UK's FTSE 100 steady as consumer stocks rise; homebuilders slump on hot inflation data

Stocks

Economic

Summary:

The FTSE 100 was flat as consumer and healthcare gains offset declines in energy, mining, and defense. Hot UK inflation fueled concerns over BoE policy, lifting sterling but pressuring homebuilders on mortgage fears.

Britain's FTSE 100 held steady on Wednesday as gains in consumer and healthcare sectors offset losses in energy and mining stocks, while investors assessed a hotter-than-expected inflation report.

As of 0945 GMT, the blue-chip index FTSE 100 was largely flat. Meanwhile, the FTSE midcap index dropped 0.4%, on pace to mark its steepest fall in over two weeks.

The UK's consumer price inflation hit its highest in 18 months in July when it increased to 3.8% from 3.6%, once again leaving the country with the fastest rate of price increases among the world's largest rich economies.

"Inflation was always likely to rise today, but this report is definitely on the hotter side," said Luke Bartholomew, deputy chief economist at Aberdeen.

"In particular, services inflation, which the Bank of England watches very closely as a measure of underlying inflation pressure, popping higher will be a source of concern among policymakers."

The data led to a shift in market expectations on BoE's monetary policy, with traders now betting on a quarter-point reduction in March next year. Earlier this month, markets had anticipated a cut before the end of 2025.

Sterling also strengthened slightly following the data release.

The inflation report's interest rate implications led to a 1.3% fall in homebuilders on concerns about mortgage affordability.

Energy sector declined 0.7% as heavy-weight BP dropped 1.3% after the oil major said operations at its refinery at Whiting, Indiana, were affected due to flooding.

Metal mining stocks dropped 0.8%.

Aerospace and defence index came under pressure for a second consecutive day, dipping 1.2%, after marking its largest single-day decline since early April in the previous session.

On the flip side, consumer stocks and healthcare companies supported gains on the blue-chip index, rising 0.7% and 0.5% respectively.

Among individual movers, Ithaca Energy jumped 8% after the oil and gas company lifted its 2025 production forecast.

Medical equipment maker Convatec rose 5.5% after it announced $300 million share buyback programme.

Source: Reuters

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Warren Takunda

Economic

Central Bank

UK inflation, the headlines:

CPI annual inflation rose to 3.8% in July 2025, up from 3.6% in June.Services inflation rose from 4.7% in June to 5.0% in July, driven by airfares, package holidays, and insurance.Food inflation rose to 4.9%.Market-implied odds of a Bank of England rate cut in November close to 0%.

"Another hawkish blow to the MPC means no more cuts this year. The doves on the MPC have taken a battering over the past week. July’s figures show sticky underlying services inflation and are another blow to those on the MPC that argued hard at the August meeting about the disinflationary process being underway." - Elliott Jordan-Doak, Senior U.K. Economist at Pantheon Macroeconomics

"The Bank of England has been clear that government policies, which have driven up the costs of employment, are fuelling price rises at the till, while poor harvests and global instability have also added further cost pressures." - Kris Hamer, Director of Insight at the British Retail Consortium.

"The risk is this price persistence triggers renewed second round effects. That could yet derail the MPCs assumptions for a further, more intense, cooling of wage pressures into year-end." - Sam Hill, Head of Market Insights at Lloyds Bank.

Inflation "Another Hawkish Blow" to Bank of England: Economist Responses_1

Chart: Until services inflation falls, headline CPI won't hit the target 2.0% on a sustainable basis.

"The perverse rate cut earlier this month looks even more ridiculous and irresponsible in the light of this news. 4pc plus inflation is coming in the autumn!" - Andrew Sentance, an economist who formerly served on the Bank's Monetary Policy Committee.

"The uptick in inflation comes after the Bank of England cut rates earlier this month. That’s an unfortunate look, although economists can argue that the rise in air fares may be a one-off. There was a swift market reaction to the data as traders started to price out the probability of further cuts in the near term. This saw sterling rally and FTSE 100 stock index futures fall." - David Morrison, Senior Market Analyst at Trade Nation.

