London stocks were still firmly in the red by midday on Wednesday after data showed that UK inflation hit a fresh 40-year high in May as energy and food prices continued to surge.
The FTSE 100 was 1.4% lower at 7,054.30, while sterling was down 0.1% against the dollar at 1.2262, recovering from earlier heavy losses.
According to figures released by the Office for National Statistics, consumer price inflation ticked up to 9.1% in May from 9% in April. This marked the highest level since March 1982 and was in line with analysts’ estimates.
ONS chief economist Grant Fitzner said: “Though still at historically high levels, the annual inflation rate was little changed in May.
“Continued steep food price rises and record high petrol prices were offset by clothing costs rising by less than this time last year and a drop in often fluctuating computer games prices.
“The price of goods leaving factories rose at their fastest rate in 45 years, driven by widespread food price rises, while the cost of raw materials leapt at their fastest rate on record.”
On a monthly basis, consumer price inflation increased 0.7% in May, compared with a rise of 0.6% in May 2021.
After lifting interest rates to a 13-year high of 1.25% last week, the Bank of England warned that inflation could hit 11% this autumn. This was up from a previous forecast of 10% inflation.
Russ Mould, investment director at AJ Bell, said: “There may have been a bit of relief this morning that UK consumer price inflation, while still at decades-long highs, was nonetheless bang in line with expectations.
“However, this relief will have rapidly dissipated as it dawned that retail prices are now experiencing double-digit increases and factory gate prices are above forecasts and the highest since the 1970s.
“The echoes of that decade, reflected in strike action and Kate Bush topping the charts, continue to dog the markets.
“Inflation will also be on the agenda when US Federal Reserve chair Jerome Powell testifies before lawmakers in Washington.
“His comments will be closely followed for clues on what the Fed might do next with monetary policy and whether the risks of a recession in the world’s largest economy are increasing.
“The FTSE 100, which has held up better than many of its global peers, is now flirting with a drop below the 7,000 mark for the first time since the March sell-off.”
In equity markets, miners were on the back foot as copper prices fell, with Glencore, Anglo American and Antofagasta all weaker.
BP and Shell also gushed lower as oil prices tanked, while software company Micro Focus tumbled after its interim results.
Housebuilder Berkeley Group lost ground even as it posted a jump in full-year profits and said underlying reservations were slightly ahead of pre-pandemic levels. Russ Mould said: “An increase to profits forecasts for the next three years and strong hints of even greater cash returns to shareholders are failing to move shares in high-end housebuilder Berkeley.
“Investors are focusing instead on rising interest rates, falling consumer confidence and fears of a recession, especially as acquisitions, dividends and buybacks are whittling down the FTSE 100 firm’s net cash pile.”
On the upside, retailer JD Sports Fashion rallied after it said annual profits more than doubled.
NatWest rose after the UK government said it was extending a plan to sell more of its £11.3bn stake in the bank for another year. It also benefited from an upgrade to ‘buy’ at Jefferies.
FTSE 100 – Risers
JD Sports Fashion (JD.) 111.15p 4.07%
NATWEST GROUP PLC ORD 100P (NWG) 229.70p 3.80%
Centrica (CNA) 82.06p 2.73%
Admiral Group (ADM) 2,141.00p 1.81%
Intertek Group (ITRK) 4,267.00p 1.45%
Rentokil Initial (RTO) 447.60p 0.58%
Sainsbury (J) (SBRY) 206.20p 0.54%
National Grid (NG.) 1,034.00p 0.53%
Lloyds Banking Group (LLOY) 43.67p 0.52%
London Stock Exchange Group (LSEG) 7,200.00p 0.47%
FTSE 100 – Fallers
Berkeley Group Holdings (The) (BKG) 3,561.00p -6.09%
Glencore (GLEN) 454.70p -5.78%
Ocado Group (OCDO) 808.20p -5.54%
Rolls-Royce Holdings (RR.) 86.73p -5.21%
Shell (SHEL) 2,068.00p -3.86%
Antofagasta (ANTO) 1,280.00p -3.72%
Prudential (PRU) 941.20p -3.57%
Anglo American (AAL) 3,254.50p -3.54%
Burberry Group (BRBY) 1,581.50p -3.42%
BP (BP.) 382.05p -3.36%
FTSE 250 – Risers
Drax Group (DRX) 660.50p 3.53%
Auction Technology Group (ATG) 878.00p 2.09%
ASOS (ASC) 864.00p 1.65%
Trainline (TRN) 307.80p 1.58%
FirstGroup (FGP) 134.40p 1.51%
ICG Enterprise Trust (ICGT) 1,010.00p 1.51%
Direct Line Insurance Group (DLG) 248.10p 1.47%
Biffa (BIFF) 403.60p 1.20%
Bank of Georgia Group (BGEO) 1,498.00p 0.81%
Moonpig Group (MOON) 222.40p 0.63%
FTSE 250 – Fallers
Micro Focus International (MCRO) 290.90p -18.63%
Vesuvius (VSVS) 308.80p -7.77%
Polymetal International (POLY) 180.00p -7.41%
Baltic Classifieds Group (BCG) 141.00p -6.00%
RHI Magnesita N.V. (DI) (RHIM) 2,106.00p -5.90%
Royal Mail (RMG) 267.90p -4.70%
Bodycote (BOY) 538.00p -4.36%
Morgan Advanced Materials (MGAM) 279.00p -4.29%
Weir Group (WEIR) 1,436.00p -4.20%
Allianz Technology Trust (ATT) 203.50p -4.01%