Inflation shock lifts gilt rates and troubles the market

Bond markets took one look at the latest inflation figures and took the view that interest rates are going to keep going up.

The UK 10-year Gilt rate jumped to 4.3% on the news, the highest level since last October and significantly ahead of the 3% level seen only three months ago.

Russ Mould, investment director at AJ Bell, said: “Sticky inflationary pressures, particularly in food, will strengthen the argument for the Bank of England to raise rates again. That will bring more pain to companies and consumers as the cost of servicing borrowings becomes more expensive.

“The stock market didn’t like the news, with the FTSE 100 falling 1.5% to 7,643. There were only two stocks rising in the index – testing group Intertek and renewable energy expert SSE. The biggest fallers were housebuilders and property companies, understandable given their sensitivity to interest rate moves.

“Weakness in miners implies concerns about the global economy rather than the UK. Anglo American fell 2.8% while Rio Tinto was down 2.5%.”