UK shares slip as U.S. inflation fans fears of aggressive rate hikes

By Anisha Sircar and Amal S

(Reuters) -British shares fell on Friday as persistently hot U.S. inflation data exacerbated investors' fears of aggressive rate hikes, while GSK rose as its respiratory vaccine succeeded in a late-stage trial for older adults.

The blue-chip FTSE 100 index was down 2.1% recording its worst session in a month, while the domestically oriented FTSE 250 index declined 2.0%. The indexes posted weekly losses of 2.8% and 2.9% respectively.

Miners down 5.6% led losses on the index as industrial metals retreated after renewed COVID-19 restrictions in top consumer China rekindled demand worries. [MET/L]

The Labor Department's report showed U.S. consumer price index (CPI) accelerated to 1% in May from 0.3% in April, while on an annual basis it increased at a blistering 8.6% as gasoline prices hit a record high and the cost of services rose further.

Meanwhile, the European Central Bank said on Thursday it would deliver its first rate hike since 2011 next month, followed by a potentially larger move in September.

"Investors had already been on tenterhooks about stagflation and yesterday after the European Central Bank announced a new interest rate hike program, raised inflation guidance and cut GDP guidance, and this morning, hot inflation numbers out of the US appear to have pushed sentiment over the edge," said Colin Cieszynski, chief market strategist at SIA Wealth Management.

Next week, the Bank of England is likely to raise rates for the fifth time since December as near-10% inflation, the worst cost-of-living squeeze in decades, and planned labour strikes threaten a summer of discontent in Britain.

GSK rose 1.6% after the drugmaker said its vaccine for respiratory syncytial virus was successful in a late-stage trial involving adults aged 60 years and older.

(Reporting by Anisha Sircar and Amal S in Bengaluru; editing by Uttaresh.V)