LONDON MARKETS: Burberry Group Leads Losses Among U.K. Stocks

By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- U.K. stocks fell Tuesday as British luxury-good maker Burberry Group PLC sounded a cautious note about demand, while an unexpected decline in inflation stoked concerns about the U.K. economy.

The FTSE 100 benchmark index reached intraday lows after the release of U.K. government data showing the annual headline rate of inflation fell to 1.2% in September, stemming largely from a 6% drop in the price of motor fuels. The result was well below expectations of a 1.4% reading, and marked the lowest inflation rate since September 2009.

Core inflation -- which strips out the price of energy, food, alcoholic beverages and tobacco -- rose 1.5%, the lowest reading since April 2009.

Markets: The FTSE 100 was down 0.5% at 6,335.47; a loss on Tuesday would mark the FTSE's fifth decline in six sessions. The pound (GBPUSD) fell against the U.S. dollar, buying $1.5960 versus $1.6076 late Monday. Sterling fell below $1.60 in the wake of the inflation results.

Leading losses on the FTSE, Burberry shares fell 4.4%. The luxury fashion company said sales in the first half of the year climbed 14% to 1.1 billion pounds ($1.8 billion). Same-store sales growth of 12% in the first quarter was in line with its expectations, but comparable sales in the second quarter slowed to 8%, "affected by external factors in some markets," Burberry said.

Off the FTSE 100, Mulberry sank following the company's warning that pretax profit for the full year to March 2015 will likely come in "significantly below current expectations." The shares were down 10%, but had been down by more than 20% during the session.

Miners for a second straight trading session scored gains on the main benchmark, with Rio Tinto PLC higher by 2.1%, Anglo American PLC up 1.6% and BHP Billiton PLC tacking on 1%.

Data thoughts: The downside inflation surprise and "next to no growth" in the euro zone -- the U.K.'s largest trading partner -- over the next six months "will weigh on U.K. rate setters' decisions," said Rob Wood, chief U.K. economist at Berenberg, in a note. "Those trends remove the already very slim chances of a rate hike before next year, and could stay the [Bank of England's] hand next February, if eurozone sentiment does not pick up by then."

The BOE's benchmark interest rate currently stands at a record low of 0.5%.

Meanwhile, Rabobank senior currency strategist Jane Foley said they see "risks of the BOE delaying a rate hike beyond May as rising," in the face of weakening CPI inflation and the absence of a rise in real wages in the U.K.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires