Key facts
- FTSE 100 stocks are expected to open lower.
- Borrowing costs have risen following Prime Minister Andy Burnham's 'fiscal flexibility' remarks.
- John Healey has been appointed as Chancellor.
- Ten-year gilt yields increased by eight basis points to 5.049% on Monday.
- The pound weakened by 0.29% against the US dollar on Monday evening.
- Headline CPI inflation is forecast to ease slightly to 2.7% in June.
- Rising oil prices due to US-Iran tensions could make inflation easing fleeting.
The FTSE 100 is bracing for a lower opening as borrowing costs increase following comments from Prime Minister Andy Burnham regarding 'fiscal flexibility'. Burnham's appointment of John Healey as Chancellor, a move that initially saw a marginal rise in sterling and positive analyst reactions, comes after earlier remarks that spooked bond markets. Healey's experience in the Treasury is seen by some as a sign that Burnham will respect market checks on his policies. However, Burnham's pledges of a 'new economic model' and 'fiscal flexibility' have raised concerns.
On Monday, the yield on ten-year gilts climbed eight basis points to 5.049%, and the pound weakened by 0.29% against the US dollar to 1.341. This morning, the Office for National Statistics (ONS) will reveal June's inflation rate, with economists polled by Bloomberg expecting headline CPI to ease slightly from 2.8% in May to 2.7% in June. A drop in petrol and diesel prices is hoped to have contributed to this easing.
However, fresh tensions between the US and Iran have sent oil prices back up, potentially making any inflation easing fleeting. Thomas Pugh, chief economist at RSM UK, noted that falling oil prices after an interim ceasefire agreement were the main drag on inflation in June. He cautioned that food prices could rebound later this year due to higher energy and fertiliser costs stemming from the conflict in the Middle East. Pugh predicts inflation is likely to peak at around 3.4% in November.