Benign US inflation reverses London share spiral

BENIGN inflation figures in the US calmed fears that the Federal Reserve would soon raise interest rates again, helping to reverse a sharp fall in London share prices triggered by fears of further base rate rises in Britain.

Consumer prices rose 0.3 per cent in August, a slightly smaller increase than Wall Street economists had expected because of subdued food prices and a 1 per cent drop in clothes prices. The Labor Department said there was no sign yet that higher wholesale prices were feeding through to price rises in the shops, although economists remain nervous.

The inflation figures helped push the US Treasury market higher, with a strong Atlanta Fed index of industrial activity partially offsetting the impact of the consumer prices figures. New York shares also reacted favourably, with the Dow Jones Industrial Average closing almost 20 points higher.

Wall Street's performance helped the FT-SE 100, which at one stage was more than 40 points down. It closed 7.4 points below Monday's close at 3,121.4. Trading volumes were thin, with chartists - who predict the market's movements purely from its past behaviour - forecasting that it would head below 2,900 in the next few months.

Equity market analysts were concerned that share prices might be undermined by further base rate rises, which could slow the economy's growth next year and depress corporate earnings.

The short sterling futures market became slightly less pessimistic about base rate prospects, but the March contract still implied base rates of more than 7 per cent next year.

The strong performance of the US bond market helped to push the dollar slightly higher. It closed 0.57 pfennigs stronger against the mark at DM1.5488 and Y0.09 higher against the yen at Y99.05. The pound fell 0.55 cents to dollars 1.5605 and rose more than half a pfennig against the mark.

Separately, the Confederation of British Industry published figures showing an uptick in pay settlements in service industries. Settlements averaged 3.3 per cent in the three months to June, up from 3.2 in the three months to May and the low of 2.6 per cent in the three months to last October.

The average level of manufacturing pay settlements was 2.7 per cent in the three months to June - unchanged on the three months to May but up from 2 per cent in the three to October.

The Department of Employment will today publish average earnings figures for July, expected to show the underlying annual rise in average earnings unchanged at 3.75 per cent. The Chancellor hopes that his decision to raise base rates will persuade pay negotiators that he is committed to keeping inflation low, and that they will restrain pay settlements and earnings growth.

(Graph omitted)

Club legend Paul Scholes is scared United could disappear into 'the wilderness'
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
Dawkins: 'There’s a very interesting reason why a prince could not turn into a frog – it's statistically too improbable'
newsThat's Richard Dawkins on babies with Down Syndrome
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
ebooksAn evocation of the conflict through the eyes of those who lived through it
Dinosaurs Unleashed at the Eden Project
Arts and Entertainment
Life and Style
This month marks the 20th anniversary of the first online sale
techDespite a host of other online auction sites and fierce competition from Amazon, eBay is still the most popular e-commerce site in the UK
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

AIFMD Business Analyst / Consultant - Investment Management

£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...

Business Analyst Solvency II SME (Pillar 1, 2 & 3) Insurance

£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home