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FTSE 100 ends higher despite hotter inflation data

Last updated: 16:50 22 Mar 2023 GMT, First published: 11:00 22 Mar 2023 GMT

City of London
  • FTSE 100 ends higher at 7,567
  • Dow Jones lower with 25 bps US rate hike expected
  • UK inflation unexpectedly rebounded to 10.4% last month

4:50pm: FTSE 100 closes higher, US stocks flat midday   

The FTSE 100 finished the day on a high note, rising 31 points, or 0.4%, to 7,567, even as UK inflation surpassed forecasts with a 10.4% increase in February, up from 10.1% in January.  

“In recent days some have suggested that the febrile environment in the banking sector should give central banks pause for thought before raising rates further,” Institute of Directors chief economist Kitty Ussher said.  

“Today’s data suggests the opposite; the Bank of England’s job is not yet done,” Ussher added.

Notably movers included shares of The British Land Company, which slipped more than 6% after Morgan Stanley reduced its price target on stock.

3.50pm: Fed up

The FTSE 100 index remained firmer after a topsy-turvey session with less than 45 minutes of trading to go in London, though it eased off its best levels as Wall Street turned mixed while investors nervously await the outcome of the latest Federal Reserve policy meeting, due to be revealed at 6.00pm GMT.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank noted that Fed President Jerome Powell’s speech to the Senate at the start of this month had spurred expectation of another 50 basis points (bp) hike for this week’s meeting. 

But now Powell’s Congressional testimony looks like it was ages ago, and the banking sector stress that hit the fan during the pre-FOMC meeting silent period prevented the Fed members giving their opinion about an adequate policy response, she noted and, as a result, investors have been left to themselves to shape the expectations for today’s interest rate decision.

And even though activity on Fed funds futures looks like it finally is pointing at a solid-ish consensus that the Fed should hike rates by 25 bp, Ozkardeskaya pointed out that “no one really knows how much importance the Fed will assess to the latest banking stress, which, in reality, resulted in an uptick in Fed’s balance sheet due to additional liquidity, but which also tightened the financial conditions sharply.”

She added: “Because banking crisis raised worries that credit flow from the US regional banks into the economy would slow. The premium that lenders ask for lending to high risk borrowers popped, while the flight to safe US treasuries pulled the US sovereign yields lower … And the higher credit risk, and tighter credit availability hint that the US economy could indeed continue to slow, and eventually step into recession – which would, in return, slow demand and pull inflation lower without further intervention from the Fed.

“That’s why, the chances are that the Fed hikes by a final 25bp to stick to their promise to bring the US interest rates to around 5%. But we could certainly forget about a further advance to 5.5-6%.” 

“For equities, a softer Fed and unexpected liquidity is supportive in the short run. In this respect, we could see the S&P500 rally extend. Yet, recession fears, and recession itself could catch up investors, weigh on revenue and earnings expectations and limit the upside potential,” Ozkardeskaya concluded.

3.25pm: A pint of the dark stuff

The Evening Standard newspaper reported that a planned new Guinness brewery in London’s Covent Garden has come a step closer to fruition after Westminster councillors approved a planning application by owner Diageo.

The £73mln proposals, which include a bar, a learning space and a microbrewery, are scheduled to be opened in 2024 and are expected to attract as many as 450,000 visitors per year.

Councillor Ruth Bush, chair of the Westminster Major Applications Planning Committee, said she had decided to approve the planning application despite being underwhelmed by Diageo’s architectural proposals.

She told the newspaper: “I have a sense of disappointment ... but this was an industrial building and I think it’s possible to interpret this [design] as reflecting that.”

Diageo’s proposals, which had been revised following objections by local residents, had been met by concerns expressed by a number of local organisations including Camden Council and the Covent Garden Area Trust.

The FTSE 100-listed company made a number of revisions to its original plans to appease locals, including reducing the height of its proposed rooftop bar and cutting back the opening hours of the venue.

