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Higher than expected inflation clip drags London markets down

Despite falling into a shallow recession in the second half of last year, business surveys have pointed to an upturn at the beginning of the year.
Despite falling into a shallow recession in the second half of last year, business surveys have pointed to an upturn at the beginning of the year.

London’s FTSE 100 dipped today, driven lower by a higher than expected inflation clip in August fuelling concerns the Bank of England may rein in stimulus measures sooner than forecast.

The capital’s premier index closed down 0.25 per cent to 7,016.49 points, while the mid-cap FTSE 250 finished 1.07 per cent to lower, dropping to 23,432.81 points.

Annual consumer price inflation soared to 3.2 per cent last month, up from two per cent in July, the fastest monthly rise on an annual basis since the Office for National Statistics started publishing the data in 1997.

Economists polled by Reuters expected inflation to hit 2.9 per cent.

The sharp rise in inflation will heap pressure on the BoE to announce a plan to scale back its money printing programme at next week’s meeting of its ratesetters. 

Quantitative easing tends to contribute to putting upward pressure on prices by making it cheaper to borrow for households and businesses. Stock markets also benefit from financial services firms and institutional investors having more cash to invest in shares.

However, the ONS stressed sharp price rises last month were largely as a result of the Eat Out to Help Out scheme and a temporary VAT cut causing prices in the leisure and hospitality sectors to plummet when compared with the same month last year.

Laura Suter, head of personal finance at AJ Bell, said: “A tricky combination of artificially suppressed prices last year due to lockdown, rising fuel prices, the ongoing high demand in the second hand car market and supply issues have all combined to create a steep rise in prices in August.”

Shares on the Aim market fared no better than its senior rivals, slipping 0.34 per cent to 1,273.56 points. The pound rose 0.20 per cent against the dollar to buy $1.3833.

Winners and losers

Leading the fallers column was takeaway delivery service company Just Eat Takeaway.com, down 4.54 per cent to 6,307p, as investors piled into rival delivery company, Deliveroo.

Travel stocks suffered heavy blows today. Aerospace engineer Rolls Royce, British Airways parent group IAG and easyJet all fell more than 2.70 per cent today.

However, a rally among industrial stocks helped to temper losses on the blue-chip index. Miners Evraz and Antofagasta lined the leaders column, both climbing more than 2.60 per cent.

Notably, AI and cybersecurity firm Darktrace shot up 8.82 per cent to 694.83p despite saying its listing costs had pulled into the red.

Russ Mould, investment director at AJ Bell, said: “As much as the numbers for the year to 30 June were impressive in terms of revenue growth and customer additions what will really excite the market is the upgraded revenue guidance for 2022.”

“This is not the first time guidance has been lifted and it’s a useful habit for a newly listed business trying to forge a reputation on the public markets to get into.”

Around the world

US markets kicked off the day in a buoyant mood, with all three of Wall Street’s main benchmarks diving deep into the green.

The blue-chip S&P 500 bumped 0.62 per cent to 4,470.52 points, while the Dow Jones added 0.54 per cent to reach 34,765.77 points.

The tech-heavy Nasdaq climbed 0.35 per cent to hit 15,090.19 points.

London’s poor performance was extended into the continent – Germany’s Dax 30 slid 0.68 per cent to close at 15,616.00 points, while the pan-Europe Stoxx 600 fell by the same level.