FTSE 100 close: London plunges as inflation surprise dampens rate cut bets

London’s FTSE 100 plunged on Wednesday after new figures showed a surprise uptick in inflation at the end of last year.

The bluechip index closed 1.48 per cent lower at 7,446.29 on Wednesday, while the FTSE 250, which is more aligned with the health of the UK economy, plunged 1.71 per cent to trade at 18,864.37.

The sell-off came after inflation picked up again in December, surprising markets which had expected a slight fall.

According to figures from the Office for National Statistics (ONS), the consumer price index (CPI) came in at four per cent in the final month of the year, up from 3.9 per cent the month before.

The uptick in inflation was driven by rising alcohol and tobacco prices after the government announced higher taxes on both products in November’s Autumn Statement.

As fears grow over the potential persistence in inflation, markets dampened bets that the Bank of England would start cutting rates in May.

“Whilst markets are still hopeful rate cuts will come thick later this year, the date for that to commence has slipped back,” Danni Hewson, head of financial analysis at AJ Bell said.

“Looking forward there are so many variables at play, central bankers are likely to want to keep their powder dry for as long as they can.”

Traders now expect rate cuts to begin in June. In response, the pound jumped 0.4 per cent to hit $1.268. Yields on the rate sensitive two-year Gilt climbed 0.13 per cent while the yield on the 10-year Gilt rose 0.10 per cent.

Housebuilders were among the largest fallers on the FTSE 100 as the prospect of higher interest rates raised fears that the housing market would remain muted.

Market updates

Shares in William Hill owner 888 dived nearly ten per cent on Wednesday morning after it said a move away from dotcom markets and increased gambling red tape caused a drop in revenues in 2023.

In a post-close trading update, the gambling giant said it is expecting full-year revenues for 2023 to fall eight per cent year on year to £1.7bn, driven “primarily by a proactive mix shift away from dotcom markets”.

British fashion house Mulberry has blamed a slowdown in demand for luxury spending and a lack of VAT free shopping for a nine per cent decline in sales over the golden quarter. 

The designer, best known for its handbags, said UK retail sales took and four per cent hit, and total retail sales were knocked 1.5 per cent. 

All Bar One owner Mitchells and Butler (M&B) expects profits to be at the top end of forecasts as it cautiously cheered an end to tough cost pressures.

The no-frills pub chain, which also owns Toby Carvery, said that like-for-like sales were up 7.7 per cent in the two months to January, over the Christmas period.

Shares in Lloyds Bank and Close Brothers extended losses as analysts say the two firms could be rocked by a City watchdog review into motor finance.

FTSE 100 risers and fallers

Risers

1 – IMI, up 3.8 per cent

2 – Convatec, up per cent

3 – Smith & Nephew, up 0.6 per cent

4 – BAE Systems, up 0.4 per cent

5 – JD Sports, up 0.3 per cent

Fallers

1 – Ocado, down 6 per cent

2 – Persimmon, down 5 per cent

3 – Entain, down 4.6 per cent

4 – Land Securities, down 4.3 per cent

5 – Glencore, down 4.2 per cent

Market prices

Brent oil – $76.66 a barrel, down 0.9 per cent

Gold – $2,009.42 per ounce, down 0.93 per cent

GBP/USD – $1.267, up 0.25 per cent