3.00pm: Poacher turns gamekeeper

Nick Leeson, the former rogue trader who caused the collapse of Barings Bank 28 years ago, has joined a firm of corporate private investigators, Red Mist Market Enforcement Unit, according to an interview with Leeson published by Bloomberg.

Leeson was imprisoned for about four years in Singapore after he tried to conceal as much as £827mln in secret trades. His actions ultimately brought down Barings, the City’s oldest merchant bank, in 1995.

Leeson said he hopes that his first-hand experience will help him spot fraudsters, and believes that higher interest rates will flush out cracks in business models that were concealed in an era of cheap borrowing.

“I have also been on the other side of the equation and understand the psychology of some of the people involved,” Leeson, who is now based in Galway, Ireland, told Bloomberg.

“It often doesn’t start out as fraud. In the beginning it’s a decision between pleasing everyone around them or highlighting the fact that they’re failing and something is going wrong with the organisation. And that’s kind of how it happened at Barings,” he said.

“That will always be an intense embarrassment. But you’ve got to deal with that and move on. It doesn’t define me as a person.”

2.45pm: Raking it in

Reuters has reported that Chris O’Shea, CEO of British Gas owner Centrica, received a pay package worth £4.5mln for 2022, according to the company's annual report published on Wednesday.

The pay-out comes after Centrica reported record profits for 2022 driven by a surge in energy prices as millions of British households struggled to pay their energy bills and with the company under scrutiny after The Times newspaper reported that debt agents working on behalf of British Gas had forcibly installed prepayment meters in some vulnerable customers' homes.

"Chris successfully navigated challenging regulatory and political issues, continuing to build capability and promote a performance and delivery culture whilst delivering shareholder value through new investment opportunities and portfolio shaping," the company’s annual remuneration report said, Reuters noted.

The pay package includes a bonus worth £1.4mln and a £2.3mln long-term share bonus on top of an annual salary of £790,000. O'Shea decided not to take a bonus for 2021 "given the hardships faced by our customers", Centrica said at the time. He was paid a salary of £775,000 for that year.

Centrica's profits tripled to a record £3.3bn last year on soaring energy prices following Russia’s invasion of Ukraine and higher production.

2.30pm: Minimum at Amazon

Amazon.com has raised the minimum starting pay for its employees at its UK operations by up to 50p to between £11 and £12 an hour, a move that has angered its union that had demanded a bigger hike.

The pay rise comes less than a week after hundreds of workers at an Amazon warehouse in Coventry in central England staged the latest walkout in a dispute over pay this year.

"We're listening to Amazon workers and the message is very clear: this new pay rate is an insult," Amanda Gearing, senior organiser of the GMB union, which represents more than 500 Amazon workers, told Reuters. "So, in response we will be consulting over the next few days and announcing a new wave of action."

The union had said the Amazon Coventry workers are demanding £15 an hour to cope with a cost-of-living crisis that has sparked strikes across sectors in Britain over the last several months.

The new increase, which will depend on locations and start from April, comes after Amazon last year raised UK hourly wages by 50 pence to between £10.50 and £11.45 an hour.

Amazon, which has 70,000 workers in the UK, in January announced plans to shut three warehouses in the UK this year, in a move that will affect 1,200 jobs, but said workers will be given the chance to transfer to other units.

2.10pm: Fed watch begins

The FTSE 100 index held just off session highs, having rallied from earlier falls caused by above-forecast UK inflation numbers, helped by opening advances on Wall Street as investors awaited the latest Federal Reserve interest rate decision, due at 6.00pm GMT, although the main US indexes soon turned flat.

Around 40 minutes after the opening bell, the Dow Jones Industrials Average was off 32 points, or 0.1%, at 32,528, while the broader S&P 500 index and the tech-laden Nasdaq Composite also both lost 0.1%.

