FTSE 100 hits 7-week low as inflation climbs, China data weighs

By Sruthi Shankar and Khushi Singh

(Reuters) - Britain's FTSE 100 hit a seven-week low on Wednesday after a stronger-than-expected UK inflation reading and U.S. retail sales data tempered hopes of early interest rate cuts this year, while underwhelming data from China hurt commodity-linked stocks.

Extending losses for a third straight session, the blue-chip index fell 1.5%, its worst percentage drop since August 2023. The midcap FTSE 250 index dropped 1.7% to hit a one-month low.

Britain's annual rate of consumer price inflation (CPI) rose for the first time in 10 months in December to 4.0%, above economists' estimates, over a rise in tobacco duty.

The UK CPI data, while indicating core and headline inflation is receding at a faster pace than Bank of England (BoE) projections, remains stubbornly high and likely precludes an early rate cut.

Traders are now pricing in a more than 50% chance the central bank will hold rates in May.

"Global markets are a bit more aggressive about pricing in interest rate cuts than global central banks are willing to do and that is a big risk factor going forward," said Steve Sosnick, chief strategist at Interactive Brokers.

Shares of rate-sensitive homebuilders fell 2.9%, while real estate investment trusts (REITs) dropped 3.9%, leading sectoral declines.

Concurrently, rate cut bets were further weakened by higher-than-anticipated rise in December U.S. retail sales, which also pushed Treasury yields higher.

"It's hard to imagine a huge round of rate cutting if the economies are solid enough to support the earnings growth that's priced in."

The yield on the British 10-year benchmark note hit its highest level in over five weeks, tracking gains in its U.S. peer.

Commodity-linked industrial metal miners, precious metal miners and oil and gas shares slipped between 1.9% and 3.2%, hurt by a stronger dollar and sluggish data from top consumer China.

Among individual stocks, 888 Holdings was down 1.5% as the bookmaker forecast its 2024 profit to be at the lower end of market expectations.

Shares in Mitchells & Butlers climbed 3.6% to the top of the FTSE 250, as the pub group expected annual profit before tax towards the top end of estimates.

(Reporting by Sruthi Shankar, Khushi Singh in Bengaluru; Editing by Mrigank Dhaniwala and Jonathan Oatis)