The FTSE 100 Index fell sharply following today’s inflation announcement – down 1.4 percent to 7455.7 – as markets took the news as a sign that UK interest rates may need to stay high for longer.
But the pound was lifted by the prospect of rates remaining high, with sterling up 0.1 percent at 1.27 US dollars and 0.2 percent higher at 1.16 euros.
The FTSE-100 index at 8:45am was down 92.78 at 7465.56.
At 9am, the pound was 1.2651 dollars compared to 1.2654 dollars at the previous close. The euro at 9am was 0.8589 pounds compared to 0.8598 pounds at the previous close.
The Office of National Statistics (ONS) announced earlier that the UK’s Consumer Price Index (CPI) rate increased to four percent in the 12 months to December 2023, up from 3.9 percent in November.
Meanwhile, Core inflation, which strips out volatile data relating to energy and food and is a key metric used by the Bank of England to determine whether to hike interest rates, rose by 5.1 percent in the 12 months to December 2023, unchanged from November.
The results have left analysts widely anticipating a sustained Base Rate of 5.25 percent in March.
Julian Jessop, economics fellow at the Free Market Institute of Economic Affairs wrote on X: “
UK #inflation unexpectedly ticked up to 4% in December, with the ‘core’ rate stuck at 5.1%, which will dampen hopes of early rate cuts…
“But still much lower than the Bank of England had been forecasting: the November Monetary Policy Report assumed that inflation would average 4.6% in 2023 Q4, 4.4% in 2024 Q1, and not return to the #MPC‘s 2% target until 2025 Q4.” (sic)
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