Inflation "Another Hawkish Blow" to Bank of England: Economist Responses_2

Chart: We're increasingly prone to underestimate inflation. Image courtesy of Lloyds Bank.

"Another interest rate cut is not likely in the next few months, it’s touch and go for December, with a reduction not fully priced in by financial markets until the spring. This is likely to keep gilt yields higher, and cause continued headaches for the government, given it pushes up borrowing costs, and keeps the public finances in a fragile state," - Susannah Streeter, head of money and finance, Hargreaves Lansdown.

Sanjay Raja, Chief UK Economist at Deutsche Bank:

Why the surprise? In short, the ONS’ price collection day was later than usual, just about coinciding with the summer school holidays.

Why does this matter? Prices for airfares and sea-fares tend to be more volatile later in July as demand picks up. In fact, according to the ONS airfares were up a staggering 30% m/m – the highest monthly increase going back to 2001.

The good news? Most of this will unwind in the next month or so.

The bad news? Cost of living pressures remain with food prices on the up and pump prices still on an ascent. With food inflation topping the Bank of England’s forecasts, concerns around inflation expectations will be hard to shake off for the MPC.

Inflation "Another Hawkish Blow" to Bank of England: Economist Responses_3

Chart: UK inflation increasingly an outlier.

"After falling to the 2% target in the final two months of the last government, UK CPI inflation has now diverged sharply again from the euro area. This divergence mainly reflects increases in government-set prices, higher taxes, and higher housing costs." - Julian Jessop, independent economist, IEA Economics Fellow.

"The risk of stagflation is very real. If the UK is heading towards the economic "worst of all worlds", it’s not clear what the central bank or the government should do about it." - Nicholas Hyett, Investment Manager at Wealth Club.

"As far as the Bank is concerned, we are still on track. The key question is whether the elevated inflation we see on the way embeds itself in expectations, and impacts price and wage-setting in the medium-term. For now, the combination of faster price rises and resilience in real GDP growth will see Bank sticking to its ‘gradual and careful’ approach, with markets expecting one more cut at most this year." - Adam Deasy, Economist at PwC.

Source: Poundsterlinglive

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Glendon

Economic

Forex

President Donald Trump will tap his top economic advisor Kevin Hassett to be the next Fed chair, according to respondents to a special Jackson Hole Edition of the CNBC Fed Survey. But when asked who the president should pick, Hassett ranked a more distant fourth.

Hassett, the director of the National Economic Council, firmly led the pack when asked who the president will choose from among 11 names currently being considered. He was followed by Fed Governor Christopher Waller and former Fed Governor Kevin Warsh.

But when asked who the president "should" pick, Warsh took the No. 1 spot, closely followed by Waller and former St. Louis Fed President James Bullard. Fed Vice Chair for Supervision Michelle Bowman was in fifth after Hassett.

"I think that Trump's familiarity with (Hassett) in the job that he did during the pandemic makes him a high candidate for Trump, who appreciates and awards loyalty," said Richard Steinberg, senior global market strategist with Focus Partners Wealth.

While maintaining that Hassett is qualified, Allen Sinai of Decision Economics said he's concerned about Fed independence if he gets the job.

"The politics of low interest rates for political reasons — a very strong view and push by the Trump administration — is a macro risk if it is seen in markets as a takeover by the administration," Sinai said.

In the survey, 41% of respondents think the next Fed chair will conduct monetary policy independently of the president and 37% said it would be in coordination; 22% were unsure.

Trump has campaigned hard for the Fed to cut rates, repeatedly insulting Powell, but Powell and the Federal Open Market Committee have so far resisted because of concern over potential inflation from tariffs.

Bowman and Waller both dissented in July in favor of a rate cut.

Survey respondents see two rate cuts this year from the Fed --- in September and December --- but also high inflation.

