The FTSE 100 declined after new data showed UK inflation reaching 9.1% in May. Photo: Victoria Jones / PA
European stocks fell on Wednesday as investors digested the latest inflation data that showed Britain’s life crisis worsened as consumer prices rose to their highest level since March 1982.
The FTSE 100 (^FTSE) fell 1.6% after the opening bell, France’s CAC (^FCHI) in Frankfurt fell 1.8% and the DAX (^GDXI) fell 2.2%.
The Consumer Price Index rose to 9.1% in May, according to the Office for National Statistics, from 9% the previous month and marks a new 40-year high.
The ONS said rising food and non-alcoholic beverage prices, compared to a year ago, pushed up last month’s inflation rate.
Read more: UK inflation has hit a 40-year high of 9.1%.
Prices rose 0.7% in the month alone, a slowdown from the 2.5% pace recorded in April when the 54% energy price cap came into force.
The retail price index, which is used to determine train ticket prices and for which some index-linked bonds are pegged, rose 11.7% – another 40-year high.
Large-scale inflation would put additional pressure on tightening the domestic budget, spur demand for wage increases to compensate for higher prices, and make it more difficult to resolve industrial disputes such as railway strikes.
The latest gauge put more pressure on the Bank of England to step up efforts to contain rising prices in the economy. Threadneedle Streets expects inflation to exceed 11% in October, which is significantly higher than other similar countries in the G7.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdowne, said: “The Bank of England has already forecast inflation will reach 11% by autumn, and it continues to move toward that ugly marker.
“In contrast though interest rates were 13% in March 1982, today they are only 1.25%. With the economy sweating more, the Bank of England is under pressure to apply more cooler compresses. To quell demand and drive prices down.” To bring the interest rate increases continuously over the next few months.”
Sterling (GBPUSD=X) extended its decline against the dollar as Britain’s inflation nightmare deepened. The pound fell 0.8% to $1.218. It was down 0.2% against the euro (GBPEUR=X) at €1.16.
Analysts have said a “weakness in the pound” is not helping inflation and the UK economy, mainly due to the strengthening of the US dollar, which has pushed sterling down more than 12% in the past year.
Michael Hewson, chief market analyst at CMC Markets, said: “This is largely due to the growing aggression of the US central bank, which is exporting its own inflation problem to the rest of the world by rapidly raising rates in the coming months.” determined to do.
“No one is suggesting that the Bank of England matches Fed growth for growth, but they should at least try to keep the interest rate gap narrow while also dealing with the problems posed by a weakening pound. I must give the impression of being serious. As much as possible, if only to mitigate the inflationary impulse that is currently affecting energy staples first and foremost as well as food, which is priced in US dollars.”
Read more: Bank of England needs to follow Fed on rate hike to boost pound, says MPC member
Across the Atlantic, US benchmarks rallied on Tuesday after posting their worst week since March 2020, with bullish mood spreading across cryptocurrencies and growth stocks.
Markets were closed on Monday for the June twentieth federal holiday.
Wall Street’s S&P 500 (^GSPC) rose 89.95 points, or 2.5%, to 3764.79. The tech-heavy Nasdaq (^IXIC) gained 2.5%, while the Dow Jones (^DJI) closed 2.2% higher.
Asian stocks were in the red overnight, while the Nikkei (^N225) in Japan was down 0.4%, while the Hang Seng (^HSI) was down 2.3% in Hong Kong and the Shanghai Composite (000001.SS) lost 1.2%.
See: How does inflation affect interest rates?