By Johann M Cherian and Shashwat Chauhan
(Reuters) -UK’s FTSE 100 was dragged down by consumer stocks on Wednesday as British inflation eased, though a sharp rise in food prices sparked fears that the Bank of England would continue with a tight monetary policy.
The internationally focussed FTSE 100 edged 0.3% lower on close, hovering near an over four-year high, while the domestically oriented FTSE 250 also slipped 0.3%.
British inflation eased last month, offering some comfort to the Bank of England, but food and drink prices rose at the fastest pace since 1977.
Diageo and Unilever led declines among consumer staples stocks, falling 2.4% and 1.8% respectively.
“Soaring food price inflation, along with a stronger pound, appears to be weighing on consumer staples and retailers,” said Michael Hewson, chief market analyst at CMC Markets UK.
Along with persistent price pressures, worries loom that a tight job market would make the journey to lower inflation more painful.
“There remains much inflationary pressure from the jobs market, where unemployment is around an all-time low, and wage growth is well above average levels,” said Shane Bennett, head of investment strategy at Walker Crips.
“We can expect more hikes from the Bank of England in the first quarter before the bank considers pausing, with the potential for a cut later in the year, subject to the depth of the anticipated economic weakness.”
Market participants are pricing in an 83% chance of the Bank of England (BoE) raising interest rates by 50 basis-points in February.
Despite surging inflation, the FTSE 100 is very close to its record high hit in May 2018, aided by rising commodity prices.
Industrial metal miners gained 2.6%, as copper prices climbed due to speculators betting that low inventories and rising Chinese demand will lift prices. [MET/L]
Among individual stocks, Currys rose 11.7% after the retailer retained its recently downgraded full-year financial forecast.
Burberry gained 3.3% after the luxury brand said it is seeing “very promising” signs of recovery in China.
(Reporting by Johann M Cherian and Shashwat Chauhan in Bengaluru; Editing by Sherry Jacob-Phillips and Krishna Chandra Eluri, William Maclean)