The forecast for the consumer price index 12-month inflation rate remains at around 3% this year and 2.9% in 2026, suggesting the Fed will have to deal with above-target inflation for a while. Nearly two-thirds of respondents believe "substantial" impacts from tariffs on inflation are yet to come.

"The Fed is caught between a rock and two hard places," said Richard Bernstein, CEO of Richard Bernstein Advisors. "Political pressure to cut rates and fiscal stimulus coming vs. the ongoing strength in the leading indicators of employment and inflation."

As a result, Powell may not be as dovish about rate cuts as markets hope in his Jackson Hole, Wyo. speech. The Fed gathers each August for a symposium at which there are no votes but the chair traditionally delivers a keynote speech that often has indicated what's ahead.

Almost 70% of respondents think the Fed chair will be neutral in his comments with 14% believing he will be dovish. Another 14% think he won't even discuss monetary policy or the economic outlook.

"Powell's comments at Jackson Hole may be more balanced than the market is currently anticipating as he needs to weigh both downside risks to employment and upside risks to inflation," said Douglas Gordon, managing director at Russell Investments.

Powell could discuss the Fed's effort to revisit its long-term strategy, with some expectation he addresses the Fed's controversial average inflation targeting.

Respondents are divided over how to fix the central bank or whether it needs fixing at all. Just 11% say the Fed process of making monetary policy needs major reforms with 85% saying it needs either modest or little to no reform.

On specific issues, a 41% plurality say the Fed should get rid of the dot plot where Fed officials anonymously indicate individual forecasts for the funds rate. But 37% say keep it as is, with another 19% saying it should be kept with individual forecasts linked to the rate outlook.

When it comes to the 2% inflation target, 52% want to retain it but 44% want the Fed to adopt a range from about 1.4% to 2.7%.

A 44% plurality want to eliminate the Fed's average inflation targeting, while 37% want to keep it.

In average inflation targeting, the Fed takes account for prior misses in hitting its target, and could tolerate higher inflation for a while to account for inflation having run below target in previous years. Some have said this led the Fed to be more tolerant of inflation during the pandemic and slowed its decision to tighten policy.

Source: CNBC

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Adam

Stocks

Economic

MARKET WRAPS

Stocks:

Shares in Europe were falling Wednesday, with semiconductor companies driving losses following a U.S. tech selloff over AI bubble fears.

European bourses had made sold gains in the previous session, reacting positively to Russia-Ukraine developments , but concerns over the tech rally have taken root.

"An MIT report revealed that 95% of companies investing in generative AI have yet to see returns," Swissquote Bank said.

"The comments may have been a wake-up call for investors, sparking a sharp pullback in high-flying names."

On the data front, U.K. annual inflation rose to an 18-month high last month, likely giving caution to Bank of England policymakers on rate cuts.

EU inflation data were also on slate this morning.

Shares on the Move

European defense stocks dropped amid U.S. efforts to end the war in Ukraine.

Babcock, BAE Systems, Dassault Aviation, Hensoldt, Indra, Renk, Rheinmetall, Saab and Thales were among the fallers.

Economic Insight

The hotter-than-expected U.K. inflation reading presents a challenge for the Bank of England , Moneyfarm said.

"Persistent price pressures argue against premature rate cuts, while weakening growth and employment suggest the need for caution."

U.S. Markets:

Stock futures were lower as investors turned their attention to Federal Reserve plans for interest rates.

Fed meeting minutes were due for release today ahead of the central bank's annual gathering at Jackson Hole.

Madison Investments said Jerome Powell could attempt in his Friday speech to inject some uncertainty into rate-cut expectations.

Forex:

The dollar traded steady as investors waited for clues on the Fed's rate-cut plans.

Lombard Odier sees further weakness for the dollar ahead, shifting its view from neutral to negative.

Sterling rose after the U.K. inflation data.

With a peak in prices not anticipated until later in the year, the BOE's scope to cut interest rates will be "severely limited," Raymond James Investment Services said.

