LONDON: UK’s blue-chip FTSE 100 fell on Wednesday after hotter-than-expected US inflation data slammed global markets, while a surprise growth in Britain’s economy failed to assuage recession worries.
The FTSE 100, which houses several global companies that draw a large part of their revenue in dollars, dropped 0.7% as sterling edged higher.
Data showed Britain’s economy grew unexpectedly in May, driven by a rise in doctor appointments and demand for holidays, that could reassure the Bank of England about its plans to keep on raising interest rates.
Meanwhile, hotter-than-expected US inflation data fanned fears that the Federal Reserve might take a more aggressive stance on rate hikes, potentially tipping the world’s largest economy into a recession.
“We can now expect a 50bps hike being delivered from the BoE next month and pressure to grow on the ECB (European Central Bank) to do the same,” said Stuart Cole, head macro economist at Equiti Capital.
“It puts pressure on both to be more aggressive in their attempts to bring inflation back under control, with 25bps hikes now seen as inadequate. Neither explicitly target the exchange rate in their policy deliberations, but they will both be aware, and likely concerned, about the inflationary consequences of a weaker pound or euro.” The wider European markets fell sharply after US inflation data and the euro dropped below parity against the dollar for the first time in almost two decades, as a hawkish Fed and growing concern about rising recession risks in the euro area continued to batter the currency.
The domestically focussed FTSE 250 index fell 0.8%, with pub operator J D Wetherspoon sliding 8.3% after it warned of losses this year due to higher labour and marketing costs.
Its shares dropped to their lowest price since March 2020, when coronavirus pandemic fears hammered markets. Peers Mitchells & Butlers and Marston’s declined 5.6% and 3.2%, respectively.
“The difficulty now, for the entire pub sector, is that drinking and eating at home looks to be sticking around longer,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
“That trend is likely to continue as the cost-of-living crisis looks poised to accelerate the tightening of purse strings.” Asset manager Abrdn fell 5.0% after Barclays downgraded the stock to “underweight”.