Market Report: Whitbread hit by economic worries

The increasingly uncertain macroeconomic backdrop triggered concerns around Whitbread last night, with the hospitality group in focus as analysts studied the prospect of lower consumer spending.

The Premier Inn owner shone during the dark days of the recession, consistently surprising the market with forecast-beating updates. But while the economy has edged back to life, the fragile nature of the recovery has given rise to fears about the outlook for corporate and consumer spending.

Barclays Capital analysts said that although they still believed in Whitbread's growth prospects for the medium term, the uninspiring economic backdrop in the near term was likely to weigh on the shares.

"When we take into account a protracted period of uncertainty for both UK corporate capital expenditure and consumer spending, we believe that the weak trading outlook is more likely to be the key driver of momentum in the shares over the next six to 12 months," they explained, moving the stock, which closed 29p lower at 1,552p, down from "overweight" to "equal weight".

Overall, the markets remained broadly flat, though strength in parts of the heavily weighted mining sector helped to keep the FTSE 100 in the black, up 1.49 points at 5,864.65. The mid-cap FTSE 250 index was 11.86 points better off at 12,008.79 – again, higher on the day, but not by much.

TUI Travel, up 0.3p at 225.3p, was being closely watched ahead of the results of the index reshuffle this evening. The index compiler will post the latest quarterly changes after the close tonight, based on the prices at the close last night. FTSE 100-listed TUI was seen as a potential target for demotion, while Tate & Lyle, up 8p at 656p, was being eyed as a contender for a blue-chip berth.

In the mining sector, equities did well against the backdrop of little movement in commodity prices. Xstrata was 15p higher at 1,370.5p, with the markets continuing to watch political changes, and their impact on the mining industry, in Peru. Rio Tinto was 51p ahead at 4,199p, while Vedanta Resources, which is still awaiting the Indian government's nod for its planned foray into the oil and gas business with the Cairn India buy, was 22p better off at 2,080p.

Although quiet overall, there was some excitement in one corner of the market. Insurers dominated the upside after Clive Cowdery's sector-consolidation vehicle, Resolution, up 8.4p at 308.3p, announced plans to return cash to investors. The move triggered boosted sentiment around peers such as Legal & General, which was 2p better off at 115.6p, and Admiral, which gained 28p to 1,737p.

In the wider financial space, Barclays was held back, easing by 1.45p to 262.55p, after JP Morgan Cazenove scaled back its target for the stock to 300p from 310p. The bank was also in focus amid speculation that it may be eyeing the purchase of Spain's Caja del Mediterraneo (CAM).

The prospect prompted Evolution Securities to shoot off a note to clients warning that this was one of the "riskiest cajas" or regional banks in the country. Citing a report in the local press that Barclays wanted to buy CAM, Evolution's banking analyst Arturo De Frias said: "Bank of Spain is trying to sell CAM to other banks, but no success so far."

He added that if the reports were true, "Barclays is going for a very weak" regional bank. Beyond that, "the integration of a caja like CAM in the culture of a bank like Barclays would be really, really hard", he explained, repeating his "sell" view.

Elsewhere, the engineering group Weir rose to 2,000p, up 30p, following some supportive comment from JP Morgan, whose analysts added the stock to their so-called "conviction list".

The burst of goodwill was down to Weir's inroads into the shale gas market, which JP Morgan reckons should lead to higher margins. The broker said the company's SPM division, which makes well service pumps and high-pressure flow-control equipment, was "well placed to participate in the development of the shale gas industry on an international basis on the back of its leading market share, the strong relationship with its global customers, and its joint venture in China."

The housing sector was mixed as investors digest yet another negative house price report, with the Halifax saying that prices had declined at their fastest annual rate for 19 months in May.

The grim update, which appeared to confirm that housing remained lodged in the doldrums, knocked the mood around leading house-builders such as Barratt Developments, which was 1.1p behind at 108.3p, and Berkeley, which was 8p behind at 1,106p.

Bovis Homes and Persimmon were also among the losers, shedding 1p to 433p and 4.3p to 459p respectively.

Sector peer Taylor Wimpey was in better shape, however, bucking the trend and booking a rise of 0.24p to 35.92p last night.