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(Alliance News) - Stock prices in London were lower at midday Wednesday, as hotter-than-expected UK inflation data served as a setback to early rate cut expectations.
The FTSE 100 index was down 125.62 points, 1.7%, at 7,432.72. The FTSE 250 was down 362.50 points, 1.9%, at 18,830.82, and the AIM All-Share was down 9.02 points, 1.2%, at 738.79.
The Cboe UK 100 was down 1.6% at 742.38, the Cboe UK 250 was down 2.2% at 16,281.90, and the Cboe Small Companies was down 0.8% at 14,870.36.
"Investors have had to rip up their game plan after UK inflation went in the wrong direction to support the narrative for interest rate cuts," said Russ Mould, investment director at AJ Bell.
The ONS said the consumer price index rose by 4.0% annually in December, the pace of inflation notching up from a 3.9% increase in November. The reading came in hotter than market expectations, with consensus having been for price inflation to cool to 3.8%, according to FXStreet.
Inflation's recent peak was 11.1% annually in October 2022, which the ONS estimates to be the highest since 1981.
Despite abating since then, inflation is still double the long-term 2.0% target for the Bank of England.
The latest piece of inflation data comes ahead of Threadneedle Street's next interest rate decision to be announced on February 1.
ING analyst James Smith commented: "After an unexpected pick-up in UK inflation, the market may be getting ahead of itself by pricing a May rate cut."
Amongst the biggest FTSE 100 fallers were housebuilders, hurt by the inflation uptick and the dialling back of rate expectations. Persimmon, Barratt Developments, and Taylor Wimpey were down 4.1%, 2.9% and 2.0%, respectively. Mortgage lenders NatWest and Lloyds were down 0.9% and 1.8%.
The pound was quoted at USD1.2678 at midday on Wednesday in London, largely unmoved from USD1.2676 at the equities close on Tuesday. The euro stood at USD1.0872, lower against USD1.0894. Against the yen, the dollar was trading at JPY147.77, higher compared to JPY146.81.
The European Central Bank could start cutting interest rates this summer, President Christine Lagarde said, while stressing that any such move would depend on the latest economic data.
In an interview with Bloomberg television in Davos, Lagarde was asked to comment on hints by ECB governing council members that cuts could come in the summer.
"I would say it's likely too," Lagarde said.
"But I have to be reserved because we are also saying that we are data-dependent and that there is still a level of uncertainty and some indicators that are not anchored at the level where we would like to see them."
Markets have been pricing in rate cuts from as early as April, but ECB governors have been at pains to tamp down those expectations in recent weeks.
Hurting sentiment on Wednesday, meanwhile, was poor Chinese data overnight.
China's economy last year grew at one of its slowest rates in more than three decades, official figures showed, as it was battered by a crippling property crisis, sluggish consumption and global turmoil.
China's National Bureau of Statistics revealed that gross domestic product expanded 5.2% to hit CNY126 trillion, or USD17.6 trillion, last year.
The annual reading is better than the 3% recorded in 2022, when strict zero-Covid curbs destroyed activity, but it marks the weakest performance since 1990, excluding the pandemic years.
While 5.2% would be looked on enviously by other governments such as the US and eurozone – which each expanded around 2% in 2022 – it is well down from the levels around 6% or 7% constantly enjoyed in the 2010s.
The news sent China-exposed stocks listed in London lower. Insurer Prudential and Asia-focused bank Standard Chartered were both down 2.7%. Miner Glencore lost 3.2%. China is a major buyer of minerals.
In European equities on Wednesday, the CAC 40 in Paris was down 1.3%, while the DAX 40 in Frankfurt was down 1.1%. The luxury goods sector in Paris struggled, amid expectations of dwindling firepower for the key Chinese consumer. Shares in LVMH Moet Hennessy Louis Vuitton were 2.0% lower.
At the top of the FTSE 100 index, IMI surged 4.6%. Goldman Sachs raised the engineering firm's stock to 'buy' from 'neutral'.
In the FTSE 250, Safestore fell 5.4%.
The Hertfordshire, England-based self-storage provider said pretax profit fell 58% in the year that ended on October 31, to GBP207.8 million from GBP498.8 million.
Revenue for the year, however, rose 5.5% to GBP224.2 million from GBP212.5 million.
Safestore also declared a 20.2 pence per share final dividend, down from 20.4p the year before. Its total dividend for the year, however, rose to 30.1p from 29.8p.
Elsewhere, 888 Holdings fell 8.4%.
The Gibraltar-based betting operator with the William Hill and Mr Green brands said it expects a revenue decline of 7.2% to GBP424 million in the fourth quarter of 2023 from GBP457 million a year prior.
For all of 2023, 888 anticipates a revenue fall of 7.5% to GBP1.71 billion from GBP1.85 billion in 2022.
Chief Executive Per Widerstrom said: "In FY23 the group made important strategic and operational progress in the face of some significant regulatory and compliance headwinds."
On AIM, James Cropper plummeted 34%.
The Cumbria, England-based paper, packaging and advanced materials manufacturer said it expects adjusted pretax profit to be "materially below" expectations in the financial year that ends April 1. In financial 2023, adjusted pretax profit amounted to GBP3.2 million.
In addition, revenue for the financial year is expected to be no less than GBP103 million, down from GBP129.7 million the year prior.
Stocks in New York were called lower. The Dow Jones Industrial Average was called down 0.5%, the S&P 500 index down 0.6%, and the Nasdaq Composite down 0.7%.
Brent oil was quoted at USD76.69 a barrel at midday in London on Wednesday, down from USD78.10 late Tuesday. Gold was quoted at USD2,024.12 an ounce, lower against USD2,038.07.
Still to come on Wednesday's economic calendar, there is a US retail sales reading at 1330 GMT.
By Sophie Rose, Alliance News senior reporter
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