FTSE 100

FTSE 100 unaffected by historic UK inflation levels

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London Stock Exchange’s FTSE 100 index closed up 0.35% on Wednesday (Jan. 19) seemingly shrugging off concerns over UK’s alarming near 30-year high inflation print.

Figures published by the Office for National Statistics showed annual inflation rate in the country increased to 5.4% last month from 5.1% in November and above market forecasts of 5.2%.  It is the highest reading since March 1992 driven largely by rising prices for food and non-alcoholic beverages (4.2% vs 2.5%); restaurants and hotels (6% vs 6.2%); furniture and household goods (7.3% vs 6.1%); and clothing and footwear (4.2% vs 3.5%).

On a monthly basis, consumer prices rose 0.5%, after climbing 0.7% in November, outstripping economist projections for a 0.3% climb.

Core Consumer Prices Index (CPI) – which excludes sometimes-volatile food, energy, alcohol and tobacco prices – rose to a record high 4.2% in December from November’s 3.9%.

This deepens the country’s cost of living crisis and adds pressure on the Bank of England (BoE) to hike interest rates at its next meeting on February 3, following December’s surprise hike, when it became the world’s first major central bank to raise interest rates since Covid struck.

The move in December came day after data showed CPI had unexpectedly surged to a 10-year high in November.

Some experts in the City now expect the BoE to take borrowing cost to 1.25%, the highest level since February 2009 and announce that it will allow its 875 billion-pound ($1.19 trillion) stock of government bonds to fall.

That means people who have borrowed money could see their monthly payments go up, especially on mortgages tied to the Bank of England’s rates. The idea is that when borrowing is more expensive, people will have less money to spend. As a result, they will buy fewer things, and prices will stabilise in response.

The BoE forecasts CPI will peak at a 30-year high of around 6% in April due to the higher energy bills, and that it will take more than two years for CPI to return to its 2% target.

FTSE 100 index

Investors have been pricing in high inflation for a while now, meaning today’s slobbering print did not shock stock markets in the UK.

Polymetal International climbed 7.6%. British luxury fashion house Burberry Group surged up nearly 6.5% after it posted a bumper crop of results and lifted its profit outlook on the back of accelerating full-price sales growth.

Fresnillo, Unilever, publisher Pearson, Anglo American Plc, Rio Tinto, Flutter Entertainment, Antofagasta, BHP Group and Segro climbed 2 to 5%.