London open: FTSE falls as inflation surges to highest since 1992

London stocks fell in early trade on Wednesday as data showed that UK inflation jumped to its highest level in nearly three decades in December, making a February rate hike increasingly likely.

At 0830 GMT, the FTSE 100 was down 0.3% at 7,544.48, while sterling was flat against the dollar at 1.3596.

Figures released earlier by the Office for National Statistics showed that consumer price inflation rose to 5.4% from 5.1% in November, coming in above consensus expectations of 5.2% and well above the Bank of England’s 2% target. The last time inflation was higher was in March 1992, when it was 7.1%.

Core CPI inflation - which strips out volatile elements such as food and fuel - increased to 4.2% in December from 4.0% the month before, coming in above consensus expectations of 3.9%.

Meanwhile, the retail price index rose to 7.5% from 7.1% in November - its highest level since 1991. Analysts had been expecting 7.1%.

Grant Fitzner, chief economist at the ONS, said: "Food prices again grew strongly while increases in furniture and clothing also pushed up annual inflation.

"These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year.

"The closures in the economy last year have impacted some items but, overall, this effect on the headline rate of inflation is negligible."

The BoE’s next policy meeting is on 3 February. At the last meeting in December, the Bank raised rates for the first time since the onset of the Covid pandemic, by 15 basis points.

Capital Economics said: "It’s no secret that inflation is going to rise even further. The increases in producer prices already seen have yet to fully filter through into consumer prices. And the surge in wholesale gas and electricity prices could result in an increase in utility prices on 1st April in the region of 50%. Those effects would be enough to push up CPI inflation to 7.0% in April. That would be higher than the peak of 6% that the Bank of England was forecasting when it raised rates in December.

"And although inflation will fall back thereafter, we think it will stay above 4% for all of this year and won’t drop to the 2% target until April 2023. That’s why we think the MPC will raise interest rates faster than most expect this year, from 0.25% to 1.25%, with the next hike to 0.50% coming on 3rd February."

In equity markers, fashion retailer Burberry rallied after it reported a 5% rise in third-quarter revenues driven by an acceleration in full price sales. The company said revenue for the 13 weeks to December 25 came in at £723m compared with £688m.

Educational publisher Pearson also gained as it raised annual profits guidance, driven by its assessment and qualification business.

Housebuilder Crest Nicholson and WH Smith were higher after well-received trading updates, while pub chain JD Wetherspoon ticked up despite warning it would swing to an interim loss.

Market Movers

FTSE 100 (UKX) 7,544.48 -0.25%
FTSE 250 (MCX) 22,605.72 -0.21%
techMARK (TASX) 4,487.38 -0.26%

FTSE 100 - Risers

Burberry Group (BRBY) 1,826.50p 4.04%
Pearson (PSON) 646.80p 2.28%
Flutter Entertainment (CDI) (FLTR) 11,035.00p 1.52%
Kingfisher (KGF) 338.80p 1.44%
Evraz (EVR) 564.40p 1.29%
Polymetal International (POLY) 1,146.50p 1.24%
BT Group (BT.A) 188.35p 0.94%
Royal Mail (RMG) 502.60p 0.86%
BP (BP.) 399.05p 0.83%
Land Securities Group (LAND) 819.60p 0.79%

FTSE 100 - Fallers

Ashtead Group (AHT) 5,284.00p -3.12%
Scottish Mortgage Inv Trust (SMT) 1,090.50p -2.50%
Halma (HLMA) 2,542.00p -1.97%
Dechra Pharmaceuticals (DPH) 4,050.00p -1.70%
Rightmove (RMV) 647.60p -1.67%
Spirax-Sarco Engineering (SPX) 12,985.00p -1.52%
International Consolidated Airlines Group SA (CDI) (IAG) 163.24p -1.45%
Croda International (CRDA) 8,154.00p -1.38%
Antofagasta (ANTO) 1,419.50p -1.36%
3i Group (III) 1,388.00p -1.28%

FTSE 250 - Risers

Bodycote (BOY) 887.50p 2.72%
Darktrace (DARK) 442.60p 2.03%
WH Smith (SMWH) 1,579.50p 1.74%
Crest Nicholson Holdings (CRST) 344.00p 1.30%
Marks & Spencer Group (MKS) 224.90p 1.26%
CMC Markets (CMCX) 240.00p 1.05%
Redrow (RDW) 648.40p 1.00%
Investec (INVP) 423.00p 0.83%
IG Group Holdings (IGG) 807.50p 0.81%
Vistry Group (VTY) 1,105.00p 0.73%

FTSE 250 - Fallers

Baillie Gifford Shin Nippon (BGS) 179.20p -4.38%
Baillie Gifford Japan Trust (BGFD) 873.00p -3.64%
Edinburgh Worldwide Inv Trust (EWI) 224.50p -3.44%
Trustpilot Group (TRST) 215.60p -3.41%
Allianz Technology Trust (ATT) 281.50p -3.26%
Aston Martin Lagonda Global Holdings (AML) 1,260.00p -3.23%
Discoverie Group (DSCV) 903.00p -2.80%
Bridgepoint Group (Reg S) (BPT) 377.50p -2.33%
Polar Capital Technology Trust (PCT) 2,330.00p -1.94%
Monks Inv Trust (MNKS) 1,162.00p -1.86%