6 new stocks added last week by ProPicks AI are already up by 2.5%. Don't miss the momentum!Get 50% off

UK Inflation Slows, Triggering FTSE Rise and Sterling Fall

EditorVenkatesh Jartarkar
Published 09/20/2023, 10:04 AM
GBP/USD
-
UK100
-
BDEV
-
TW
-

The FTSE 100 rose and the pound fell on Wednesday, following the release of data indicating that UK inflation slowed to 6.7% in the year to August. The unexpected easing of inflation sparked a rally in London's leading index, casting doubt over whether UK rates would indeed rise to 5.5% as previously anticipated.

On Wednesday, European stock markets started on a positive note with the FTSE 100 ( ^FTSE ) rising by 0.6% after opening, driven by a weaker pound. Meanwhile, the CAC ( ^FCHI ) was treading water in Paris and the Frankfurt DAX ( ^GDAXI ) was up by 0.3%.

The Office for National Statistics (ONS) reported that UK inflation slowed to 6.7% in the year to August, down from July’s 6.8%, despite a rise in fuel prices. Core inflation, which excludes energy, food, alcohol, and tobacco prices, dropped sharply to 6.2% from July's figure of 6.9%.

Grant Fitzner, the chief economist at the ONS, attributed the slight easing in inflation to falls in the cost of overnight accommodation and airfares, as well as food prices rising by less than the same time last year. However, this was partially offset by an increase in petrol and diesel prices compared with a steep decline at this time last year.

In response to the news, the pound ( GBPUSD=X ) fell to its lowest level in almost four months, down 0.4% against the dollar to $1.2345 — its weakest since late May. Sterling also reached its lowest level against the euro ( GBPEUR=X ) since early August.

UK housebuilders rallied during the morning, leading sectoral gains as investors anticipated that mortgage rates may drop sooner than previously expected. Companies such as Taylor Wimpey (LON:TW) and Barratt Developments (LON:BDEV) gained 5.4% and 4% respectively.

Investment director at AJ Bell, Russ Mould, noted that weaker inflation supports the argument that interest rates may not need to increase significantly, which would benefit property-related companies and retailers. This is because consumers would theoretically not face additional financial pressures.

Mould further commented that while another rate rise from the Bank of England could still occur tomorrow, the latest inflation data increases the chance that a further rate hike could be the last in the current cycle.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.