Yahoo Finance FTSE 100 closed in the red after UK inflation returns to 40-year high
The FTSE 100 (^FTSE) closed in the red after two days of gains on Wednesday, down 0.2% as UK inflation returned to double-digits, the latest data from the Office for National Statistics (ONS) shows.
In Paris the CAC 40 (^FCHI) declined 0.3% at close, while the DAX (^GDAXI) fell 0.2% in Frankfurt.
"Some of the enthusiastic dip-buying seen earlier in the week has faded, although this might just be a lull before any short-term bounce," Chris Beauchamp, chief market analyst at online trading platform IG. "But signs of risk appetite are weaker, which means the better news needs to keep coming through to avoid a fresh slump."
"For the moment, the march of earnings season might help keep inflation and central banks off the front pages, but this will change in time, spelling further trouble for equities."
Consumer prices rose by 10.1% in the 12 months to September, according to the ONS. That was a slight increase from August when it hit 9.9% and just above forecasts of 10%.
Read more: UK inflation back to double-digits as price rises hit 10.1% in September
September's rate of inflation matched July’s peak and has not been higher since the early 1980s. On a monthly basis, consumer prices jumped by 0.5% last month, the same as in August.
Groceries drove the surge as food prices shot up by 14.6% on the year – the biggest leap in the cost of food on records from the ONS since 1989. The number also exceeds the previous peak of 14.5% reached during the financial crash of 2008.
"After last month’s small fall, headline inflation returned to its high seen earlier in the summer," Darren Morgan, ONS director of economic statistics said. "The rise was driven by further increases across food, which saw its largest annual rise in over 40 years, while hotel prices also increased after falling this time last year."
Meanwhile, the retail price index, an old measure of inflation which is linked to debt interest payments, came in at at a 40-year high of 12.6%.
It comes as Liz Truss said "we are protecting the triple lock on pensions", which dictates that pensions rise by the highest rate of inflation, average earnings, or 2.5%.
That means that retirees are heading for a bumper increase to their state pension next year.
Read more: 'Time to reform' UK tax system as millions face income inequality, says Niesr
The September inflation number is important as its used to determine state pension increases from next April. Abandoning the policy could see pensions fall significantly in real terms for millions of pensioners.
Sterling (GBPUSD=X) fell against the dollar on the back of the inflation data. The pound dropped 0.7% against the greenback, reaching a low of $1.126, but remains significantly stronger than in previous weeks after the mini-budget sent it crashing.
Despite the surge, investors are banking on Bank of England policymakers not to go so hard with interest rate hikes, Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said.
She added: "Despite attempts to turn down the heat, the cauldron of hot prices continues to bubble, spitting out yet more problems the UK government has to grapple with amid the ongoing political turmoil.
"With Trussenomics tax cuts reduced to a pile of dying embers, they no longer risk re-igniting the inflationary flames. This means that although the Bank of England is still expected to raise rates at the next meeting by 0.75%.
"But with many consumers, households and businesses already feeling the burn of higher borrowing costs, a cold shock is set to be incoming. As they ramp down non-essential spending it is set to freeze off growth in the economy which should help bring down inflation as demand for goods and services lowers."
Read more: Energy bills could hit £4,000 after Jeremy Hunt U-turns on support
Across the pond, Wall Street benchmarks were mixed as investor confidence was boosted by better-than-expected earnings.
The S&P 500 (^GSPC) dipped 4.91 points, or 0.1%, to 3715.07, the tech-heavy Nasdaq (^IXIC) dropped 0.2%, while the Dow Jones (^DJI) outperformed, up 0.3% at Europe's close.
Asian shares finished mixed overnight with the Nikkei (^N225) up 0.4% in Tokyo, while the Hang Seng (^HSI) lost 2.1% in Hong Kong and the Shanghai Composite (000001.SS) fell 1.2% in mainland China.
