London’s leading index recovered Fromm early losses on Wednesday as investors looked past the threat of rising prices.
CPI Inflation fell to 3.1% as the impact of ‘Eat Out to Help Out’ fell out of core inflation data.
The FTSE 100 was trading 7,222, up 0.07% shortly after midday in London.
“The FTSE 100 started a bit lower on Wednesday after UK inflation moderated to come in just short of expectations,” says AJ Bell financial analyst Danni Hewson.
“However, these figures are already firmly in the rear-view mirror and probably bear little comparison to current realities given the surge in energy prices and mounting supply chain issues seen in October.”
Despite inflation easing slightly there is a consensus building that the Bank of England will have to act given inflation at 3.1% is way above their 2% target.
Rising fuel prices and energy bills are the main driver of inflation and are eroding household spending, igniting fears economic conditions are likely to deteriorate.
“UK CPI announced this morning was a little behind expectations, there’s a lot of noise and distortion in the release. I don’t think it will change any minds on the MPC. The real anxiety that the committee need to decide on is rising fuel prices over the next five months, as they will inflate headline inflation and will depress retail sales, but they could feed through into higher wage settlements,” said Guy Foster, chief strategist at wealth manager Brewin Dolphin.
“Edging interest rates up makes sense, although in truth consumers are not particularly exposed to interest rate risk in the short term. Energy bills will be hurting them much more than the Bank of England is likely too. The Chancellor could cut VAT on utilities bills but it feels at odds with the prevailing COP26 mood.”
Mining companies were among the biggest fallers of Wednesday as investors digested further bad news from Chinese property developers. China are the biggest consumer of natural resources with much being used in the construction industry.
Rio Tinto, Antofagasta and Anglo American were down 3.5%, 3.3% and 1.7% respectively.
Antofagasta was also hit by poor production figures.
“An iffy production report from Antofagasta has put the miner on the back foot. Blaming the weather would often get short shrift from investors but it is possible to have some sympathy with the epic drought conditions Antofagasta is facing at its copper operations in Chile,’ said Danni Hewson.
“Getting metals out of the ground requires plenty of water and Chile has faced years of minimal rainfall. There is also some concern about looming changes to Chilean mining royalties which could see the company get a smaller share of production revenues.”