tock markets in the UK fell further on Wednesday as investor sentiment remained on shaky footing amid fresh recession fears.
UK Consumer Prices Index (CPI) inflation fell to 6.8% in July, the lowest rate in 17 months, driven by a fall in energy bills.
But eagle-eyed economists noticed that core CPI inflation, which strips out energy and food prices, remained unchanged last month, while services inflation edged higher.
Looking beyond the headline figure it could mean that the Bank of England faces ongoing pressure to tighten monetary policy.
While headline inflation numbers may look better, the resilience of core CPI means the Bank of England may have to work harder to fight inflation, risking a bigger downturn in the UK economy
The IPPR think tank said it indicates a “very real risk” of recession with high interest rates squeezing households and businesses.
London’s FTSE 100 was weighed down by losses for banks like NatWest and HSBC, and property-related stocks including Rightmove.
It closed 32.76 points lower, or 0.44%, at 7,356.88.
Chris Beauchamp, chief market analyst at online trading platform IG, said: “This morning’s inflation data from the UK has lifted sterling but put UK-focused stocks on the back foot.
“While headline inflation numbers may look better, the resilience of core CPI means the Bank of England may have to work harder to fight inflation, risking a bigger downturn in the UK economy.
“This has weakened the FTSE 100, which has underperformed against other European indices today as UK housebuilders and banks, among others, fall back.”
It was a more positive session for the British pound which enjoyed a boost amid expectations of more interest rate rises down the line. Sterling was up 0.4% against the US dollar to 1.275, and up 0,4% against the euro to 1.169.
Elsewhere in Europe, Germany’s Dax managed to stay afloat, closing 0.14% higher while France’s Cac 40 dipped by just 0.1%.
In the US, the S&P 500 was relatively flat and the Dow Jones had edged up by 0.15% by the time European markets had closed.
In company news, Balfour Beatty’s share price plunged despite the infrastructure company reporting it was on track to deliver its full-year targets.
The firm flagged some delays to US commercial office projects, hinting that customers were holding out for signs of greater economic stability before committing to construction work. Its shares were down 10.6% at close.
Shares in Aviva edged up after the insurer told shareholders it expects to tie up its cost-cutting drive one year ahead of schedule, with £750 million targeted in savings.
It also said that “favourable weather” over the first half of the year had benefited the group, whose insurance cover spans car, home, life and travel. Its share price was 0.9% higher at the close.
The biggest risers on the FTSE 100 were Admiral Group, up 159p to 2,358p, JD Sports Fashion, up 4.25p to 153.65p, B&M European Value Retail, up 9.6p to 574.8p, Ocado Group, up 13p to 812.4p, and 3I Group, up 28.5p to 1,940p.
The biggest fallers on the FTSE 100 were NatWest Group, down 7.2p to 226.4p, Rightmove, down 15p to 559p, Fresnillo, down 12.4p to 513.6p, Antofagasta, down 32.5p to 1,420p, and Endeavor Mining, down 35p to 1,600p.