UK midcaps slip as inflation hits 3-decade high; Tesco slides

UK midcaps slipped on Wednesday after data showed annual inflation last month rose to a three-decade high, intensifying a cost-of-living squeeze faced by households and hit to the profits of supermarket companies like Tesco.

The domestically focused FTSE 250 index ended 0.1% lower, extending its year-to-date loss to 10.7% on concerns about the economic outlook due to surging price pressures.

Britain’s consumer price inflation (CPI) leapt to 7% in March, sharper than a forecast 6.7% increase, and ramping up doubts about how aggressive the Bank of England will move to tighten its monetary policy.

Rolls-Royce, defensives drag down UK’s blue-chip index

Core CPI, which excludes food, energy, alcohol and tobacco prices, rose to 5.7% last month from 5.2% in February.

“Inflation is now everywhere. Price rises are broad-based and gaining momentum … this, we think, will shift the conversation away from March’s more dovish policy message,” Deutsche Bank senior economist Sanjay Raja said in a note.

“The intensifying cost of living crisis will only add to the UK’s recession risks, something we think the MPC (monetary policy committee) will be carefully watching as we move into Q2-2022.”

Tesco fell 2% to weigh the most on the FTSE 100 after Britain’s biggest retailer warned of a drop in profits this financial year due to the tough economic conditions and pressure on consumers alike.

Shares of rivals Sainsbury’s, Marks and Spencer and Ocado Group slipped between 2.1% and 2.6%.

The FTSE 100 inched up 0.1%, with oil major Shell and miners Glencore and Anglo American rising between 0.7% and 1.2%.

A jump in sterling in the wake of inflation data also capped gains on the blue-chip index, which houses large dollar earning companies like Diageo.

British Airways parent IAG rose 3.8% to top the FTSE 100 index. Its U.S. peer Delta Air Lines said robust consumer demand not only helped it post a “solid” profit in the month of March, but is also allowing the carrier to offset soaring fuel costs with higher fares.