FTSE 100 close: Inflation shock tames London index as investors brace for Fed decision

London’s FTSE 100 nipped higher today despite investors betting the Bank of England will be forced to keep raising interest rates to tame higher than feared inflation.

The capital’s premier index closed up 0.41 per cent at 7,566.84 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, slipped 0.11 per cent to finish at 18,757.79 points.

New figures out today from the Office for National Statistics revealed inflation climbed for the first time in three months in the UK, hitting 10.4 per cent in February, smashing both City and Bank of England forecasts.

That data release initially held the FTSE 100 lower through the morning session, but a late rally among banking stocks pulled the premier index into the black.

Britain’s biggest bank HSBC closed near the summit’s index, adding nearly two per cent, while Asia-focused lender Standard Chartered advanced 1.31 per cent.

Banking stocks have been weighed down over the last week due to fears over the sector’s health after Credit Suisse was hauled off to rival lender UBS in a shotgun sale over the weekend.

Those higher than forecast inflation numbers have nearly nailed an eleventh rate increase by the Bank tomorrow, probably a 25 basis point move, which would send borrowing costs to a post-financial crisis high of 4.25 per cent, markets are betting.

“Today’s figure defies the recent downtrend for inflation with price pressures picking up again, returning to a near 40-year high. This is likely to embolden the Bank of England to continue pursuing its rate hiking path despite the potentially deflationary impact of the turmoil in the banking sector,” Victoria Scholar, head of investment at interactive investor, said.

Yet more rate rises from the Bank to tame price pressures raises the risk of the UK tipping into a recession this year. Last week, the Office for Budget Responsibility scrapped its recession warning on expectations that families will raid their savings to fuel spending.

Central banks are weighing up whether to keep raising rates or take their feet off the brake for fear of heaping more pressure on the global financial system.

Their proceeding tightening cycles have partly contributed to the collapse of Silicon Valley Bank and Credit Suisse being pawned off to its biggest rival UBS.

US Federal Reserve chair Jerome Powell will later today announce the outcome of the FOMC’s two day meeting. Markets expect the Fed to kick rates 25 basis points higher to a range of 4.75 per cent and five per cent.

Wall Street’s top indexes opened lower ahead of Powell’s announcement this evening.

Online supermarket and middle-class favourite topped the FTSE 100, climbing a shade under two per cent. Rival and FTSE 250 listed Marks and Spencer pumped up 4.46 per cent, sending it to the top of the mid-cap index.

The pound strengthened around 0.2 per cent against the US dollar.