“We think the Fed will take that next step, that 25 basis point increase, but probably wrap that in some pretty dovish language to indicate they’re close to the end, if not at the end,” said Neuberger Berman’s Erik Knutzen said on CNBC’s 'Closing Bell'. “In a way, it almost doesn’t matter, it’s priced in. What’s most important is the broad liquidity being provided through the Fed’s balance sheet and some of the programs they put in place, the liquidity they provided last week.”

In London, around 2.10pm. the FTSE 100 index was up 27 points, or 0.4%, at 7,563, just off the day's peak of 7,563.98, and well above the morning low of 7,505.48.

1.30pm: A quick look at some of the movers in London

Risers

Vistry- up 1.6% to 744p

Shares rose after the UK housebuilder forecast annual profit in 2023 would be above current market expectations.

The FTSE 250-listed firm expects to deliver adjusted profit before tax for the financial year 2023 in excess of £440mln, well above the market consensus for around £403mln.

Pathfinder Minerals (AIM:PFP)- up 14% to 0.5p

Shares jumped after the company confirmed it has signed an agreement for the sale of its wholly-owned subsidiary IM Minerals Limited.

Falcon Oil & Gas- up 5.4% to 8.7p

Shares rose following news of the successful completion of a 25-stage stimulation programme at the Amungee NW-2H (A2H) well in the Beetaloo Sub-Basin, Northern Territory, Australia.

Bytes Technology- up 2% to 383p

Bytes leapt following a positive trading update for the financial year just ended. 

The software, security and cloud services firm predicted that gross profit and adjusted operating profit for the 12 months to 28 February 2023 will both rise by around 20% compared with the previous year, driven by “very strong demand” for software and IT services from corporate and public sector clients, despite the macroeconomic headwinds. 

Fallers

Anpario- down 26% to 229p

The manufacturer of natural sustainable feed additives for animal health, nutrition and biosecurity nosedived after the company reported a fall in profit and said trading at the start of 2023 has been weak.

“Trading in the first couple of months of 2023 has been weak and market conditions are expected to continue to be challenging through the first half of the year,” chair Kate Allum said.

Ten Entertainment- down 1.7% to 280p

Ten reported rising sales and profit but it wasn’t enough to stop the shares edging lower.

The operator of 49 social entertainment centres in the UK posted revenue £126.7mln in 53 weeks to 1 January 2023 compared to £67.5mln in the 52 weeks to December 26th, 2021. 

1.03pm: UK stocks struggling

UK stocks are struggling higher while the pound has found support across the board after this morning's inflation shock, with attention turning more towards the US this afternoon as the Federal Reserve decision looms.

The GBP/USD hit its best level since early February as markets also swung towards a 94% probability the Bank of England will add another 0.25% to interest rates tomorrow.

"Traders have been buying the pound across the board in recent times, as they perceive the UK banking sector to be better insulated from the banking crisis," said Fawad Razaqzada, market analyst at City Index.

"Before today’s inflation report, the Bank of England’s interest rate decision on Thursday was coin flip between a 25-basis hike or no change in monetary policy.

"But knowing that the BoE has the option to use targeted measures to address financial stability risks – like it did during the mini-budget crisis of last year – and can use more traditional measures – i.e., changing the Bank Rate – to continue its fight against inflation, we were already leaning towards a rate hike. That’s because of inflation, which, as we found out earlier this morning, showed no signs of abating."

12.50pm: Wall Street not sure 

With Europe's main stock indexes all in the green, expectations are uncertain about which way Wall Street will go ahead of one of the toughest monetary policy calls from the Federal Reserve in a while.

The FTSE 100's 0.1% gain is the weakest across Europe, which is led by Germany's Dax up 0.5% and France's CAC up 0.4%.

Ahead of the Fed decision, which will be released along with new economic projections at 2pm ET (6pm in London), with chair Jerome Powell to speak at 2.30pm ET, futures are pointing to the Dow Jones opening just above flat, the S&P 500 just below, and the Nasdaq-100 to fall 0.1%.

