The FTSE 100 closed slightly lower on Tuesday, down just 1.28 points at 8,776.73, while the FTSE 250 fell 57.12 points to 20,881.56. The AIM All-Share declined by 0.70 of a point to 724.52.

Market sentiment remained cautious ahead of Wednesday’s key UK inflation data, while losses in InterContinental Hotels Group (IHG) and BT weighed on the index.

UK Wage Growth Remains Strong

The latest UK labour market figures showed wage growth staying robust:

  • The unemployment rate held steady at 4.4% in the three months to December, defying forecasts of a slight uptick to 4.5%.
  • Regular pay growth (excluding bonuses) rose to 6.0% in December, up from 5.6% in November.
  • Total pay growth (including bonuses) increased to 5.9% in December, from 5.5% previously.

Barclays noted that the figures contained “no meaningful surprises” for the Bank of England (BoE), reinforcing expectations that interest rates will remain on hold in March before rate cuts begin in May.

BoE Governor Cautions on Weak Growth

BoE Governor Andrew Bailey highlighted the UK’s “weak growth environment” in a speech in Belgium, warning of the economic risks posed by global fragmentation. While acknowledging inflation has cooled faster than expected, Bailey suggested wage growth will slow over the next year.

IHG Drops on Profit Decline

Shares in InterContinental Hotels Group (IHG) slumped 4.4% after reporting a drop in annual profit.

  • Pretax profit fell 11% to $897 million in 2024, hurt by higher interest expenses and currency losses.
  • Revenue rose 6.5% to $4.92 billion, though segmental revenue of $2.31 billion slightly missed estimates.
  • Jefferies flagged concerns over IHG’s higher-than-expected interest expense guidance for 2025, which could pressure earnings forecasts.

BT Hit by Citi Downgrade

Telecoms giant BT tumbled 2.9% after Citi double-downgraded the stock from ‘Buy’ to ‘Sell’, citing concerns over its broadband business, Openreach.

  • Citi expects Openreach revenue to decline from 2025 onwards, warning this could drive a negative shift in investor sentiment.
  • The broker slashed its price target for BT to 112p from 200p.

Retailers Weighed by Wage Growth

Supermarket giants Tesco and Sainsbury’s struggled amid concerns that strong wage growth could increase labour costs:

  • Tesco fell 3.7%
  • Sainsbury’s dropped 4.0%

Defence Stocks See Continued Buying Interest

Investors continued to snap up defence stocks amid expectations of increased government spending:

  • Qinetiq rose 2.7%
  • Babcock International climbed 1.3%

Serica Energy Slumps After Storm Disruption

Serica Energy fell 11% after warning that production guidance for 2025 is now under review due to a storm-related outage.

  • The Triton floating production vessel was forced to halt operations due to Storm Eowyn.
  • January production averaged 37,000 barrels of oil per day, but fell to 27,000 boepd in February.

Commodities Update

  • Gold rose to $2,931.28 an ounce, up from $2,898.96.

Looking Ahead: Key Events on Wednesday

Investors will focus on UK inflation data, which will be released at 07:00 GMT.

  • Citi expects headline CPI inflation to print at 2.8%, in line with BoE forecasts.
  • Corporate earnings include full-year results from BAE Systems, Glencore, and HSBC.

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