Hot UK inflation reading drags on FTSE 100 and sterling

London’s top index moved 0.13%, or 10.13 points, lower to finish at 7,559.18.

Henry Saker-Clark
Wednesday 21 June 2023 17:42 BST
The FTSE 100 suffered its third consecutive decline (Kirsty O’Connor/PA)
The FTSE 100 suffered its third consecutive decline (Kirsty O’Connor/PA) (PA Archive)

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Louise Thomas

Louise Thomas

Editor

Worries over the latest hotter-than-expected UK inflation figures dampened sentiment in the financial markets on Wednesday.

The FTSE 100 suffered its third consecutive decline as lenders and housebuilders came particularly under pressure from concerns that continued higher inflation could push interest rates even higher.

Earlier on Wednesday, the Office for National Statistics (ONS) recorded Consumer Price Index inflation was flat at 8.7% for May, failing to drop as had been widely forecast.

London’s top index moved 0.13%, or 10.13 points, lower to finish at 7,559.18.

Elsewhere in Europe, stocks were also broadly lower as worries over the UK’s high inflation combined with concerns over economic decline in Germany.

The FTSE has struggled, with house builders feeling the heat from today’s UK inflation numbers, along with a sharp rise in gilt yields, as concerns about a housing market slowdown gather pace, which in turn is acting as a drag on Barratt Developments and Taylor Wimpey

Michael Hewson, CMC Markets UK

Germany’s Dax index fell by 0.54% and the Cac 40 closed down 0.45%.

Michael Hewson, chief market analyst at CMC Markets UK, said: “European markets have continued to struggle today, after the IFO institute in Germany warned that a recession would be sharper than expected in the second half of the year, and UK core inflation unexpectedly jumped to a new 32-year high.

“The FTSE has struggled, with house builders feeling the heat from today’s UK inflation numbers, along with a sharp rise in gilt yields, as concerns about a housing market slowdown gather pace, which in turn is acting as a drag on Barratt Developments and Taylor Wimpey.

“The banks are also under pressure after a note from Exane Paribas warning that UK banks could face a perfect storm of higher rates hurting, rather than helping, when it comes to the outlook for loans and deposits.”

Across the Atlantic, markets opened slightly lower as caution from Europe overflowed stateside.

Meanwhile, sterling dropped after the increase in the rate of core inflation boosted gilt yields and led to expectations that interest rates could soon climb as higher as 6%.

The pound was down 0.26% to 1.272 US dollars and had dropped 0.52% to 1.162 euros at market close in London.

In company news, Halfords shares found top gear during the trading session after it forecast a return to earnings growth over the year ahead.

Nevertheless, it came as the motoring accessories firm posted a 55% tumble in pre-tax profits to £43.5 million in the year to March 31.

Shares in Halfords finished 15.9p higher at 207.6p at the end of trading.

MyProtein owner THG saw shares rise after it said it expects a rise in profits for the first half of the year due to a stronger performance by its nutrition division.

Shares closed up 4.94p at 77.84p as it also sought to address corporate governance concerns from investors.

The price of oil made steady gains despite concerns over demand from both China and Europe.

A barrel of Brent crude rose by 1.61% to 77.12 US dollars at the time markets were closing in London.

The biggest risers on the FTSE 100 were BP, up 10.05p to 464p, CRH, up 85p to 4,194p, Shell, up 42p to 2,363p, Convatec Group, up 3.2p to 209p, and Ocado Group, up 6p to 430p.

The biggest fallers on the FTSE 100 were DS Smith, down 18.4p to 290.2p, Smurfit Kappa Group, down 154p to 2,664p, Persimmon, down 49p to 1,134p, Barratt Developments, down 18.2p to 425.4p, and NatWest Group, down 9.7p to 235.6p.

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