FTSE drops as inflation surges

The London market has struggled to make headway as investors awaited further insight into the Bank of England’s stance on interest rates.

The FTSE 100 Index dipped 13 points to 6046.8 as UK inflation figures revealed another surge last month, to 4% from 3.7% in December. Traders are awaiting the Bank’s quarterly inflation report, published on Wednesday, for a clearer view on the likelihood of a rate hike.

Weak retail sales in the US compounded the gloomy sentiment and saw Wall Street’s Dow Jones Industrial Average slide 0.3%.

The US Commerce Department said retail sales rose 0.3% last month, just half of what economists had predicted.

The inflation spike in January strengthened the pound as it heaped yet more pressure on the Bank of England to consider raising interest rates to calm inflation. Sterling rose to 1.61 dollars and 1.19 euros.

Elsewhere, Barclays sparked gains across the banking sector as it kicked off the reporting season with a bigger-than-expected profits haul of £6.1 billion.

The group leapt to the top of the FTSE 100 Index with a shares rise of 5% after reporting the 32% improvement in headline profits and revealing revenues up by a fifth at its investment banking division Barclays Capital in the final three months of 2010.

Barclays shares were up 15.95p to 326.7p and it gave a boost to others in the sector ahead of their full-year figures.

Lloyds Banking Group added 1.8p to 67.5p and fellow taxpayer-backed Royal Bank of Scotland lifted 0.7p to 44.9p.

Supermarket Morrisons was 4.9p dearer at 279.8p after unveiling the first major step in its e-commerce strategy with the acquisition of online retailer Kiddicare.