FTSE tumbles more than 1% as inflation soars to 40-year high

The Office for National Statistics has reported inflation hit 9.1% last month, putting further pressure on the economic recovery and causing UK shares to lose ground this morning.

The FTSE 100 tumbled 1.3% and the pound slipped this morning as UK inflation hit a 40-year high of 9.1%, adding further pressure on household finances.

The blue-chip index shed 92 points to reach 7,059 after the Office for National Statistics (ONS) reported annual inflation was up from 9% in April to 9.1% in May, a level not reached since 1982.

The Bank of England has already warned double-digit inflation is on the way, predicting it will reach 11% by the autumn, and the ONS figures do little to stymie those fears. Energy costs, which are already proving a burden on households after the recent hike in the energy price cap, are due to rise again in October and annual food bills are almost £400 more expensive than this time last year.

Susannah Streeter, senior investment analyst at Hargreaves Lansdown, said: ‘The latest temperature check of the UK economy shows the mercury rising again, with no end yet in sight to feverish price rises.’

The analyst noted the last time inflation was this high, interest rates were 13% compared with 1.25% today.

‘With the economy taking on more of a sweat, the pressure is now on the Bank of England to apply much cooler compresses in the form of successive interest rate rises over the next few months to try to reduce demand and bring down prices,’ she said.

Sterling slipped this morning to trade at $1.220 against the dollar, having been closer to $1.23 yesterday, adding to inflationary pressures as a weak pound makes importing goods more expensive.

Commodity, energy and oil stocks also suffered as Brent crude dropped more than 3% to head towards $110 (£90) a barrel on the back of worries about a global slowdown hampering demand.

Shell (SHEL) lost 3.4%, or 73p, to trade at £20.77 while fellow oil major BP (BP) was down 2.4% at 385p. Oil and gas company Harbour Energy (HBR) shed 3% to reach 346p, while miners Glencore (GLEN) and Fresnillo (FRES) were down 2.6% and 2.4%, respectively.

While the FTSE 250 benefited from its low exposure to energy and oil, the more domestically focused group was hit by the fall in sterling, causing the mid-cap index to fall 1.3%, or 257 points, to 18,690.

Micro Focus International (MRCO) was the biggest faller, down 11%, or 39p, at 318p after the software and IT group reported a fall in first-half earnings as revenues were hit by macro uncertainty.

Baltic Classifieds (BCG), which operates classified ad platforms in the Baltic states, was down 6% at 141p and Aston Martin Lagonda (AML) fell 5.2% to 505p.

Impact share issue

Impact Healthcare (IHR ) slipped 3% to 118.9p as the real estate investment trust launched a 117p share issue to fund a £169m pipeline of care home acquisitions.

Other investment trusts were weaker as average share price discounts widened to 8.8%. Allianz Technology (ATT ) shed 4% to 203p and Blackrock World Mining (BRWM ) and Impax Environmental Markets (IEM ) both gave up 2.9% to 622p and 381p, respectively.

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