The FTSE 100 was higher on Wednesday as investors braced for the Federal Reserve’s interest rate decision later today.
US borrowing costs are expected to rise by 0.25% to 4% when the decision is released at 7pm this evening.
Rising inflation due to the conflict in the Middle East and a remarkably strong US economy have left little choice but to boost rates. The main question investors will want to answer after today’s decision and press conference is whether the Fed feels it is necessary to hike again before the end of the year.
With today’s interest rate seemingly priced in, London’s equities were free to focus on headline UK inflation, that came in line with expectations, and falling oil prices.
“As expected, the UK’s inflation rate rose sharply from 2.9% to 3.1% in August, mostly due to high energy prices,” said Felix Feather, Economist, at Aberdeen.
“Importantly, there were few signs of the energy price shock spilling over into price setting in domestically determined prices. For example, services inflation, which the Bank of England pays particular attention to, remained at 3.4%, defying expectations for an acceleration.”
After today’s data, some may question whether it is approporiate to hike UK rates given that much of impact on inflation appears to stem from higher fuel prices that raising borrowings cost will have now impact on.
In addition to inflation data, falling oil prices provided a boost for UK based investors on Wednesday.
“Brent crude fell 1% to $107.70 per barrel, providing some much-needed relief to the market following an intense period that fired up inflation worries,” said Russ Mould, investment director at AJ Bell.
BP and Shell were marginally lower at the time of writing as oil eased.
Barratt Redrow was the FTSE 100’s top riser on Wednesday after reporting results that topped expectations.
“Barratt Redrow’s full-year results revealed the housebuilder remains on solid ground, despite a challenging market,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“Revenue was up 6.6% to £6.1bn, driven by growth in new home completions and a smaller contribution from higher average selling prices as the mix shifted towards larger homes in more expensive regions.
“However, build cost inflation accelerated to 2% over the year, and the use of incentives to convince buyers to sign on the dotted line for a new home also rose, weighing on margins. That saw adjusted pre-tax profits fall by 7.1% to £0.6bn, in line with market expectations.
Barratt Redrow shares were 8% higher at the time of writing. Persimmon jumped on Barratt Redrow’s tailcoats and rose 4%.
FTSE 100 miners were also firmer on Wednesday. Antofagasta rose 2.7% while Fresnillo added 2.9%. The US interest rate decision this evening could set the scene for an interesting open for the sector tomorrow.