Yesterday, the main indexes regained ground as the worst fears about the health of global banks abated.

“Easing tensions surrounding the recent banking shocks lifted optimism and in turn markets as investors dipped their toes back into the turbulent waters," said Richard Hunter, head of markets at Interactive Investor.

"Further assurances from the US Treasury that they would be ready to provide more deposit guarantees to regional banks lifted the mood, as markets sought to erase some of the more recent losses arising from the general uncertainty of bank prospects."

He added: "Today, however, there is only one show in town as the Federal Reserve announces its latest interest rate decision later. Its decision is delicately poised given recent developments."

Expectations of a 0.5% hike, which had been largely expected two weeks ago, now "seem to have evaporated", he added, with thoughts at the end of last week that the Fed could pause its hiking cycle given the banking backdrop have perhaps also eased. 

Current market pricing suggests an 86% chance of a 25bp hike, which Hunter describes as "the compromise" for the Fed.

12.32pm: Banks and retailers top FTSE leaderboards

Top stocks in London are continuing their rebound, with the likes of consumer-facing stocks Ocado Group PLC (LSE:OCDO), B&M European Value Retail SA (LSE:BME), and JD Sports Fashion PLC (LSE:JD.) joining the banks at the top of the Footsie leaderboard. 

The FTSE 100 is up 7 points at just under 7544, while the FTSE 250 is down 87 points at 18,691. 

Elsewhere, some of the biggest movers among stocks on both indices are on the back of shifts in broker ratings. 

Biggest faller among the blue chips is British Land, downgraded by Goldman Sachs (NYSE:GS) to a 'sell' recommendation with a share price target of 370p, with Morgan Stanley also cutting its price target to 450p from 460p but keeping its 'overweight' rating.

Marks and Spencer Group PLC (LSE:MKS) is top of the risers, with Citi, Goldman and Exane having upgraded the stock. Citi was the most bullish, raising to 'buy' with a 175p target.

Looking at other interesting stories in the business world, Jeff Fairburn, the former boss of housebuilder Persimmon, who was nicknamed Moneybags after landing one of the biggest bonuses in British corporate history, has set up a new investment venture.

He walked away with a £82mln payout in 2018 that labelled “excessive and unearned” as the company's profit performance relied on the taxpayer-funded help-to-buy scheme.

The rocket launch company set up by Richard Branson, Virgin Orbit Holdings Inc (NASDAQ:VORB), looks to have potentially avoided further ‘Houston we have a problem’ headlines, as it closes in on securing a £200mln rescue deal after putting most of its staff on furlough earlier this month.

The first annual revenue drop for Tencent - despite a rise in revenue and profit in the fourth quarter - seems to be hitting one of the UK's most popular investment trusts, Scottish Mortgage Investment Trust PLC (LSE:SMT), which is down 1.5%.

Another popular Chinese stock in which SMT holds a large stake, NIO Inc (NYSE:NIO), is expected to move higher after saying it is “very confident” of doubling sales this year.

Both stocks are among SMT's top 20 holdings, with Tencent at 2.5% of its portfolio and NIO at 1.3%.  

11.34am: Encouraging news on inflation after earlier shocker

Having erases earlier losses, London's blue-chip stocks are crawling further into positive territory, up four points to 7540.

There's good news on inflation within the UK industrial data published by the CBI, which also showing that output volumes fell modestly in the three months to March but that manufacturers expect output to rise in the three months to June.

The CBI industrial trends survey found that factory price expectations fell to their lowest since March 2021. 

The CBI total orders balance for March worsened to -20 from -16 in February, worse than forest to hit its lowest level since February 2021.

But the selling prices trend improved to 25 for March, from 40 the month before (see chart above) and much better than the forecast 37.

Total order books were reported as below “normal” in March, leaving them in their weakest position since February 2021.

Export order books were also seen as below normal, but to a marginally lesser extent than last month.

