On Wednesday, the benchmark index in the UK reversed the gains made in early trading and declined for the day, primarily because of weakness in defensive stocks. Meanwhile, inflation climbed to highs of 40 years, which cemented the possibility of a larger-than-expected interest rate hike next month by the Bank of England.
FTSE 100 index falls
There was a 0.4% drop in the FTSE 100 after it had recorded gains of as much as 0.7%, as consumer staples and healthcare stocks, such as Unilever, British American Tobacco, and AstraZeneca were all dragging down the blue-chip index.
June saw the consumer prices in Britain reach an annual rate of a whopping 9.4%, which had not been seen in the country since 1982. This further increased the chances of the BoE opting for an interest rate hike of 50 basis points instead of 25 basis points.
Market analysts said that the British economy is consumer-led and the high cost of living is putting it under a great deal of pressure. This means that there is a very high risk of recession. Therefore, the Bank of England is expected to be in a very hawkish mood because it has to mitigate the risk of a wage-price spiral. In addition, recent data shows that the labor market remains quite hot and this is resulting in higher inflationary pressures.
Individual performances
There was a 2.2% gain in WPP, as the advertising firm’s rival in the US, Omnicom Group posted quarterly profits that were better than expected. There was also a 0.6% gain recorded in the FTSE 250, which is domestically focused, and this took the mid-cap index to its highest value in about three weeks.
There was a 42.3% decline in Morses Club Plc, as the subprime leader announced that its future was in jeopardy because of the high number of redress claims. Therefore, it announced that it was potentially considering using the scheme of arrangement in order to deal with this issue.
Other issues
There was a 0.2% drop in the European stock market, due to the uncertainty about gas supplies in the region. Furthermore, the political climate in Italy also worsened and the future of Mario Draghi, the Italian Prime Minister, became uncertain. The Thursday meeting of the European Central Bank was also in the focus of the traders.
This is because the chances of 25 basis points had gone down and markets had priced in a 50 basis points increase in the interest rate because of the higher inflationary pressures. However, the warning from Vladimir Putin, the Russian President, about gas supplies reducing and even stopping weighed down on markets.
Traders are also keeping an eye out on who will be chosen to replace Boris Johnson as the Prime Minister in Britain. Rishi Sunak, the former finance minister, and Liz Truss, the foreign secretary are the last two candidates that are left in the race and it remains to be seen who will win the final battle to claim office.