Yahoo Finance FTSE 100 loses steam as economists predict UK inflation to soar in 2022
European stock markets were mixed on Tuesday as conversations and worries over inflation and the rising cost of living linger.
The FTSE 100 (^FTSE) lost its earlier gains, closing 0.2% lower after gaining 0.6% on opening.
Economist launched a scathing attack on the Bank of England (BoE) on Tuesday for "creating" the UK's inflation crisis that could see the country dragged into recession.
Paul Mortimer-Lee at the National Institute of Economic and Social Research (NIESR) said the BoE "got behind the curve by at least six or probably nine months" when it came to rate rises.
He forecast inflation to soar to 7% in April this year. This is in line with BoE estimate of 7% by Spring 2022.
"While BP earnings provided an initial bounce for the FTSE 100 that has faded throughout the day and a sense of caution prevails as the index returns to 7600 and its January highs," said Chris Beauchamp, chief market analyst at online trading platform IG.
"Other indices continue to struggle, and if fears about a slowdown in growth gather pace then the FTSE 100 may end up moving back down to join other indices like the Dax rather than them playing catch-up with the UK index."
Meanwhile, Ocado (OCDO.L) proved to be the main drag on London's bluechip index, as shares fell 11.6% after the online retailer posted steep losses for last year, with pre-tax losses widening from £52.3m to £176.9m in the year to the end of November 2021.
Read more: UK inflation to peak at 7% in April as household inequalities widen
"The FTSE 100 has emerged from the recent turbulence in global stock markets to hit its highest since the pandemic. The lack of exposure to speculative tech names like Ocado has been a positive for the UK market as the great unwind from this bloated corner of the market takes place in the US," Neil Wilson, chief market analyst at markets.com said. "The FTSE 100 has outperformed in 2022, rising over 3% whilst the DAX (–3.5%), Dow Jones (-3.5%) and S&P 500 (–6%) have all fallen."
BP (BP.L) earlier lifted the FTSE with shares soaring over 2% as the company cashed in on the energy price hike. The company posted a surge in profits to £10bn ($12.8bn) in 2021 — its highest in eight years. The oil stalwart’s quarterly results were supported by higher gas and oil prices and production which was partly offset by weaker oil trading results. It had crashed to a $20.3bn full-year loss in 2020 due to the pandemic.
Michael Hewson, chief market analyst at CMC Markets said: "BP’s biggest problem in the longer term, is that all its profits come from its oil and gas operation and productions businesses, which is great news while prices remain high, but may not be so sustainable beyond 2030."
Read more: Why the energy price cap is going up when oil firms are making billions in profit
Elsewhere in Europe, France’s CAC (^FCHI) and the DAX (^GDAXI) closed up over 0.2%.
It comes as European Central Bank (ECB) president Christine Lagarde struck a less hawkish tone on Monday after attempting to calm market jitters about rates rises. She said there were no signs that measurable monetary policy tightening would be required.
Read more: Will the BP share price keep rising?
Across the Atlantic, US major benchmarks were in the green on Tuesday after a choppy trading day, which saw them edge lower on Monday.
The tech-heavy Nasdaq (^IXIC) was up 0.9% after the opening bell. Wall Street’s blue-chip S&P 500 (^GSPC) rose 0.6%, while the Dow Jones (^DJI) gained over. 0.9%.
Inflation has been a topic of focus after a sudden and sharp surge in several countries resulting from the restoration global economic activity and bottlenecks in the global supply chain. Investors are watching to see if global central banks will attempt to head off inflation by accelerating the withdrawal of economic stimulus.
Federal Reserve officials mentioned in December that the bank plans to speed up efforts to withdraw record-low interest rates and other stimulus to cool multi-decade high inflation.
US inflation soared from 5.4% at the end of the third quarter to 7% in last three months of 2021 and is expected to continue to rise.
"We are sticking to our estimate of 11.5% earnings growth for 2022 and 8.5% for 2023. Our year-end S&P 500 price target is 5,100, up from 4,484 at Monday’s close," said Mark Haefele, CIO at UBS global wealth management.
"While there remains a risk that the Federal Reserve could tighten by more than markets expect – currently six hikes of 25 basis points each – this is not our base case. With demand remaining healthy, we advise investors to focus on winners from global growth."
Overseas, the pan continental Stoxx Europe 600 (^STOXX) gained 0.7%.
Asian stocks were mixed after Wall Street’s fall. The Shanghai Composite (000001.SS) was up 0.7% after reopening following China’s New Year holiday week. The rise came despite a private gauge of the country’s service sector dipping to a five-month low.
The Hang Seng (^HSI) declined 0.9% while the Nikkei (^N225) advanced 0.1% in Japan.
Watch: What is inflation and why is it important?