Manufacturers are "slowing the pace of price rises in response to weak demand and falling energy costs", said Sam Tombs at Pantheon Macroeconomics.

The fall total orders "suggests that the deterioration was led by domestic demand", leading to a decline in the balance of manufacturers intending to increase output prices over the next three months.

As it points to core producer output price inflation slowing to about 5% by mid-year, from 11.3% in January, he said the survey "provides reassurance that the headline rate of CPI inflation still will fall rapidly this year, despite its unexpected pick-up in February". 

10.59am: FTSE joins Europe in the green

The FTSE 100 had been the odd one out among its European brethren this morning, though US futures are also in the red.

But London's equity benchmark is back to flat, led by the banks (see below), with HSBC and Barclays now topping the leaderboard. 

The wider FTSE 350 banks index is up 2.7% today and over 11% from the low on Monday morning.

Earlier, analyst Henry Allen at Deutsche Bank noted that bank stocks yesterday experienced their best performance so far this year, while the VIX index of volatility also fell to its lowest level since the current turmoil began. 

Also helping the index are Shell's losses also being pared, though BP and the miners are still in the red.

Miners are down as iron ore prices slumped on the back of weak Chinese steel data.

"The move follows price cuts from 10 major steelmakers in China, coinciding with sliding rebar spot prices," says analyst John Meyer at SP Angel.

"Beijing has been looking to crack down on elevated iron ore prices as it aims to shore up its construction sector following efforts to reduce leverage."

Elsewhere he noted the gold price was holds lower "as traders await today’s Fed rate decision and banking crisis moves backstage".

10.27am: FTSE banks continue their rebound

London's listed banks are continuing to lead the risers today, some almost recouping their losses since the worrying major wobbles on both sides of the Atlantic in the last fortnight. 

Barclays is now up 2.8% this morning (and over 7% over the past week), and NatWest and HSBC up 2.6% today.


Chart: FTSE 100 banks over the past month (Image: Google Finance)

 

Following the weekend deal to sell Credit Suisse to its major Swiss banking rival, UBS is now reported to be eyeing talks to unwind an earlier deal which would have seen veteran dealmaker Michael Klein gain control of part of Credit Suisse's investment bank, according to a report in the FT.

The talks suggest UBS sees some value in Credit Suisse's investment banking arm, having just snapped up its embattled rival for US$3.25bn.

The deal with Credit Suisse would have seen Klein merge his advisory firm with the Swiss bank's investment banking division to create CS First Boston. The First Boston brand takes the name of a US investment bank Credit Suisse absorbed in 1990.

However, the report revealed that some UBS executives believe the terms of the deal are too favourable for Klein. Klein would have owned a minority stake in the new entity, with Credit Suisse owning a larger holding.

UBS has a legal team looking at how to annul the contract Credit Suisse signed with Klein in the cheapest way possible, the report said.

9.48am: UK house price growth slows, rents not so much

Following its inflation update earlier, the ONS has also released the UK house prices showing price inflation continues to ease, while rental growth hit record levels.

The average price for a home increased 6.3% in the 12 months to January 2023, down from 9.3% in December.

The average UK house price was roughly £290,000 in January, which is £17,000 higher than a year earlier.

Geographically, average house prices increased 6.9% in England to £310,000, 5.8% higher to £217,000 in Wales, up 1% to £185,000 in Scotland and up 10.2% to £175,000 in Northern Ireland.

Aimee North, the ONS's head of housing market indices, said: "Annual house price inflation, measured using final transaction prices, slowed again in January, consistent across all nations and regions."

ONS also published a report on housing affordability and put out data on UK rental prices for February.

The first showed full-time employees in England could typically expect to spend around 8.3 times their annual earnings buying a home, down from 9.1 times in 2021.

Rents meanwhile continued to climb, with the strongest growth since records began in 2016.

