The FTSE 100 dipped on Wednesday after UK inflation increased concerns about domestic demand sending housebuilders lower, along with stocks exposed to the financial health of UK consumers and investors.
The FTSE 100 started the day in positive territory before ebbing into native territory throughout the session as the market digested the implications of higher inflation on rates and spending power.
“Unlike the US, where there is evidence surging prices have started to peak, inflationary pressures look pretty entrenched in the UK with further increases in energy prices still to come,” said AJ Bell financial analyst Danni Hewson.
“The inflation reading will only add to conviction that the Bank of England will hike rates a further 50 basis points at the next opportunity – providing consumers with a double whammy of rising food and energy bills as well as higher mortgage costs.”
The pound dipped against the dollar later in the day and overseas earners found support while UK domestic facing stocks sank, cementing a negative day for the Footsie.
Persimmon was the biggest faller after revealing a drop in first half completions, and took the rest of the housebuilders down with them. Persimmon gave up 5% while Taylor Wimpey and Barratt Developments shed over 2%.
Travel companies and retailers also suffered on concerns consumers ability to make discretionary purchases. Next sold off 1.8% and IAG shares decreased 3%.
Alcohol and Tobacco stocks
As investors sold UK domestic stocks, there was a rotation into defensive sectors and companies with reliable cashflows. British American Tobacco and Diageo were the top two risers as demand for their goods is largely inelastic and holds up well during tougher economic conditions.
Pharma stocks AstraZeneca and Dechra were also among the gainers, adding around 1%.
