London's FTSE 100 index was still in negative territory by Wednesday lunchtime, albeit well off its intraday low, as all eyes turned to the Bank of England (BoE) and the release of its three-monthly inflation report.
While Governor Sir Mervyn King admitted that output has been broadly flat for the last two years, he said the underlying picture is "more encouraging". "The UK economy is set for recovery, that is not to to say that the road ahead will be smooth. It hasn't been a normal recession and it won't be normal recovery," he said.
The report claimed that the economy should "see a slow but sustained recovery over the next three years" but gross domestic product (GDP) growth is "likely to remain below its pre-crisis level until 2015".
Concerning the recent bullish mood seen across markets since the start of the year, King said he was concerned that "some of the optimism in financial markets may not be consistent with the speed with which underlying data is likely to change."
Inflation comments hit sterling
The central bank said that inflation would likely stay above its 2.0% target until early 2016.
"If there's no chance of the targets being met, many will ask what's the point of having them. Sterling's rapid depreciation against both the euro and the dollar
since the start of the year has fuelled inflation and further muddied the economic puzzle, "said Jason Conibear, trading director at forex
specialists Cambridge Mercantile.
"Market confidence in the pound was already thin. The Governor's admission that the inflation target is to be quietly ignored while the economy remains in intensive care has stretched it even further," Conibear added.
The "already-wobbly pound", as he called it, tumbled as a result of the comments, down 0.60% against the dollar at 1.5569 by midday.
In other news, traders were digesting comments made by US President Barack Obama in his State of the Union address last night, in which he said he would push for a bilateral transatlantic trade deal with the European Union "because trade that is free and fair across the Atlantic supports millions of good-paying American jobs".
FTSE 100: Tullow leads resource stocks higher
Oil and gas group Tullow rose strongly earlier on after posting a 4.0% rise in annual pre-tax profits on the back for strong sales and output. Pre-tax profits in 2012 totalled $1.11bn, ahead of analysts' expectations.
While other oil stocks such as Shell and BP were lower, mining groups were performing well early on, with ENRC, EVRAZ, Xstrata, Fresnillo and Rio Tinto making decent gains.
Oilfield services group Petrofac was in demand after UBS lifted its view from 'neutral' to 'buy', saying that the company's portfolio of projects "is profitable and the order intake momentum is strong and hence we upgrade the stock".
In contrast, engineering group IMI was a heavy faller after UBS downgraded its rating for the stock from 'neutral' to 'sell' on the back of long-term concerns about the trend of organic growth and issues with the order book for the Severe Service division.
Consumer product group Reckitt Benckiser edged higher after managing to narrowly beat consensus expectations in 2012, as growth was driven by a strong performance in the emerging markets and its Health and Hygiene divisions.
FTSE 250: African Barrick Gold drops after 2012 production report
African Barrick Gold's shares
plunged after saying it was working to reduce costs following a drop in annual net profits. The gold miner reported net profits of $48.2m for 2012 - down from $284.7m the year before.
Oil and gas firm SOCO was also a heavy faller despite reporting a whopping 170% increase in production in 2012. Shares were lower after the firm said that it has had to extend the deadline for its option to sell its 80% interest in SOCO Cabinda in Angola.
Data centre operator Telecity gained after seeing adjusted EBITDA rise 22% in 2012 and saying it enters 2013 with a strong recurring revenue base.
FTSE 100 - Risers
Tullow Oil (TLW) 1,236.00p +4.75%
Eurasian Natural Resources Corp. (ENRC) 413.50p +3.97%
CRH (CRH) 1,400.00p +3.24%
Petrofac Ltd. (PFC) 1,674.00p +3.21%
Xstrata (XTA) 1,181.00p +2.25%
Glencore International (GLEN) 392.90p +2.20%
Weir Group (WEIR) 2,166.00p +1.93%
Fresnillo (FRES) 1,687.00p +1.81%
Evraz (EVR) 302.10p +1.75%
Rio Tinto (RIO) 3,733.50p +1.73%
FTSE 100 - Fallers
AstraZeneca (AZN) 2,940.50p -2.58%
Sage Group (SGE) 335.20p -2.33%
Vodafone Group (VOD) 170.40p -1.79%
BP (BP.) 452.50p -1.64%
Royal Dutch Shell 'B' (RDSB) 2,182.00p -1.49%
IMI (IMI) 1,172.00p -1.43%
Lloyds Banking Group (LLOY) 54.83p -1.12%
Royal Dutch Shell 'A' (RDSA) 2,138.00p -1.11%
Carnival (CCL) 2,599.00p -1.10%
British American Tobacco (BATS) 3,286.50p -1.05%
FTSE 250 - Risers
Bumi (BUMI) 439.40p +8.76%
Fidessa Group (FDSA) 1,776.00p +7.31%
Telecity Group (TCY) 873.00p +5.82%
Ferrexpo (FXPO) 286.50p +3.80%
Hochschild Mining (HOC) 450.80p +2.83%
Salamander Energy (SMDR) 202.60p +2.43%
Man Group (EMG) 107.60p +2.38%
Spectris (SXS) 2,398.00p +2.22%
Redrow (RDW) 188.00p +1.84%
Bovis Homes Group (BVS) 658.00p +1.78%
FTSE 250 - Fallers
African Barrick Gold (ABG) 308.80p -9.44%
Soco International (SIA) 363.00p -8.45%
Ocado Group (OCDO) 129.60p -5.47%
UK Commercial Property Trust (UKCM) 68.50p -3.38%
Grainger (GRI) 134.90p -3.23%
Workspace Group (WKP) 335.50p -2.73%
St. Modwen Properties (SMP) 253.00p -2.69%
Computacenter (CCC) 493.80p -2.60%
Rathbone Brothers (RAT) 1,424.00p -2.47%
BH Global Ltd. USD Shares (BHGU) 11.35 -2.16%