FTSE 100 falls as U.S. inflation data hits global markets

The FTSE 100, which houses several global companies that draw a large part of their revenue in dollars, dropped 0.7% as sterling edged higher

UK's blue-chip FTSE 100 fell on Wednesday after hotter-than-expected U.S. inflation data slammed global markets, while a surprise growth in Britain's economy failed to assuage recession worries.

The FTSE 100, which houses several global companies that draw a large part of their revenue in dollars, dropped 0.7% as sterling edged higher.

Data showed Britain's economy grew unexpectedly in May, driven by a rise in doctor appointments and demand for holidays, that could reassure the Bank of England about its plans to keep on raising interest rates.

Meanwhile, hotter-than-expected U.S. inflation data fanned fears that the Federal Reserve might take a more aggressive stance on rate hikes, potentially tipping the world's largest economy into a recession.

We can now expect a 50bps hike being delivered from the BoE next month and pressure to grow on the ECB (European Central Bank) to do the same, said Stuart Cole, head macro economist at Equiti Capital.

It puts pressure on both to be more aggressive in their attempts to bring inflation back under control, with 25bps hikes now seen as inadequate. Neither explicitly target the exchange rate in their policy deliberations, but they will both be aware, and likely concerned, about the inflationary consequences of a weaker pound or euro, he said.

The domestically focussed FTSE 250 index fell 0.8%, with pub operator J D Wetherspoon sliding 8.3% after it warned of losses this year due to higher labour and marketing costs. Its shares dropped to their lowest price since March 2020, when coronavirus pandemic fears hammered markets.

Peers Mitchells & Butlers and Marston's declined 5.6% and 3.2%, respectively.

The difficulty now, for the entire pub sector, is that drinking and eating at home looks to be sticking around longer, said Matt Britzman, equity analyst at Hargreaves Lansdown.

Britzman said: That trend is likely to continue as the cost-of-living crisis looks poised to accelerate the tightening of purse strings.