London’s FTSE 100 finished slightly lower today, dragging it further away from its record and signalling traders are looking through signs UK inflation has passed its peak and could be a downward trend this year.
The capital’s premier index dropped 0.27 per cent lower to 7,830.71 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, jumped 0.23 per cent to 19,902.80 points.
The drop came despite middle-class favourite and online supermarket Ocado’s best efforts. It jumped to near the top of the FTSE 100, adding a shade under three per cent.
Ocado has been a bit of a tear in this year and is now by far the best performer in 2023, helping to arrest last year’s dismal performance caused by shoppers returning to physical supermarkets after the worst the pandemic passed.
Fashion retailers led the premier index lower, with Next, JD Sports and Mike Ashley’s Frasers Group all shedding more than one per cent.
New numbers from the Office for National Statistics this morning showed the rate of price increases in the UK fell to 10.5 per cent in December from 10.7 per cent.
It is the second month inflation has dropped and the first time back-to-back decreases have been registered since the early months of the Covid-19 pandemic.
FTSE 100 ignores good inflation numbers to finish lower
Markets seemingly shrugged off the news, cooling the FTSE 100’s strong start to the year which has pushed it close to its highest level ever of just over 7,900 points.
Analysts said a sticky core rate of inflation – a more accurate measure of price pressures – raises the risk of the Bank of England hiking interest rates 50 basis points at its next meeting on 2 February to prevent high prices baking into the economy.
The inflation drop “reflects a more sudden than expected drop in petrol prices. What is more of an open question is the extent to which broader price pressures are easing back and whether the two per cent target is achievable over the next 2-3 years,” Philip Shaw, economist at Investec, said.
Core inflation was unchanged at more than six per cent.
Markets are divided over whether governor Andrew Bailey and co will opt for a 25 or 50 point move next month.
Stocks tend to weaken when central banks raise interest rates as bonds become more attractive and companies’ current earnings become less valuable.
The pound strengthened 0.54 per cent against the US dollar on the prospect of another BoE rate hike.
Oil prices surged nearly two per cent.