EVENING UPDATE – The FTSE 100 closed down 0.17% and the FTSE 250 closed down 1.61% as fears over surging inflation once again gripped markets.
Soaring food prices have driven inflation in the UK to a new 40-year-high in September – the highest since early 1982.
The consumer price index rose 10.1%, compared with 9.9% in August, according to the Office for National Statistics.
That puts inflation back at the July peak, driven by food prices rising 14.5% on the levels a year earlier.
Chancellor Jeremy Hunt said in a statement, “This government will prioritise help for the most vulnerable while delivering wider economic stability and driving long-term growth that will help everyone.”
The rise has increased investor expectations of further interest rate rises from the Bank of England.
MORNING UPDATE – The FTSE 100 closed up 0.24% and the FTSE 250 closed up 0.15% after a calm day of trading following an extremely volatile fortnight in the wake of the disastrous ‘mini-budget’ unveiled by Liz Truss.
CMC Markets analyst Michael Hewson said, “Today’s gains have been broad-based as sentiment settles down after the ructions of the last two weeks.”
Meanwhile, demand for houses has fallen sharply in the wake of the mini-budget, a top developer has warned.
Jason Honeyman, chief executive of house builder Bellway said that new home reservations have fallen 40% in the past three weeks – as Britain’s three biggest mortgage lenders increased interest rates a day after Jeremy hunt reversed many of the measures in the ‘mini-budget.
Mr Honeyman said: “There is still a mortgage market and lenders have been very responsible, but they’ve repriced their products in line with higher interest rates and most customers are now adopting a ‘wait and see’ approach.”
Sir Jon Cunliffe, Deputy Governor of the Bank of England said that pension funds are now better equipped to avoid the ‘fire sale’ seen in the Government debt market.
He wrote, “Taken as a whole, LDI funds are now significantly better prepared to manage shocks of this nature in the future. As such, the risk of LDI fund behaviour triggering ‘fire sale’ dynamics in the gilt market and self-reinforcing falls in gilt prices has been significantly reduced.”
Rolls Royce was one of today’s gainers, with stock in Rolls Royce Holdings (GB:RR) rising 6.36% in today’s trading.
British business news today
Hunt calls for spending cuts as doubt cast on pension ‘triple lock’ (FT)
UK market turmoil risked ‘vicious loop’ warns France (Telegraph)
Boost for sterling and bonds ‘not enough to make up for losses’ (Times)