Market update - 18 November

The FTSE 100 was down 68.68 points at 4063.48 while the FTSE 250 fell to 5844.13, down 132.9, at 12'47 pm.

The market traded lower after the official figures revealed that consumer prices fell at a faster rate than expected in October, taking the annualised rate of inflation to 4.5 per cent from 5.2 per cent in September. City analysts had pencilled in a fall to 4.8 per cent.

The news spooked investors and traders who feared deflation if prices continue to fall at similar rates in the months ahead.

Howard Archer, chief UK economist at IHS Global Insight, said the data indicated that “inflation is poised to drop like a stone over the coming months due to sharply lower oil and commodity prices, waning food prices, very favourable base effects and rapidly diminishing underlying inflation as the economy contracts and unemployment rises at an increasing rate”.

He added: “Inflation expectations are retreating, wage moderation is continuing and latest surveys clearly show that companies’ pricing power is being undermined by sharply weakening demand and intensifying competition”.

Moving up

Wolseley was among the strongest on the Footsie, up 3.59 per cent or 9.75p at 281p, after the company reassured investors about its capital position in a post-update conference call this morning.

On the second tier, growing expectations that the fall in inflation will spark another round of interest rate reductions powered the domestic housing stocks. Persimmon was the strongest, gaining 10.25p to 257.25p, while Redrow climbed to 168p, up 6p, and Bovis Homes advanced to 339.25p, up 16.5p.

Moving down

The banking sector was unsettled by the prospect of deflation and by rumours that the Bank of America may be reconsidering its merger with Merrill Lynch. The speculation was vague, but it unsettled investors.

As a result, HBOS was down 8.86 per cent or 6.6p at 67.9p and Lloyds lost 10.07 per cent or 15p at to 134p. Barclays, whose board confirmed plans to stand for re-election after shareholders have voted on the bank’s proposed capital raising, was also down, losing 7.27 per cent or 11.2p at 142.9p.