Monex Europe said sterling would probably struggle to sustain its appreciation.

A single data point was unlikely to materially alter the BOE bias toward cutting interest rates given a weak labor market.

Bonds:

The 10-year Bund yield ticked higher.

An economic recovery was expected to push German government bond issuance volumes and 10-year Bund yields higher later this year and next, according to DZ Bank Research.

It forecast the 10-year Bund yield at around 3% by the summer of 2026. In the short term, the bank expected it to move slightly lower to around 2.60%.

DZ Bank continued to recommend buying 10-year Norwegian government bonds versus Bunds, expecting the yield spread between them to narrow.

The 10-year Treasury yield was broadly flat. DZ Bank Research's short-term forecast for the benchmark is around 4.4%.

Yields, however, may rise temporarily to around 4.9% over the coming six months due to an increase in the term premium and a temporary rise in inflation.

Energy:

Oil prices rose, recouping some gains lost in the prior session, with the most recent advances following a decline in inventories.

Despite near-term support from lower inventories, the longer-term outlook is bearish , MUFG said.

Metals:

Gold futures rose, though they remained stuck in a relatively narrow range of trading with few catalysts to move higher or lower.

Safe-haven demand for the precious metal was subdued as optimism over a potential Russia-Ukraine cease-fire grew.

EMEA HEADLINES

Europe Should Deepen Ties With Non-U.S. Trade Partners, Lagarde Says

Europe should deepen look to strengthen its relationships with trade partners outside the U.S., European Central Bank President Christine Lagarde said.

"While the U.S. is-and will remain-an important trading partner, Europe should also aim to deepen its trade ties with other jurisdictions, leveraging the strengths of its export-oriented economy," Lagarde told a panel at the World Economic Forum in Geneva on Wednesday.

Sweden Central Bank Stands Pat, But Says It Could Cut Again This Year

Sweden's central bank kept its benchmark interest rate in place as inflation continues to climb, but said it could resume cutting rates later this year.

The policy rate will be left at 2.00%, the Riksbank said Wednesday, in a decision widely expected by investors.

ASR Nederland Swings to Net Profit Boosted by Strong Growth Across Business

ASR Nederland swung to net profit for the first half of the year reflecting strong growth across all its segments.

The Dutch insurance group said Wednesday that net profit was 130 million euros, equivalent to $151.4 million, compared with a loss of 70 million euros for the same period a year earlier.

GLOBAL NEWS

U.S. Allies Still Waiting for Tariff Relief on Autos and Steel

TOKYO-In return for billions of dollars of investment pledges and promises to buy more American goods, U.S. allies in Asia and Europe say President Trump agreed to lower tariffs on key exports such as cars and steel.

Weeks later, they are still waiting.

Japan's Exports Fall for Third Consecutive Month

Japan's exports in July saw their biggest drop in over four years, falling for a third straight month amid concerns over the impact of U.S. tariffs.

Exports declined 2.6% compared with the same period a year earlier, following a 0.5% drop in June, according to the Ministry of Finance on Wednesday. Economists had forecast a 2.1% decline, according to a median estimate from data provider LSEG.

The Fed's July Minutes Could Show How Deep Divisions Run Ahead of September Meeting

Investors don't have to wait until Federal Reserve Chair Jerome Powell's Jackson Hole speech on Friday for clues about the central bank's next move.

The minutes for the July meeting of the Fed's policymaking arm, the Federal Open Market Committee, are due out Wednesday at 2 p.m. ET-and may offer an early read on whether officials will cut rates in September.

Elon Musk Pledged to Start a Political Party. He Is Already Pumping the Brakes.

The billionaire Elon Musk is quietly pumping the brakes on his plans to start a political party, according to people with knowledge of his plans.

Musk has told allies that he wants to focus his attention on his companies and is reluctant to alienate powerful Republicans by starting a third party that could siphon off GOP voters.

