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FTSE 100 close: London index extends losses as pound slides and bond yields soar

Over the course of the week it has gained 2.7 per cent, its strongest performance all year.
Over the course of the week it has gained 2.7 per cent, its strongest performance all year.

London’s FTSE 100 continued yesterday’s wobble today driven by investors fretting over how high the Bank of England will have to send interest rates to tame sticky inflation.

The capital’s premier index slipped 0.74 per cent to 7,570.88 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, shed 0.48 per cent to trade at 19,840.75 points.

Markets were sent into a downward spin yesterday after new numbers from the Office for National Statistics revealed inflation is running much hotter than feared.

The rate of price increases slipped to 8.7 per cent last month, down from 10.1 per cent, a much smaller drop than predicted by the City and Bank. Core inflation climbed to 6.8 per cent from 6.2 per cent.

That upward shock has raised market bets on where rates will peak, up to around 5.5 per cent.

Higher borrowing costs typically weigh on stocks by making it more attractive to buy bonds. They also squeeze economic activity, which can knock listed companies’ earnings.

Today's Morning Wire on the fallout of yesterday's inflation figures
Today’s Morning Wire on the fallout of yesterday’s inflation figures

The FTSE 100 has suffered a “body blow… on deteriorating conditions, with domestic inflation data coming in higher than expectations and all but sealing the next interest rate hike from the Bank of England,” Richard Hunter, head of markets at interactive investor, said.

House builders, which came under intense pressure yesterday over concerns about the health of the property market after more rate increases, extended their descent during early trading.

Taylor Wimpey slumped 1.3 per cent, while Persimmon lost 0.44 per cent. Barratt Developments slipped 0.8 per cent.

The group pared back some of those losses in the afternoon.

Lloyds Bank, which is Britain’s biggest mortgage lender, also slipped around two per cent today on concerns about the strength of the housing market amid even higher borrowing costs.

Gilt yields climbed sharply yesterday to levels last seen during Liz Truss’s ill-fated premiership. The rate on the 2-year government bond jumped as much as 25 basis points. It was up again today by nearly 20 basis pints. Yields and prices move inversely.

Pound sterling tumbled about 0.35 per cent against the US dollar.