London’s FTSE 100 slipped today as investors took fright at UK inflation topping forecasts to stay in the double digits last month.
The capital’s premier index shed 0.13 per cent to drop to 7,898.78 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, fell 0.49 per cent to 19,200.85 points.
New numbers out from the Office for National Statistics (ONS) this morning revealed the rate of price increases in Britain dropped to 10.1 per cent in March, down from a shock increase to 10.4 per cent in February.
That overshoot has strengthened bets on the Bank of England hiking interest rates for the twelfth meeting in a row on 11 May, likely by 25 basis points to 4.5 per cent, a post-financial crisis high.
Higher rates, in theory, chill inflation by making it more attractive for consumers to save and more expensive for businesses to borrow. They also weigh on stocks by making bonds more tempting and knocking future valuations.
The ONS’s numbers “will likely put pressure on the Bank of England to almost reluctantly continue with its interest rate hiking policy in May, adding further pressure to an already beleaguered consumer where wage growth is being outstripped by inflation and with economic growth stalling,” Richard Hunter, head of markets at interactive investor, said.
“The release was not well received by the FTSE250, something of a barometer for the UK economy,,” he added.
Stocks that are sensitive to changes in interest rates told the story on the FTSE 100 today.
Real estate firms – which often fall when rates look like they’re heading higher due to fears over a reduction in demand for offices and homes – dragged the premier index lower.
British Land was down nearly two per cent, while real estate investment trust Land Securities lost a similar amount.
Banks, meanwhile, were among the small group of firms to squeeze gains in the City. Barclays, Lloyds Bank and NatWest all finished in the black today. The sector tends to get a boost from a higher rate environment as it allows its big players to charge more for loans.
The pound strengthened around 0.1 per cent against the US dollar, boosted by growing expectations of Bank Governor Andrew Bailey and co lifting rates yet again.