UK consumer price inflation increased to 3.1% in August from 2.9% in July, primarily driven by rising transport costs, particularly motor fuels. Petrol prices rose 9.1p to an average of 161.3p a litre, the highest since November 2022, and diesel climbed 14.2p to 181.8p. Core CPI remained unchanged at 2.6%, and services inflation stayed at 3.4%, indicating that the acceleration was mainly due to goods and energy rather than broader domestic price pressures. This inflation data places additional pressure on the Bank of England ahead of its rate decision, though markets largely expect interest rates to remain unchanged at 3.75%.
Despite the inflation figures, the FTSE 100 rose 58 points (0.55%) to 10,716, while the FTSE 250 gained 0.62% to 23,966. This recovery in London equities was broad-based, supported by easing oil prices and stable bond yields. Brent crude fell 1.14% to $107.51 a barrel as concerns over Middle East supply disruptions lessened. US stock futures also edged higher ahead of the Federal Reserve’s interest-rate decision, with S&P 500 futures up 0.15%, Dow futures 0.05%, and Nasdaq 100 futures 0.30%.
Housebuilders were among the strongest performers on the FTSE 100, with Barratt Redrow PLC up over 7% and Persimmon PLC gaining over 3%. Barratt Redrow reported a 5% increase in annual home completions to 17,667, near the upper end of guidance. Mining shares also contributed to the FTSE 100's rise, with Fresnillo gaining 3.1%, Antofagasta advancing 3%, and Endeavour Mining adding 2.4%, as metal prices strengthened. UK gilt yields fell across the curve, with the 2-year yield down 0.51% and the 10-year yield down 0.13%, as markets absorbed the latest inflation data.
Investors are closely monitoring the Federal Reserve's interest-rate decision, with over a 90% probability of a 25-basis-point hike, which would be the first increase since 2023. This potential rate hike implies higher borrowing costs and tighter financial conditions globally. PwC reported a decline in revenue across its UK and Middle East operations, attributing the downturn to disruptions caused by the ongoing Iran war, which impacted client activity and demand in sectors reliant on regional stability.
