London’s indexes closed in the red on Wednesday after yet another higher than expected inflation reading earlier this morning.
The FTSE 100 closed 0.1 per cent lower at 7,559.18 while the FTSE 250, which is more aligned with the health of the UK economy, sunk 0.9 per cent to 18,571.45.
Official figures out this morning showed the rate of price hikes held steady at 8.7 per cent in May. Markets had expected inflation to come down to 8.4 per cent.
Core inflation, which strips out the more volatile elements, actually increased month-on-month to 7.1 per cent.
Finalto’s Neil Wilson said the figures showed inflation was “out of control…Andrew Bailey and co at the Bank of England have a remit to maintain stable inflation – they have demonstrably failed in this regard.”
The Bank of England will almost certainly continue hiking rates, potentially to a peak of six per cent. The Monetary Policy Committee meets tomorrow and markets now think there’s an even chance of the Bank lifting rates by 50 basis points.
The FTSE’s house builders all suffered with Barratt and Persimmon falling over four per cent while Taylor Wimpey closed 3.5 per cent lower. Higher rates will dent demand for new properties and pour ever more pain onto mortgage holders.
“It’s no surprise to see housebuilders among the top fallers on the FTSE 350 index as the prospect of higher borrowing costs could prove damaging to the property market as affordability issues become more acute,” Danni Hewson, head of financial analysis at AJ Bell.
Berkeley released final results today showing a 10 per cent jump in annual profit. But boss Rob Perrins said “the market is likely to lack urgency until there is more certainty over the trajectory of interest rates.”
“Overall, this is a positive set of results for the company – but it is a company that feels it is bumping up against the limits of what it can currently achieve in this market environment.” Andy Murphy, director at Edison Group said.
On the FTSE 250 Halfords jumped over nine per cent, despite recording a slump in profit. Investors were impressed after it said it was aiming to grow its share in the market for bike parts and car parts.