FTSE 100 slips as inflation sparks interest rate concerns

The FTSE 100 slipped on Wednesday after UK inflation declined at a slower pace than estimated, raising concerns about the timing of interest rate cuts.

Although inflation fell to 2.3% in April – tantalising close to the Bank of England’s 2% target – economists had predicted that UK CPI would fall to 2.1%.

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The 2.1% mark would almost certainly have ushered in a rate cut in June, but the hotter-than-expected reading throws this up in the air, bringing into question the recent rally in interest rate-sensitive sectors.

“A slower than expected drop in the rate of UK inflation has spooked the market, pushing back the likely point at which the Bank of England will cut interest rates. Naturally, that led to a sudden jump in sterling and gilt yields and pulled down the FTSE 100,” said Russ Mould, investment director at AJ Bell.

“Add that situation to investor gloom earlier this week over when the Fed might cut rates in the US and you’ve got one grumpy market on your hands.

“The prospect of rates staying higher for longer in the UK cast dark clouds over companies linked to the property sector, pouring cold water on the idea that mortgages would soon become more affordable. Taylor Wimpey led a sell-off in housebuilders.”

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Persimmon shares were down 2.3% – one of the FTSE 100’s worst performers – while Barratt Developments fell 1.3%.

Marks & Spencer was the top riser, gaining 7%, after releasing a strong set of full-year results. Revenue for the year jumped 9.3%, while operating profit rose more than 30%.

“M&S has given shareholders plenty to be happy about this year, growing market share and margins while implementing a significant cost-cutting programme. The group has achieved £180mn in cost savings this year and identified an additional £100mn in potential cuts, surpassing its previous five-year guidance,” said Guy Lawson-Johns, equity analyst, Hargreaves Lansdown.

“In the last quarter, M&S emerged as Britain’s fastest-growing grocer alongside Lidl and the retail arm of Ocado, in which it holds a 50% stake. Investing to create the perception of value through the Remarksable line has helped keep its appeal and allowed sales growth amid cost-of-living pressure. That’s meant despite the challenging retail environment, marked by wage inflation and business rates, M&S exceeded analyst expectations with full-year revenue growth of 9.3%and operating profit growth of 33.8%.”

Attention will shift to Nvidia later in the US session as the chip-maker releases earnings and provides insight into the health of AI demand, one of the major factors driving the global equity market rally.

“As the US earnings season wraps up, all eyes are on Nvidia’s upcoming results, set to be revealed on Wednesday evening after the market closes,” said Sam North, analyst at investment platform eToro.

“Despite the stock’s incredible recent performance, there’s tension in the market, with investors eager to see if Nvidia’s impressive momentum from 2023 has carried into early 2024. The company has been riding high on the AI wave, with its stock price soaring over 200% in the previous year and Wall Street is expecting Nvidia to report a whopping $24.5 billion in quarterly revenue, which would be an astounding 240% increase from the previous year.”

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