Double-digit inflation sinks spirits among European and US markets

European markets took a turn for the worse after a double-digit UK inflation reading went above market expectations, prompting stark warnings over the cost-of-living crisis and a possible recession.

London’s top index sunk into the red on Wednesday despite reaching a two-month high the day prior.

The FTSE 100 finished the day trading 20.34 points lower, or 0.27%, at 7,515.75.

Michael Hewson, chief market analyst at CMC Markets UK, said: “After an initially positive start to the day, sentiment in Europe has deteriorated as the day has progressed after UK inflation surged into double figures to 10.1%.

“This prompted a surge in yields in a sign that not only are higher prices on their way, but also the risk of higher rates and possible recession, not only in the UK, but across Europe as well.

Ongoing bleak energy bill forecasts and reports that Germany could run out of gas in three months if Putin cuts off supplies also dampened the mood across European markets.

The German Dax index was down 2% at the end of the day, and the French Cac index had fallen 0.97%.

The weak sentiment was felt across the pond and US markets were also trading lower. The S&P 500 was down 1.1% and Dow Jones had fallen 0.83% when European markets closed.

“The UK’s CPI reading and ongoing concerns about Europe’s seemingly-inevitable winter energy crunch have been behind the risk-off move, with investors tempering their optimism about the next few months as they fret about recessions in both the UK and the rest of Europe,” added Chris Beauchamp, chief market analyst at online trading platform IG.

Meanwhile, the US dollar continued to move higher against the pound after July retail sales showed little indication of a significant slowdown in consumer spending.

The pound was down by around 0.45% against the dollar, at 1.2037, and down 0.4% against the euro, at 1.1841, when the financial markets closed.

Crude oil prices fell to a six-month low during the day as rising UK inflation raised concerns of weaker demand across Europe. The price of Brent crude was down 0.4% to 91.94 dollars per barrel when European markets closed.

Cineworld cinema
Cineworld’s share price plunged after it warned audience numbers have been weak and said they will stay low until November due to ‘limited’ film releases (Mike Egerton/PA)

In company news, shares in Cineworld plunged more than 60% on Wednesday after the chain warned its audience numbers have been weaker than expected amid limited film releases.

The world’s second largest cinema business said it is looking into new options to improve its financial position. But the announcement evidently spooked traders and its share price hit a new record low.

Shares in the company had fallen 12.56p to 8.24p when markets closed.

Meanwhile, Persimmon saw its share price slip after posting a fall in revenues and profits for the past six months.

But the housebuilder still gave shareholders an upbeat outlook with strong demand for new housing and completion numbers on track to hit full-year expectations.

Nevertheless, Persimmon was the biggest faller on the FTSE 100 on Wednesday. Its share price was down 145p to 1,704p when markets closed.

On the other hand, construction giant Balfour Beatty offered a more positive set of results which prompted a jump in its share price.

The company told investors that its profits more than doubled over the past six months, delivering pre-tax profits of £83 million against £35 million in the same period last year. It also raised its guidance for profits from operations for the rest of the year.

Shares leapt up by more than 10% during the day. Its share price was up 31.5p to 320.7p by the end of the day.

The biggest risers on the FTSE 100 were Diaegeo, up 40.5p to 3,888.5p, BP, up 4.4p to 430.9p, British American Tobacco up 34p to 3,440.5p, Flutter Entertainment, up 100p to 10,815p, and Reckitt Benckiser Group, up 54p to 6,612p.

The biggest fallers on the FTSE 100 were Persimmon, down 145p to 1,704p, Aveva Group, down 131p to 2,295p, INTL Consolidated Airlines Group, down 5.9p to 117.1p, Prudential, down 39.4p to 949.6p, and Haleon, down 10.7p to 258.4p.