Inflation overshoot spooks investors as FTSE 100 house builders tumble

London markets were shaken today by concerns that inflation is firming in the UK as housebuilders suffered heavy losses on the prospect of more rate hikes.

The capital’s premier FTSE 100 index dropped 0.27 per cent lower to 7,515.75 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, shed 1.52 per cent to close at 20,027.04 points.

Fresh figures published today by the Office for National Statistics revealed the rate of price rises in the UK surged to 10.1 per cent in July, much higher than both City economists’ and the Bank’s forecasts.

Higher food and energy prices pushed inflation up over the last month.

London and global markets this year have suffered heavy losses due to fears economies may tip into recession, sparked by consumers slashing spending in response to soaring inflation.

Central banks have also been raising rates rapidly to tame prices, which tends to put downward pressure on stocks.

Those concerns renewed today to drag the UK’s biggest companies lower.

Homebuilders were among the biggest fallers on the FTSE 100 driven by traders betting the Bank of England will have to raise borrowing costs another 50 basis points, raising mortgage rates and likely taming demand in the property market.

Persimmon finished bottom of the FTSE 100, collapsing nearly eight per cent. Taylor Wimpey and Berkeley Group also lost more than three per cent.

The pound weakened nearly 0.4 per cent against the dollar to buy $1.2043.