Inflation Rebound Sank UK Stocks, GBPUSD Lower

UK stocks fell on Wednesday after inflation jumped in January, while the pound was mixed as the data only slightly dented the path for further Bank of England (BoE) rate cuts.

The UK consumer price index (CPI) rose by an annualised rate of 3.0% in January, up from 2.5% in December and above forecasts for a 2.8% increase. It was the sharpest annual rise in CPI since March 2024's 3.2% increase.

Core CPI – which excludes volatile food and energy prices – was up an annualised 3.7% in January, from 3.2% in December. Service price inflation accelerated to 5.0% from 4.4%, but that was below a 5.2% Bank of England forecast.

That chink of good news could still see the BoE Monetary Policy Committee (MPC) resume their rate cutting path in May, as expected, following a pause at their next meeting on March 20, but after that there may be more measured reductions. The MPC reduced UK interest rates by 25 basis points at its meeting on February 6.

On foreign exchanges, those rate cut expectations and ongoing global trade war worries, saw sterling lose 0.29% against the US dollar to 1.2576. But the pound edged up 0.04% versus the euro to 1.2078.

At the stock market close in London, the blue-chip FTSE 100 index was down 0.6% at 8,7132, while the broader FTSE 250 index ended 0.8% lower at 20,707.

Housebuilders came under pressure as investors worried about rising inflation, with Barratt Redrow down 3.1%, Persimmon off 1.2%, and Taylor Wimpey losing 1.4%.

Elsewhere, airlines flew lower after Jet2 warned its profit margins in the year ahead would come under some pressure due to cost increases. AIM-listed Jet2 dropped 10.7%, while, among blue-chips, British Airways-owner IAG shed 3.0%, and easyJet fell 3.9%.

With results, banking giant HSBC nudged 0.3% lower even as it posted a rise in annual profits and announced a $2bn share buyback.

And Glencore dropped 7.3% after reporting a swing to an annual loss as the cost of goods sold increased faster than revenue growth. The commodities group also said it may consider transferring its primary listing out of London if it becomes clear that another venue would be better.

But BAE Systems reversed earlier losses to gain 0.6% as it posted a rise in full-year profit and a record order backlog.

Elsewhere, BP added 0.2% following a report it is considering a potential sale of its lubricants business, which operates under the Castrol brand and could be worth about $10bn.

Chilean copper miner Antofagasta gained 0.8% after a double upgrade to 'overweight' by analysts at JPMorgan Chase, who cited a positive long-term copper outlook.

However, broker comment weighed among the mid-caps. Trainline dropped 7.8% as analysts at JPMorgan cut their rating for the rail ticketing platform to 'neutral' from 'overweight'.

Under-pressure oil services firm John Wood Group plunged 16.6% as Kepler Cheuvreux analysts downgraded their stance to 'reduce' following a recent warning on cashflow.

And Tate & Lyle shed 1.8% as analysts at Berenberg reduced their stance for the food ingredients company to 'hold' from ‘buy’ after last week’s results.

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