Investing.com -- U.K. stock markets traded sharply lower Wednesday as inflation came in higher than expected, suggesting the need for further monetary tightening by the Bank of England.
At 04:05 ET (08:05 GMT), the benchmark FTSE 100 index traded 1.5% lower, the mid-cap FTSE 250 slipped 1.4% and the combined FTSE 350 fell 1.4%.
Data released earlier Wednesday showed that Britain’s inflation rate remained stubbornly high, as the headline CPI rate rose by 8.7% in annual terms in April, a drop from 10.1% the prior month, but still above the 8.3% expected.
This leaves Britain with the joint highest rate of inflation among the G7 countries, along with Italy.
Additionally, core CPI, which excludes volatile food and energy prices, surged to a 31-year high of 6.8% on an annual basis.
“Prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs,” said Grant Fitzner, chief economist at the Office of National Statistics.
This will increase the pressure on the Bank of England to continue its prolonged cycle of interest rate hikes, suggesting another increase in June looks likely following the 25-basis-point increase earlier this month.
Sentiment was already weak Wednesday, given the lack of progress between the two U.S. political parties on how to raise the U.S. government's $31.4 trillion debt ceiling, and thus prevent a potentially disastrous default.
In the corporate sector, Marks and Spencer Group (LON:MKS) stock soared 9% after the retailer posted a strong increase in full-year sales and profits as its turn-around strategy bears fruit, promising to restore a dividend to its shareholders by November.
SSE (LON:SSE) stock rose 0.8% after higher energy prices helped the company post a rise of 89% in annual profits, with the renewable energy giant announcing plans to increase spending on net zero projects by over 40%.
On the flip side, Kingfisher (LON:KGF) stock fell 1.5% after the home improvement giant reported a fall in like-for-like sales, citing bad weather for the drop.
Severn Trent (LON:SVT) stock fell 2.4% after the water utility, under pressure from public outrage over the level of sewage being discharged into waterways, pledged to increase capital investment by as much as £1 billion in the current year.
Insurer Aviva (LON:AV) stock fell almost 3% after its first-quarter trading update, while house builders, like Taylor Wimpey (LON:TW) and Persimmon (LON:PSN), are also under pressure as the likelihood of more interest rate hikes by the Bank of England could stifle the housing market.