London open: Stocks edge down as inflation hits decade high

London stocks edged lower in early trade on Wednesday as the latest inflation data reinforced expectations of a rate hike.

At 0900 GMT, the FTSE 100 was down 0.2% at 7,313.99, while sterling was 0.1% higher versus the dollar and the euro at 1.3447 and 1.1880, respectively.

Data released earlier by the Office for National Statistics showed that consumer price inflation rose to 4.2% in October from 3.1% the month before, hitting its highest level in a decade as energy and fuel costs increased, and coming in above expectations of 3.9%. It also marked the highest level since November 2011 and was well above the Bank of England's 2% target.

The ONS said the "main upward pressure" came from electricity, gas and other fuels after the energy cap was increased by 12% in October. Restaurants and hotels, education, furniture and household goods, and food and non-alcoholic beverages also contributed.

Core CPI inflation - which strips out volatile elements such as food and fuel - rose to 3.4% in October from 2.9% in September, versus expectations of 3.1%.

ONS chief economist Grant Fitzner said: "Inflation rose steeply in October to its highest rate in nearly a decade. This was driven by increased household energy bills due to the price cap hike, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels.

"Costs of goods produced by factories and the price of raw materials have also risen substantially, and are now at their highest rates for at least 10 years."

Russ Mould, investment director at AJ Bell, said: "Inflation at a 10-year high of 4.2% makes for uncomfortable reading and goes to show the punishing effects of higher energy and food prices on family finances. It almost certainly means the Bank of England will raise interest rates soon, potentially as soon as next month.

"The prospect of higher rates has given some support to the pound, but the movement is only mild which suggests that rising inflation is a surprise to no one.

"What really matters to markets is the scale of any interest rate hikes over the next year, and that will be guided by the longevity and ferocity of inflation. There is a real chance that rates keep going up by small increments and after a while this starts to make life more difficult for consumers and companies as the cost of borrowing becomes more expensive."

In equity markets, Spirax-Sarco slumped as it flagged supply issues but maintained its overall guidance.

SSE was in the red even as the energy company reported a rise in interim profit as its gas storage operation helped to offset a fall in renewables earnings.

CMC Markets fell as the online trading platform reiterated its full-year guidance but reported a decline in first-half profit amid subdued market volatility.

Marks & Spencer was knocked lower by a downgrade to ‘hold’ from ‘buy’ at Jefferies.

On the upside, Sage gained even as the software group said annual operating profits fell 10% as margins were squeezed.

Banks were also on the rise, with NatWest and Lloyds both higher. Mould said the banking sector should be a beneficiary of rising interest rates. "It creates scope for them to increase net interest margins which is the difference between the interest they earn on loans and the interest they pay on savings deposits," he said.

Market Movers

FTSE 100 (UKX) 7,313.99 -0.18%
FTSE 250 (MCX) 23,535.80 -0.02%
techMARK (TASX) 4,581.79 0.13%

FTSE 100 - Risers

Sage Group (SGE) 743.00p 1.92%
Anglo American (AAL) 2,889.50p 1.69%
NATWEST GROUP PLC ORD 100P (NWG) 226.80p 1.52%
Aveva Group (AVV) 3,411.00p 1.49%
Lloyds Banking Group (LLOY) 50.70p 1.46%
Intermediate Capital Group (ICP) 2,401.00p 0.92%
Pershing Square Holdings Ltd NPV (PSH) 3,035.00p 0.83%
Rentokil Initial (RTO) 626.80p 0.80%
Glencore (GLEN) 366.60p 0.80%
WPP (WPP) 1,111.00p 0.77%

FTSE 100 - Fallers

Spirax-Sarco Engineering (SPX) 16,135.00p -5.12%
SSE (SSE) 1,574.00p -5.07%
Informa (INF) 504.80p -3.37%
B&M European Value Retail S.A. (DI) (BME) 576.80p -2.24%
London Stock Exchange Group (LSEG) 6,998.00p -1.35%
Reckitt Benckiser Group (RKT) 6,111.00p -1.15%
Associated British Foods (ABF) 1,946.00p -1.09%
Vodafone Group (VOD) 116.64p -1.09%
Darktrace (DARK) 538.50p -1.01%
Whitbread (WTB) 3,098.00p -0.99%

FTSE 250 - Risers

Hammerson (HMSO) 32.04p 2.96%
Caledonia Investments (CLDN) 3,860.00p 2.93%
Indivior (INDV) 237.60p 2.41%
Spire Healthcare Group (SPI) 246.50p 2.07%
Network International Holdings (NETW) 336.00p 1.82%
Ninety One (N91) 264.40p 1.69%
Investec (INVP) 357.70p 1.65%
Safestore Holdings (SAFE) 1,279.00p 1.43%
Frasers Group (FRAS) 697.50p 1.38%
Wood Group (John) (WG.) 207.60p 1.32%

FTSE 250 - Fallers

CMC Markets (CMCX) 264.00p -2.76%
Kainos Group (KNOS) 1,743.00p -2.63%
Marks & Spencer Group (MKS) 226.70p -2.37%
International Public Partnerships Ltd. (INPP) 167.00p -2.22%
PZ Cussons (PZC) 203.50p -2.16%
JTC (JTC) 875.00p -2.13%
Bridgepoint Group (Reg S) (BPT) 553.00p -2.12%
Wizz Air Holdings (WIZZ) 4,565.00p -1.76%
Baillie Gifford Shin Nippon (BGS) 244.00p -1.61%
Micro Focus International (MCRO) 400.10p -1.55%