, Mr David Page, at Investec, said: "The main causes of the shock fall in inflation in November were seasonal food and petrol prices.