London open: Stocks fall as inflation sticks at 8.7%

London stocks fell in early trade on Wednesday as investors mulled a higher-than-expected UK inflation print, ahead of this week’s Bank of England rate announcement.

At 0830 BST, the FTSE 100 was down 0.5% at 7,532.70.

Figures out earlier from the Office for National Statistics showed that consumer price inflation came in higher than expected in May, while core inflation hit a 31-year high.

CPI remained at 8.7%, coming in above expectations for a decline to 8.4% and putting pressure on the Bank of England to keep hiking rates.

Meanwhile, core inflation - which strips out elements such as food and energy - rose to 7.1% from 6.8% in April, hitting its highest level since 1992. Analysts were expecting it to be unchanged.

ONS chief economist Grant Fitzner said airfares and second-hand cars were keeping inflation high, along with live music events and computer games.

Capital Economics said the rise in inflation "increases the chances that the Bank raises interest rates by 50 basis points tomorrow rather than the 25bps rise from 4.50% to 4.75% we are forecasting".

"Either way, the acceleration in core inflation leaves the UK looking increasingly like the global outlier and the ‘stagflation nation’," said chief UK economist Paul Dales.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: "In equity markets, the FTSE 100 opened lower as markets weigh up the impact of sticky inflation and the potential for higher rates.

"The real question from here is at what stage does this start to feed through to materially impact corporate earnings. Businesses have been able to hike prices and demand remains pretty good across a range of sectors. But as more homeowners roll on to higher-rate mortgages that’ll eat into their disposable income, it’s hard to see a world where that doesn’t materially impact spending."

In equity markets, Berkeley Group was under the cosh as it posted a 9.5% jump in full-year pre-tax profit but struck a cautious note over the outlook.

Housebuilders more generally were in the red, as the latest inflation data added to expectations of a rate hike on Thursday, which will see the cost of borrowing surge further.

Commenting on the CPI data, Britzman said: "This read won’t do policymakers any favours who are under increasing pressure to keep inflation coming down in the UK, but it’s looking stickier as the months roll by.

"For anyone looking to take out a new mortgage, or those needing to re-mortgage, this will be disappointing news and all but guarantees a rate hike from the Bank of England on Thursday and likely baked in further down the line. With rates already sky-high compared to recent years, it’s especially painful for those who took out a mortgage at ultra-low rates and now face a spike in costs just to keep a roof over their heads."

Market Movers

FTSE 100 (UKX) 7,532.70 -0.48%
FTSE 250 (MCX) 18,618.21 -0.68%
techMARK (TASX) 4,525.42 -0.46%

FTSE 100 - Risers

Entain (ENT) 1,249.00p 1.13%
CRH (CDI) (CRH) 4,143.00p 0.83%
BP (BP.) 456.70p 0.61%
Shell (SHEL) 2,333.00p 0.50%
Ocado Group (OCDO) 425.10p 0.26%
IMI (IMI) 1,637.00p 0.06%
Melrose Industries (MRO) 504.80p 0.04%
HSBC Holdings (HSBA) 615.40p 0.03%
Hiscox Limited (DI) (HSX) 1,095.00p 0.00%
Next (NXT) 6,698.00p -0.03%

FTSE 100 - Fallers

Burberry Group (BRBY) 2,178.00p -2.59%
Berkeley Group Holdings (The) (BKG) 3,825.00p -2.22%
Persimmon (PSN) 1,157.00p -2.20%
Barratt Developments (BDEV) 433.90p -2.19%
Unite Group (UTG) 888.00p -2.15%
SEGRO (SGRO) 727.20p -1.94%
NATWEST GROUP (NWG) 240.70p -1.88%
Endeavour Mining (EDV) 1,929.00p -1.83%
Auto Trader Group (AUTO) 614.40p -1.76%
Taylor Wimpey (TW.) 106.45p -1.71%

FTSE 250 - Risers

IP Group (IPO) 54.80p 2.05%
C&C Group (CDI) (CCR) 132.20p 1.23%
Ithaca Energy (ITH) 152.80p 0.79%
Indivior (INDV) 1,782.00p 0.73%
Hill and Smith (HILS) 1,518.00p 0.66%
Aston Martin Lagonda Global Holdings (AML) 311.60p 0.52%
Grainger (GRI) 234.80p 0.51%
Just Group (JUST) 81.00p 0.50%
Energean (ENOG) 1,100.00p 0.46%
PZ Cussons (PZC) 177.00p 0.45%

FTSE 250 - Fallers

Rathbones Group (RAT) 1,898.00p -3.56%
IWG (IWG) 145.90p -2.86%
Digital 9 Infrastructure NPV (DGI9) 68.50p -2.84%
UK Commercial Property Reit Limited (UKCM) 51.10p -2.67%
Synthomer (SYNT) 71.10p -2.60%
Primary Health Properties (PHP) 95.25p -2.46%
LXI Reit (LXI) 89.55p -2.29%
Genuit Group (GEN) 293.00p -2.17%
Helios Towers (HTWS) 93.75p -1.99%
TR Property Inv Trust (TRY) 279.00p -1.93%