UK CPI Rises

UK stocks have come under heavy selling pressure over early European trading on Wednesday. While the market has been in corrective mode since the late December highs, selling was amplified on Wednesday as traders reacted to the latest UK inflation data. Annualised headline CPI was seen rising back up to 4% last month from the prior month’s 3.9%, above the 3.8% the market was looking for. Similarly, core CPI was seen holding steady at 5.1%, above the 4.9% the market was looking for.

Hawkish BOE Risks

The data will no doubt come as a disappointment for the BOE and UK consumers alike, marking the first acceleration in CPI in 10 months. On the back of the strong recent declines we’ve seen in inflation data, December’s readings suggest that deflationary momentum has now stalled. The obvious implication here is that, in line with their own guidance, the BOE might well still need to pursue further tightening this year if prices don’t move lower again in January.

Downside FTSE Risks

The BOE has previously warned that rates might need to rise further. However, given the deflationary trend prior to last month’s data, traders were pushing back against this viewpoint. In light of today’s data, we’re now seeing a repricing of near-term UK rate expectations with GBP rallying as a result, putting pressure on the FTSE. While the BOE is not expected to tighten further in February, the bank’s message will likely retain a firm hawkish bias, keeping the FTSE skewed lower.

Technical Views

FTSE

The failure in the FTSE at the 7811 has seen the market reversing sharply lower. Price is now trading back inside the bear channel and is testing the rising trend line from 2022 lows. If we break below here, focus will be on the 7337.6 level next, ahead of deeper support at the bear channel lows, in line with falling momentum studies readings.