Fears about overheating economies on both sides of the Atlantic hit the FTSE 100 (^FTSE) on Wednesday.
London's bluechip index fell 0.7% at open as investors digested early morning data from the Office for National Statistics (ONS) that showed UK inflation hit 2.5% in June. The reading was above forecasts, above the Bank of England's 2% target, and represented a sizeable jump from May's figure of 2.1%.
The pound rallied on the back of the data, as traders reasoned that the overshoot will increase to pressure on the Bank of England to raise rates.
The UK data came less than 24 hours after US inflation reached a 30-year high. That fact sent a chill through global markets on Tuesday afternoon, with investors fretting that inflation could be pointing to an overheating economy rather than just a temporary blip caused by reopening.
"The creeping UK headline inflation rate is likely add to the sense of unease pervading the financial markets about the impact higher prices will have on economies around the world, as concerns about new COVID variants also rise," said Susannah Streeter, a senior investment and markets analyst at stockbroker Hargreaves Lansdown.
Selling pressure eased in afternoon trade and the FTSE closed down just 0.4%. Sentiment was helped by a positive start to trade on Wall Street, despite earlier weakness in the futures market. The S&P 500 (^GSPC) was up 0.5% shortly after the open, while the Dow Jones (^DJI) was 0.3% higher and the Nasdaq (^IXIC) had gained 0.6%.
Momentum stalled by the time European markets shut. The Dow was down 0.1% and the Nasdaq and S&P 500 were both flat.
Some London-listed stocks caught a bid despite the falling market. NatWest (NWG.L) topped the FTSE with a gain of 2.5% after ratings agency Moody's upgraded a range of ratings on the bank's debt and subsidiaries.
FTSE 250-listed (^FTMC) Tullow Oil (TLW.L) rallied 5.1% on a positive update. Asset sales and a debt refinancing have removed lingering uncertainty about the company's financial health and its operating fields are producing well.
Asian shares were caught up in the inflation-linked selling overnight. Japan's Nikkei (^N225) gave up 0.4%, the South Korean KOSPI (^KS11) fell 0.2%, and the Hong Kong Hang Seng (^HSI) sunk 0.7%. The Shanghai Composite (000001.SS) fell 1.1% on mainland China and the Shenzen Component (399001.SZ) declined 0.9%.
Watch: What is inflation and why is it important?