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FTSE 100 falls as UK inflation data sparks recession fears

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The FTSE 100 fell after UK inflation rose to 9% in April. Photo: Justin Tallis/AFP via Getty
The FTSE 100 fell after UK inflation rose to 9% in April. Photo: Justin Tallis/AFP via Getty

The FTSE 100 (^FTSE) slipped on Wednesday as investors digested the latest inflation numbers from the Office for National Statistics (ONS) and the biggest squeeze on the cost of living since the 1970s.

London's bluechip index fell 0.5%, while the France's CAC (^FCHI) reversed earlier gains, down 0.9% on the day, and the DAX (^GDAXI) declined 0.8% in Frankfurt.

It came as UK inflation soared to a more than 40-year high in April thanks in part to rising food, energy and fuel prices and the war in Ukraine as the economy deteriorates and people have less to spend.

The consumer price index (CPI) measure of inflation rose to 9%, the highest since it started being calculated in 1997, up from 7% in March. ONS estimates that CPI hasn’t been higher since 1982 when it peaked at nearly 11%.

Meanwhile, core CPI, which strips out volatile food and energy components, rose 6.2% in a sign that inflation has become embedded across Britain's economy.

Around three quarters of the increase in the annual inflation rate this month came from utility bills, according to Grant Fitzner, chief economist at the ONS.

Read more: Pound nears five-year low amid stagflation worries

Sterling (GBPUSD=X) slipped to a near five-year low against the dollar in afternoon trading following April's red-hot inflation data. It dipped 0.8% to $1.239, having jumped 1.4% on Tuesday after data showed the unemployment rate had dropped to its lowest since 1984.

"Yesterday’s jobs figures suggested the Bank of England might have quite a bit of wiggle room when it came to rate rises but considering how hot prices are running already there’s real concern that any further moves it makes will only serve to cut back consumer spend and business investment," said Danni Hewson, financial analyst at AJ Bell.

"The fact the UK has shot past US inflation numbers is just adding to the mix, strengthening the dollar as investors consider the Fed is in a stronger position to hike rates faster and higher than its UK counterpart."

Read more: UK inflation hits 40-year high of 9% as the cost of living squeeze intensifies

Across the pond, US benchmarks opened lower as traders weighed the outlook for rising interest rates and slowing economic growth following a rally on Tuesday driven by brisk retail sales data.

Wall Street’s S&P 500 (^GSPC) lost 65.40 points, or 1.6%, to 4023.45. The tech-heavy Nasdaq (^IXIC) tumbled 1.7%, while the Dow Jones (^DJI) edged 1.3% lower.

Stocks were boosted in the previous session following remarks from Federal Reserve chair Jerome Powell who voiced resolve in fighting inflation. "There could be some pain involved” in restoring price stability," Powell said.

Asian stocks were mixed overnight following a strong start in some markets, which took the lead from a rally on Wall Street.

The Nikkei (^N225) rose 1% in Tokyo, while the Hang Seng (^HSI) was flat in Hong Kong and the Shanghai Composite (000001.SS) lost 0.3%.

Watch: Why are gas prices rising?

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