The latest UK inflation figure makes for ugly reading, but it shouldn’t really be a shock to the markets. If anything, inflation could get even worse from here,” says Danni Hewson, financial analyst at AJ Bell.
When investors see high inflation figures, they typically look to put money into companies that thrive in an inflationary environment. That includes miners, which might explain why the likes of Antofagasta, Glencore and Anglo American were among the top risers on the FTSE 100.
“Equally, investors also look to avoid companies that could lose out from high inflation which includes consumer-facing businesses. Tesco’s warning that profits could dip cast a chill across the supermarket sector,” said AJ Bell’s Russ Mould.
“JD Sports and Next also saw their shares fall no doubt as investors speculated their sales could be weaker near-term if people have a lot less money to buy new trainers and clothes once they’ve paid their ever-increasing bills.
“Housebuilders were also in negative territory. The higher cost of living means anyone trying to save up for a property deposit may find it harder to put away as much each month. Rising inflation also strengthens the argument for interest rates to keep going up, and that will make mortgages more expensive and potentially cause a ripple effect in the property market if fewer people are able to buy a house or flat which might lead to lower prices.
“Also weighing on the housebuilding sector is an announcement from the Government that more than £2 billion has been committed by over 35 developers to make buildings safe. That’s the right thing to do, but it means an outflow of cash that might otherwise have been used to buy more land, buy back shares or top up shareholder dividends.”