Market reaction to UK inflation figures

“The FTSE 350 behaved exactly as you would expect as UK inflation hit a 30-year high at 5.5%. Many of the top risers and fallers are affected by the rising cost of living,” says Danni Hewson, Financial Analyst at AJ Bell.

“Among the risers, banks including NatWest got a lift as higher inflation strengthens the argument for higher interest rates, which in turn would benefit the sector’s earnings. Banks could see a boost in their net interest margin, the difference between the rate they charge for loans and the interest they pay on savings deposits.

“Commodity prices tend to go up in an inflationary environment which explains why mining group Anglo American was among the top risers on the FTSE 350.

“Betting companies including Entain were also in favour, perhaps as investors took a punt that they would see more business as higher inflation could put pressure on family finances and lead to more people having a flutter on sports events to try and win some cash to pay the bills.

“Among the fallers, housebuilders stood out as rising inflation could lead to higher interest rates, which in turn pushes up the cost of mortgages. That might have a negative impact on the housing market.

“Supermarkets were also weak, including a 1% decline in Tesco and Sainsbury’s, perhaps as investors speculated there could be cutbacks in the weekly shop given the financial pressures on consumers.”

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