U.S. Is Prepared to Use Air Power to Support Planned European Force in Ukraine

President Trump signaled on Tuesday that the U.S. is prepared to use air power to support a European security force in Ukraine but ruled out deploying American ground troops.

Planning of the multination force to be sent to Ukraine if a peace settlement is reached accelerated on Tuesday, a day after Trump discussed the idea at the White House with Ukrainian President Volodymyr Zelensky and other European leaders.

Source: morningstar

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Samantha Luan

Economic

Political

US President Donald Trump said on Tuesday that US Federal Reserve chair Jerome Powell is "hurting" the housing industry "very badly", and repeated his call for a big cut to US interest rates."Could somebody please inform Jerome "Too Late" Powell that he is hurting the Housing Industry, very badly? People can't get a Mortgage because of him. There is no Inflation, and every sign is pointing to a major Rate Cut," Trump wrote on Truth Social.

Inflation is well off the highs seen during the pandemic, but some recent data has given a mixed picture and inflation continues to track above the Fed's 2% target range.Trump's latest salvo against Powell comes ahead of the Fed chair's Friday speech at the annual Jackson Hole central banking symposium, where investors will cleave to his every word for hints on his economic outlook and the likelihood of a coming reduction to short-term borrowing costs.

The Fed's next policy meeting will be held on Sept 16-17.

Investors and economists are betting the Fed will cut rates by a quarter of a percentage point next month with perhaps another reduction of similar size to come later in the year, far less than the several percentage points that Trump has called for.Trump's Treasury Secretary, Scott Bessent, has promoted the idea of a half-point rate cut in September.

The US central bank cut its policy rate half a percentage point last September, just before the presidential election, and trimmed it another half of a percentage point in the two months immediately following Trump's electoral victory, but has held it steady in the 4.25%-4.50% range for all of this year. Fed policymakers have worried that Trump's tariffs could reignite inflation and also felt the labour market was strong enough not to require a boost from lower borrowing costs.

Mixed inflation picture

The consumer price index (CPI) rose 0.2% in July, with the 12-month rate through July at 2.7%, unchanged from June. Core CPI, which strips out the volatile food and energy components, increased 3.1% year-over-year in July. Based in part on that data, economists estimated the core personal consumption expenditures (PCE) price index rose 0.3% in July. That would raise the year-on-year increase to 3% in July. The PCE is a key measure tracked by the Fed against its own 2% inflation target.

And despite a moderate rise in overall consumer prices in July, producer and import prices jumped, a suggestion that higher consumer prices could be coming as sellers pass higher costs onto households. The inflation picture comes amid a picture of a possible cooling in the labour market, with declines in monthly job gains, although the unemployment rate, at 4.2%, remains low by historical standards.Trump's online attacks on the Fed and Powell more typically focus on the cost that higher interest rates mean for US government borrowing. High mortgage rates are a key pain point for potential homebuyers who are also facing high and rising home prices due to a dearth of housing supply.

Mortgage rates can be loosely tied to the Fed's overnight benchmark rate but more closely track the yield on the 10-year Treasury note, which typically rises and falls based on investors' expectations for economic growth and inflation. A Fed rate cut does not always mean lower long-term rates — indeed after the Fed cut rates last September, mortgage rates, which had been on the decline, rose sharply.In recent weeks the most popular rate — the 30-year fixed mortgage rate — has drifted downward but, at around 6.7% most recently, is still much higher than it had been before inflation took off after the pandemic shock and the Fed began its rate-hike campaign in 2022.

Source: Theedgemarkets

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Adam

Commodity

Oil rose after an industry report signaled that US crude stockpiles declined last week, while traders assessed negotiations to end Russia’s war against Ukraine.

Brent futures gained as much as 1.4% to trade above $66 a barrel in London, clawing back Tuesday’s losses. The industry-funded American Petroleum Institute reported crude inventories fell by 2.4 million barrels last week, according to people familiar with the figures. Government data is due later Wednesday.

