By Sruthi Shankar and Johann M Cherian
(Reuters) – London stocks fell on Wednesday, with the FTSE 100 index snapping a three-day winning streak after data showed British consumer price inflation jumped to 10.1% in July, raising bets about more aggressive interest rate hikes by the Bank of England.
The blue-chip index ended 0.3% lower, dragged down by declines in insurers and bank stocks.
Persimmon slid 7.8% after the housebuilder posted a fall in half-yearly profit.
Official figures showed consumer price inflation jumped to a higher-than-expected 10.1% in July, its highest since February 1982, and up from an annual rate of 9.4% in June as surging food costs intensified a squeeze on household budgets.
The data fuelled bets by investors that the Bank of England will keep on hiking interest rates quickly, with markets now pricing in an 85% chance of a half percentage-point rate interest hike in September.
“We now see risks tilted to an even more front-loaded and protracted hiking cycle with inflation expectations increasingly at risk of destabilising further in the coming months,” Sanjay Raja, senior economist at Deutsche Bank wrote in a note.
“We see the peak in inflation delayed to next year with inflation likely to remain in double digits at least until late Q2-2023.”
(Graphic: UK inflation rate hits double digits, https://graphics.reuters.com/BRITAIN-ECONOMY/INFLATION/lgpdwyqkjvo/chart_eikon.jpg)
Still, the FTSE 100 has gained nearly 1.8%, outperforming Europe’s STOXX 600 and U.S. S&P 500 index, due to its exposure to commodity-linked stocks and global firms.
“We remain constructive on the UK market in a backdrop of high commodity prices, while many large-cap value and defensive names can perform well in the current macro environment,” said Hussain Mehdi, investment strategist at HSBC Asset Management.
The domestically focused FTSE 250 midcap index closed 1.5% lower, easing off two-month highs.
Infrastructure firm Balfour Beatty jumped 10.5% after posting a 42% rise in underlying operating profit in the first half and announcing a hike in dividend.
Cineworld plunged 60.4% to a record low after the world’s second-largest cinema chain warned that admission levels at its theatres are likely to stay lower than expected until November due to limited film releases.
(Reporting by Sruthi Shankar, Johann M Cherian and Aniruddha Ghosh in Bengaluru; Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty)
