Inflation jitters deal chilling blow to London markets

Fears over inflation dealing a chilling blow to the global economy and the prospect of a more restrictive monetary policy environment weighed on London markets today.

The capital’s premier FTSE 100 index dipped 0.94 per cent to 7,405.77 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, lost just over one per cent to fall 19,867.73 points.

Investors globally have been spooked by top forecasters warning that some of the world’s biggest economies may tip into recession as a result of consumers responding to sharp rises in living costs by slashing spending.

Firms are also seeing their margins squeezed by soaring energy, transport and wage costs and labour shortages are resulting in businesses trimming capacity.

Fresh US inflation data released today is likely to intensify those concerns, with analysts expecting the rate of price rises to stay around a 40-year high of over eight per cent.

High inflation across the world has prompted central banks to switch from ultra-stimulative policy to a much more restrictive stance.

Yesterday, the European Central Bank confirmed it will raise rates for the first time in over a decade next month and may even lift them 50 basis points in September.

The US Federal Reserve and Bank of England have already started lifting borrowing costs and are expected to continue reining in policy.

Higher rates tend to weigh on equities by curbing demand and making fixed income assets more attractive.

Just a handful of stocks on the FTSE 100 registered gains during opening exchanges, with consultancy Aveva Group leading the way.

Retailers led losses on the index, with high street clothing giants JD Sports and Primark owner Associated British Foods shedding 2.47 per cent and 2.51 per cent respectively.

FTSE 250-listed Airlines nosedived as investors fear worker shortages will hobble the sector’s ability to capitalise on an uptick in demand for air travel.