Private rental prices paid by tenants in the UK rose by 4.7% over the 12 months, up from 4.4%. Annual private rental prices increased by 4.5% in England, 4.2% in Wales and 4.9% in Scotland.

A 4.6% surge London’s rents resulted in the highest annual percentage increase in over a decade.

There is little surging going on in the markets this morning, with the FTSE still in the red, down 14 points at 7522.

9.25am: FTSE flattering to deceive

Nope. After flattering to deceive, the FTSE has slipped back again, with commodities stocks driving the losses.

Shell and BP have lurched lower, down 0.5% and 0.9%, and been joined by the big miners, with Rio Tinto PLC (LSE:RIO) down 1.4%, Antofagasta PLC (LSE:ANTO) losing 0.6%, while Glencore and Anglo American are down 0.2%.

Meanwhile, the debate rages over tomorrow's BoE decision, which is not cut and dried as some think. 

Craig Erlam, market analyst at Oanda, is firmly expecting a hike, saying this morning’s surprise inflation rebound, reversing the declining trend we have seen in recent months, has dealt a “crushing blow”.

"Whatever flexibility the Bank of England may have thought it would have tomorrow was wiped out by this morning's inflation data and once more, the topic of conversation has shifted to whether 25 basis points will be enough."

Considering headline CPI and the core number were both expected to decline, Erlam says the large increase has “come as a nasty shock”.

"And while it could prove to be a blip, there really isn't anything positive we can take away from this release. And certainly, nothing that would justify a pause tomorrow from the MPC, even against the backdrop of financial stability concerns and the knock-on effects of aggressive rate hikes.

"Inflation is still expected to fall considerably over the course of the year but we need to see much more evidence of that than we've had so far."

Rob Morgan, chief investment analyst at Charles Stanley (LSE:CAY), agreed that were it not for the hot inflation reading, the interest rate decision “would have been finely balanced” but now the MPC has been given “every reason” to hike again, though he said a 0.25% hike was most likely.

He said inflation is proving "much stickier" in the UK than the US, as higher energy prices and the weak pound are keeping inflation figures high.

"Despite the OBR expecting inflation to drop rapidly to 2.9% by the end of the year, the latest data shows that the threat hasn’t receded. If anything, authorities need to be on even higher alert to ensure that ‘Terminator’ inflation doesn’t keep coming back," Morgan said.

Not everyone is in agreement, however.

Sam Tombs, chief UK economist at Pantheon Macroeconomics, said despite the unexpected rise in CPI inflation the outcome of the MPC meeting is still “finely balanced”, though he still thinks “concerns about financial stability and the recent slowdown in wage growth will ensure that a small majority of members vote to keep Bank Rate at 4.0%”.

He noted that “core services” CPI inflation – which excludes transport services, package holidays and education – undershot the MPC’s 6.9% forecast, despite rising to 6.7% from 6.1%.

The surprise came from food CPI inflation, which increased to 18.0%, from 16.2%, and from core goods CPI inflation, which rose to 5.7%, from 5.6%.

“The jump in food CPI inflation is linked to shortages of some fruit and vegetables as a result of bad weather in southern Europe and Africa, and so should prove to be temporary,” he said.

He said headline inflation is likely to fall to about 9.6% in March, on the anniversary of the surge in motor fuel prices in the wake of Russia’s invasion of Ukraine, while price rises in the hospitality and tourism sector are likely to be smaller in March than a year ago, when some businesses hiked prices ahead of the increase in VAT and the contribution of electricity and natural gas prices to the headline rate will fall in April as it will be compared to the huge 54% increase on Ofgem’s price cap in April 2022.

Berenberg economist Kallum Pickering was predicting the MPC would stand pat, but said the CPI upside surprise “skew the risks towards a further hike”.

“The decision will hinge on whether policymakers believe the backward looking inflation surprise is likely to be the start of a trend or whether it is a one-off linked to normal monthly volatility.

