Tuesday evening business bulletin

May 13 2008 By Andrew Mernin

London’s leading share index sank into the red today as a shock rise in UK inflation unnerved investors.

News that the official rate of inflation - the Consumer Prices Index (CPI) - had soared to 3% last month sent the FTSE 100 Index more than 1% lower at one stage.

However, renewed speculation of a potential deal between mining majors BHP Billiton and Rio Tinto lent some late session support to the Footsie, which closed down 8.7 points at 6211.9.

Retailers had been among the worst affected in the early session sell-off as inflation’s surprise jump in April dampened hopes of an interest rate cut in June.

Among retailers, clothing chain Next was off 43p at 1266p, or 3%, followed by B&Q owner Kingfisher, down 3.2p at 148.5p. Marks & Spencer fell 7p to 398.5p.

Argos owner Home Retail Group slipped 7p to 259.75p, while pubs group Enterprise Inns maintained its cautious outlook after an 11% fall in first-half profits, sending shares 7p lower to 480.25p.

Meanwhile, major banks were heavily in the red, with Alliance & Leicester the Footsie’s worst casualty after a disappointing trading update.

Its shares lost more than 10%, or 51.75p to 458.75p, after it took a £192m hit from investments linked to the credit crunch and said mortgage balances deteriorated in the first four months of the year.

Demand for new staff has reached a four-year low, but there is no sign of a dramatic downturn in the jobs market, according to a new report today.

The Chartered Institute of Personnel and Development (CIPD) said recruitment plans had not changed in recent months as firms adopted a cautious ``wait and see" approach to staffing requirements.

A survey of 735 employers showed that just over a third expected staff numbers to have increased in the past few months.

Dr John Philpott, CIPD chief economist, said: ``Conditions in the UK labour market are clearly softer than six months ago and softer than at this time of year for several years.

``With employers in ’wait and see’ mode it remains possible that falling confidence in the outlook for the economy might still trigger a wave of job cuts. If so the tipping point in confidence could result in a sudden avalanche of redundancies and quickly transform the current relatively benign jobs scene. A further early cut in interest rates would be advisable to limit the chances of this outcome."

Dr Philpott said the labour market was experiencing a period of relative slowdown, which might show up in official unemployment figures being published later today.

Supermarket Asda pledged to protect shoppers from inflationary pressures today after it revealed a 5% hike in underlying first quarter sales.

The UK’s second biggest grocer - part of the Wal-Mart group - said the like-for-like sales increase came as it strove to cut prices for consumers.

Official figures out today revealed that inflation rose to 3% last month after a shock 0.5% leap since March - its fastest rate of growth for nearly six years.

Andy Bond, president and chief executive of Asda, said the supermarket had to play its role in helping protect shoppers from rocketing commodity prices, as they also faced steep increases in petrol and energy bills.

He said: "Whilst today’s results are encouraging, we mustn’t become complacent - especially in the current economic climate.

"We have a duty to lock down inflation by working with our suppliers, to cut costs to ensure that our customers are always getting the best possible deal on their weekly shopping."

The pound at 5pm was US$1.9461 compared to US$1.9617 at the previous close while the euro at 5pm was £0.7971  compared to £0.7920 at the previous close.