Update: UK shares followed global markets lower on Wednesday afternoon after investors were spooked by a fresh acceleration in US inflation, with prices in the world’s largest economy rising at their fastest rate in four decades. 

US consumer prices increased by 1.3% last month, following a 1% advance in May, the US Labor Department announced. The latest monthly reading also beat expectations of 1.1% in a Reuters poll of economists. 

That pushed annual inflation to 9.1%, the highest level in the US since November 1981, and sharpened fears that central bankers will have to hike interest rates more quickly to contain surging prices, which could induce a recession and threaten stock market valuations. 

The S&P 500 fell 1.4% to 3,766 points in early trading, while bearishness spread to European markets. 

London-listed shares added to earlier losses, with the FTSE 100 trading down 1.2%, or 88 points, at 7,122 just before 3.30pm.

‘Today marks another false dawn in the battle against inflation as in the US consumer prices surprised to the upside once again,’ said Richard Carter, head of fixed interest research at Quilter Cheviot.

‘We now have to question just how close are we to the peak.’

Carter said the disappointment means that a 0.75% interest rate rise by the Federal Reserve at the US central bank’s next meeting in two weeks’ time is now ‘an absolute certainty and there may even be pressure from some quarters for them to do more’, ushering in the possibility of a full percentage point hike. 

(9:48) FTSE falls despite surprise UK GDP bounce

The FTSE 100 failed to make gains this morning, despite a surprise rebound for the UK economy, as investors anxiously await this afternoon’s US inflation reading and oil prices suffer a sharp dip. 

The blue-chip index was down 0.6%, or 45 points, at 7,165 despite UK GDP growing by an unexpected 0.5% in May, the Office for National Statistics reported. That followed a decline of 0.2% in April and there had been fears the UK economy would report zero growth.

‘The services sector was to thank for the majority of the increase, with a particular emphasis on human health and social work activities,’ said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

‘It appears a surge in GP appointments has aided the UK economy this time around, helping to prop up health service activity, despite a huge drop in test and trace vaccinations.’

However, Lund-Yates noted that there was ‘proof that the UK consumer base is on shaky ground’ as consumer-facing services such as retail, travel and entertainment saw output fall 0.1%, taking them 4.7% below pre-pandemic levels.

‘It will take something strong to fully reverse fears the UK is heading towards a recession in the coming year,’ she said. 

Commodity stocks also weighed this morning as Brent crude fell back to $100 (£84) a barrel following a sharp 7% fall overnight, spooked by weak global economic data that led to demand concerns.

The biggest faller this morning was asset manager Abrdn (ABDN), whose shares lost 3.6%, or 5p, to trade at 156p on the back of analyst downgrades. Prudential (PRU) also fell foul of analysts, losing 2.6%, or 26p, to 982p after Citigroup cut its target price to £13, down from £15.66.

Packaging group DS Smith (SMDS) was also in the sights of analysts at Berenberg, who cut their target price from 510p to 415p. The shares dropped 2.4%, or 7p, to 280p.

The more domestically focused FTSE 250 failed to make any gains despite the upbeat GDP numbers and a slight rise in sterling, which was up 0.1% to trade at $1.19 against the dollar.

JD Wetherspoon (JDW) dragged the mid-cap index, losing 5%, or 32p, to change hands at 598p, after the pub chain reported a slower than anticipated recovery. Like-for-like sales in the latest quarter were 0.4% lower than 2019 levels and the group said losses of £30m are expected for the full year, higher than previously guided as staff costs grow and inflation pressures weigh.

Luxury carmaker Aston Martin Lagonda (AML) put in another poor showing, down 4.9%, or 21p, at 409, while Lancashire (LRE) suffered analyst price cuts too, wiping 2.5% off the share price and leaving the insurer trading at 398p.

GABI ‘cheap’

Bargain hunters pushed GCP Asset Backed Income (GABI ) 2.7% higher to 93p after the 6.6%-yielding debt fund closed 9% below net asset value yesterday. This looks cheap against a much narrower one-year average discount of 0.7%.

Similarly, Balanced Commercial Property (BCPT ), formerly known as BMO Commercial Property, rose 1.6% to 112p from a 24% discount and 4.3% yield.

Brunner (BUT ) slipped 1.2% to 958p on an 11% discount after the global growth fund posted a resilient performance in the six months to 31 May. Net asset value dipped 0.5% against a 1.3% decline in its benchmark, helped by gains in healthcare and energy stocks.

Smithson (SSON ) dipped 2% at £12.22 and Alliance Trust (ATST ) fell by the same amount to 915p.