“Furthermore, policymakers will need to judge whether a likely period of liquidity hoarding and cautious lending behaviour by banks de facto does the BoE’s job for it – at least for a while.

“As the BoE is likely at or close to the end of its rate hike cycle, as signalled in February by its shift to data-dependant mode, this is probably the most finely balanced decision in living memory.”

8.51am: Banks lead fight-back

London's blue-chip benchmark has erased most of its early losses and is now down just three points at just below 7533.

The banks are leading the way, with NatWest Group PLC (LSE:NWG) up 1.5% and topping the leaderboard, with HSBC up 1.1%, Barclays 0.8%, Lloyds 0.7% and Standard Chartered up 0.5%. 

The mid caps on the FTSE 250 are still down 0.25% at 18,732, that's despite some solid news out from companies this morning. 

Full-year figures from housebuilder Vistry Group PLC (LSE:VTY) seem to have impressed the market, with the shares up 3.7%.

The dividend was cut 20% but with synergies from its acquisition of Countryside upped to £60mln it sees profits this year higher than the City consensus.

Broker Peel Hunt noted that, like others in the sector, Vistry has seen an improving sales trend since the start of the year, with an average private sales rate per site per week of 0.54, rising to 0.62 in the past four weeks compared to 0.58 in 2019. 

Top of the FTSE 250 leaderboard however is Bytes Technology Group PLC (LSE:BYIT, JSE:BYI), up 3.9%, as it talked about "very strong" demand across both private and public sectors in a year-end trading update.

Gross profit growth and adjusted operating profit growth of 20% are expected for the year ending February. 

On AIM, tonic maker Fevertree Drinks (AIM:FEVR) is up 4.8% after confirming plans to increase prices as it battles to mitigate the rising cost of glass, with sales guidance maintained at £390-£405mln and confidence expressed about achieving 13% to 18% growth.

It cited ongoing momentum across its 'growth' regions, particularly in the US, and a return to growth in the UK for the relatively bullish outlook. 

8.22am: Footsie opens lower

The FTSE 100 has started in the red as expected after the surprise rise in UK inflation, with the index falling 27 points or 0.4% to 7509.

Biggest blue-chip faller is British Land Company PLC (LSE:BLND), after being downgraded to 'sell' by Goldman Sachs (NYSE:GS), with property sector peers Land Securities Group PLC (LSE:LAND) and Segro PLC falling 2% in sympathy. 

Oil majors Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.) are in the red, with crude prices falling ahead of the interest rate decision from the Federal Reserve later. Brent front-month futures are down 0.8% at US$74.73.

After several rollercoaster days, the banks are mostly flat, with only Barclays PLC (LSE:BARC) in the red.

Sterling popped higher following the UK CPI release, up 0.5% against the dollar at 1.2273 and 0.4% versus the euro at 1.1392.  

People are still reacting to the inflation number.

But Danni Hewson, AJ Bell head of financial analysis, said, "thinking back just a few weeks when supermarket salad aisles were suddenly empty and people were willing to pay just about anything to grab the last red pepper, it maybe shouldn’t have come as such a shock that inflation has jumped up once again."

Looking for good news, she noted that price at the pump fell again and the cost of transport is also down.

"Whilst energy prices are still uncomfortably high compared with last year at least households don’t have to deal with the prospect of an increase at the end of the month, which should prevent an inflation spike in April.

"And reading across, producer prices are still falling primarily thanks to a fall in the price of oil. Wholesale gas prices and the cost of other commodities are also down, but there is a lag and that’s keeping things uncomfortable for both businesses and households trying to balance the weekly budget."

Highlighting the lack of respite from inflation for consumers and companies, Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "It had been touch and go about whether the Bank of England will raise rates but now with consumer price inflation rising to 10.4% on the month, it looks increasingly likely a hike will be voted through tomorrow.

"Although the banking turmoil will be front of mind, this latest snapshot and ongoing worries about a tight labour market are likely to tip the balance in favour of a rate hike."

