London markets fell on Wednesday as rising oil prices raised the prospect of continued inflationary pressures, offsetting a brief burst of optimism following comments from Andrew Bailey.
The FTSE 100 closed 0.16 per cent lower at 7,426.14 while the FTSE 250 fell 0.21 per cent to 18,451.82.
Oil prices remained high after Russia and Saudi Arabia cut supply yesterday, leaving a barrel of brent just below $90. Saudi Arabia has decided to take 1m barrels out of the market until the end of the year, while Russia is making a similar — albeit smaller — reduction.
BP and Shell gained around 0.8 per cent on the back of this, but wider sentiment was impacted by fears that a reduction in supply would reignite inflationary pressures.
“Energy prices are big inflationary drivers, and just at the time when the price spiral appears to be moving more obediently downwards, high crude prices could cause upset,” Susannah Streeter, head of money and markets, Hargreaves Lansdown said.
Despite the impact of higher oil prices, investors were briefly boosted by comments from Andrew Bailey which suggested that rates will not have to climb much higher in the UK.
Both the FTSE 100 and FTSE 250 turned green shortly after Bailey’s comments, but failed to hold onto their gains. The pound meanwhile slumped to a three month low to trade below $1.25.
On the FTSE, housebuilders fell following a poor trading update from Barratt Developments, which ended 1.0 per cent lower.
The group revealed a 16.2 per cent slide in adjusted profit before tax for the full year to June. The number of homes it built also fell 3.9 per cent during the half.
The FTSE 100’s other housebuilders also struggled. Persimmon fell 1.3 per cent, Taylor Wimpey 0.4 per cent and Berkeley 0.6 per cent.
“The UK’s housebuilding sector has confronted a challenging 2023, with persistently high interest rates posing a risk to future bookings, potentially falling short of previous years’ levels,” said Andy Murphy, director of content, industrials at Edison Group.