Investors are watching on progress toward a ceasefire between Russia and Ukraine following a series of high-level talks brokered by President Donald Trump. Any eventual peace deal could lead to fewer restrictions on Russia’s crude exports, although Moscow has largely kept its oil flowing despite an array of sanctions.

A lot of that crude has been shipped to India since the war, drawing criticism from the Trump administration. On Tuesday, US Treasury Secretary Scott Bessent claimed on CNBC that some of the “richest families in India” benefited from purchases of Russian oil, reiterating plans to boost tariffs on the South Asian nation.

Bessent said on Fox News that the US is “very happy” with its tariff arrangement with China, a sign that Washington will likely maintain status quo before a trade truce expires in November. Chinese refiners have also been big buyers of Russia oil, but Beijing hasn’t faced the same criticism as India.

The longer-term outlook for the oil market looks bearish, with expectations for a glut later in 2025 as OPEC+ returns barrels and as Trump’s trade policies spark concerns about demand. Futures are down more than 10% this year.

Source: Bloomberg

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Warren Takunda

Stocks

London stocks had popped into the black by midday on Wednesday as a higher-than-expected UK inflation reading tempered market expectations of another rate cut this year.

The FTSE 100 was up 0.3% at 9,213.27, reversing earlier small losses.

Data released earlier by the Office for National Statistics showed that consumer price inflation rose at an annual rate of 3.8% in July, mainly due to transport and in particular air fares.

This was up from 3.6% in June, above analysts’ expectations of 3.7% and the highest recorded since January 2024, when it was 4.0%.

Prices in the transport division rose 3.2% in July, up from 1.7% the month before. This reflected a large upward effect from airfares, which jumped 30.2% between June and July, compared with a rise of 13.3% between the same months in 2024.

Food and non-alcoholic beverages prices increased 4.9% in July, up from 4.5% the month before. This was the fourth consecutive rise in the annual rate and the highest recorded since February 2024, but remains well below the peak seen in early 2023.

Inflation in the dominant services sector, which is closely watched by the Bank of England, rose to 5.0% from 4.7%.

The core rate - which strips out energy, food, alcohol and tobacco - rose to 3.8% from 3.7%.

ONS chief economist Grant Fitzner said: "The main driver was a hefty increase in air fares, the largest July rise since collection of air fares changed from quarterly to monthly in 2001.

"This increase was likely due to the timing of this year’s school holidays.

"The price of petrol and diesel also increased this month, compared with a drop this time last year.

"Food price inflation continues to climb, with items such as coffee, fresh orange juice, meat and chocolate seeing the biggest rises."

Danni Hewson, head of financial analysis at AJ Bell, said: "For UK rate setters it’s the hike in service sector inflation which is likely to narrow their opportunity to cut the base rate further this year.

"Looking at market expectation this morning, worries that persistent inflation will continue to influence pay awards despite a cooling labour market makes it increasingly likely we’ve seen the last cut for 2025."

However, ING economist James Smith said a November rate cut is still "more likely than not".

"UK inflation was higher than expected in July, but given it was driven primarily by airfares, the Bank of England won’t be too concerned. A November rate cut hangs in the balance, though it remains our base case," he said.

In equity markets, Convatec surged as the medical products company launched a share buyback programme of up to $300m.

United Utilities gained after an upgrade to ‘overweight’ from ‘equalweight’ by Barclays. Severn Trent was also trading up, along with Pennon, as Barclays hiked its price targets for the stocks and said it sees "better prospects" for the water sector.

Ithaca Energy shot higher after it upgraded full-year production guidance as profits and output doubled in the first six months of the year.

On the downside, housebuilders Berkeley, Persimmon, Taylor Wimpey and Crest Nicholson all fell, as the hotter-than-expected inflation data spelled potentially bad news for mortgages.

Computacenter nudged lower as it promoted its head of group commercial finance Keither Mortimer to the chief financial officer position following a nine-month search.

Lion Finance and OSB Group both slumped after first-half results.