The US Fed decision will be the main focus of global markets today, however, with the most influential central bank also mulling whether the wobbles in the banking sector are enough to encourage a pause in its inflation-busting remit. 

7.59am: Surprise rise in inflation 'puts pressure on BoE'

Some reaction to the surprise rise in UK inflation, which rebounded back up to 10.4% in February, higher than the forecast of 10.2% from the Bank of England, with core inflation rising from 5.8% to 6.2%.

George Lagarias, chief economist at Mazars, said the unexpected acceleration in CPI was mostly due to higher energy and food costs, not discretionary consumption, which confirms many people's views of the recent OBR forecasts of year-end 2.9% inflation projections "may have been on the optimistic side".

He added that the CPI number "confirms that the economy is not slowing down as much as originally expected" but "paints a grim picture for consumers who are facing more difficulties meeting everyday expenses" and could continue to pull wages higher.

“Consumer prices remain uncomfortably high, putting additional pressure on the Bank of England which, like other central banks, has to decide between fostering financial stability and persisting on its fight against inflation,” Lagarias said.

The is plenty of comment about what it likely means for the Bank of England, where a monetary policy committee decision is due tomorrow.

It  "may be enough to tilt the Bank of England towards raising interest rates from 4.00% to 4.25% tomorrow despite the recent turmoil in the banking system", said Paul Dales, chief UK economist at Capital Economics.

The rebound in core inflation was worrying, he said, which was due to a rebound in core goods inflation and presumably a bigger rebound in core services inflation.

"These inflation figures smell a little like the recent US experience, where it appeared that core inflation was easily rapidly a few months ago only for it to accelerate again as economic activity proved resilient," Dales added. 

"The recent tightening in financial conditions caused by the banking turmoil will probably weaken UK economic activity and underlying price pressures. But the Bank of England may well want to see hard evidence of that before it stops raising interest rates."

He said the MPC decision tomorrow was "still a very close call", but the CPI figures give him a bit more confidence in his forecast of a small hike.

7.42am: Expectations flipped by surprise rise in inflation

FTSE expectations have been sharply lowered after UK inflation came in hotter than expected, with spread-betters now predicting a 32 point decline in the index.

The consumer price index rose to 10.4% in February from 10.1% in January, having been expected to fall to 9.9%.

CPI rose 1.1% month-on-month, according to the figures from the Office for National Statistics (ONS), following a 0.6% fall in January.

The largest upward contributions to the monthly change came from restaurants and cafes, food, and clothing, partially offset by downward contributions from recreational and cultural goods and services (particularly recording media), and motor fuels.

The Bank of England's preferred measure, CPI including owner occupiers' housing costs (CPIH) rose by 9.2% in February 2023, up from 8.8% in January.

The largest upward contributions to the annual CPIH inflation rate came from housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages.

Simon French, chief economist at Panmure Gordon, described the number as “much hotter”.

He said: “Whilst there will be an argument for holding the UK rate at this week’s MPC meeting given recent financial sector turbulence, this probably tips the balance for a data-dependent Bank of England towards 25bp.”

John Leiper, chief investment officer, Titan Asset Management said the unexpected jump "is a real problem for the Bank of England, which will need to stay the course on further rate rises, increasing the probability of recession later in the year".

7.00am: FTSE 100 expected to edge higher

The FTSE 100 is expected to edge higher on Wednesday as investors look ahead to monetary policy calls in the US and UK in the next two days.

Spread betting companies are calling London’s lead index up by around 8 points.

The early focus will be on UK inflation figures while later in the day the Federal Reserve will make its latest monetary policy call at the conclusion of its two-day meeting.

In the US the Dow Jones closed up 1% at 32,560 points, the S&P 500 added 1.3% at 4,002 points, and the Nasdaq Composite gained 1.6% at 11,860 points

Back in London and results are due from Fevertree Drinks (AIM:FEVR), Pendragon and Vistry.

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