FTSE 100 dips after UK inflation retreat, Persimmon continues to ride housing boom for now

“The FTSE 100 started Wednesday modestly lower as UK inflation eased back more than anticipated,” says AJ Bell Investment Director Russ Mould.

“This is good news for those fretting about rising prices but potentially raises some questions about the strength of the UK economic recovery.

“Mining firm BHP proved to be a drag on the index after confirmation yesterday that its corporate restructuring would mean an exit from the FTSE 100 as the primary listing for the shares goes to Australia.

“This move will mean products which track the FTSE 100 and funds with investment policies barring them from buying shares with their main listing overseas will have to exit their shareholding.

“The turmoil in Afghanistan and continuing threat posed by the Delta variant of Covid is seeing funds flow into the dollar – a traditional safe haven – with Chinese and US equities both falling overnight.”

Persimmon

“There were plenty of positives in today’s first half results from housebuilder Persimmon but also a big clanging alarm bell in the middle of them in terms of cost inflation.

“Issues like availability of labour and rising raw material costs are currently being drowned out by a buoyant housing market which is keeping pace with the associated increase in costs.

“However, the risk for Persimmon and its peer group is that a softening in house prices, with the Government set to scale back its support for the market fairly imminently and demand pent up during the pandemic likely to ease at some point, leaves them exposed to margin pressure.

“For now a strong pipeline of homes and an exceptionally strong balance sheet puts Persimmon in a strong position.

“There are also continuing signs that the company’s efforts to up its game in terms of build quality are bearing fruit as satisfaction scores come in well above the threshold needed for a 5 star rating.

“Given Persimmon’s problems in this area in the past this is encouraging and, along with its decision earlier in the summer to come to an agreement with the CMA over the sale of leasehold properties, shows it is taking customer welfare more seriously.”

These articles are for information purposes only and are not a personal recommendation or advice.