The FTSE 100 closed down 31.28 points, or 0.3%, at 10,751.59 on Tuesday, giving back early gains after the US Bureau of Labor Statistics released stronger-than-expected inflation data. The index had earlier traded as high as 10,868.51. The FTSE 250 ended 40.31 points higher, or 0.2%, at 24,746.65, while the AIM all-share shed 1.85 points, or 0.2%, at 759.54. Across Europe, Paris's CAC 40 rose 0.6% and Frankfurt's DAX 40 climbed 0.3%, but US equity markets moved lower, with the Dow Jones Industrial Average down 0.6%, the S&P 500 down 0.7% and the Nasdaq Composite falling 1.0%.
US consumer prices rose more than expected in October as higher food, housing and energy costs squeezed households. The consumer price index rose by 0.4% month-on-month on a seasonally adjusted basis, slowing from 0.6% in September but exceeding the consensus forecast of 0.3%. Core inflation, which strips out volatile food and energy, remained steady at 0.3% month-on-month, matching increases in September and August but exceeding expectations of 0.2%. Leslie Preston, senior economist at TD Economics, said inflation pressures were broad-based and showed little sign of cooling, with the source of pressure shifting from tariffs to higher energy costs and strong demand for technology-related goods.
The stronger-than-expected figures prompted market reassessment of Federal Reserve policy. Barclays analyst Pooja Sriram noted this was the third consecutive upside surprise in core CPI, reinforcing that underlying price pressures remain firm and strongly supporting a December Federal Open Market Committee rate hike. Ms Sriram expected two 25 basis point hikes, in December and March, though warned the Fed may need to do more if firmer core goods inflation accompanies continued services acceleration. Federal Reserve governor Chris Waller said he would support a December rate hike and warned he would back a half-percentage-point increase if inflation continued to accelerate.
The inflation data strengthened the dollar and pushed up US Treasury yields. The pound fell to 1.3323 dollars from 1.3415 dollars on Monday, while sterling declined against the euro to 1.1949 from 1.1974. The dollar rose to 158.79 yen from 158.05. The yield on the US 10-year Treasury reached 5.00%, up from 4.88% on Monday, with the 30-year yield at 5.36%, up from 5.27%. The stronger dollar pressured gold prices, which fell to 4,025.90 dollars an ounce from 4,116.80 dollars on Monday.
Stock-specific movements reflected the broader sentiment shift. Marks and Spencer rose 4.1% after outlining transformation plans at a capital markets day, aiming to double food sales and double its financial 2027 dividend to 8.4 pence per share from 4.2 pence. On the FTSE 250, Funding Circle jumped 13% after upgrading full-year revenue expectations to at least 275 million pounds, 7.8% higher than previous guidance. Smaller companies also moved higher, with EDX Medical Group jumping 19% after launching a breast cancer prognostic test in the UK. Oil majors fell as Brent oil traded at 91.74 dollars a barrel on Tuesday, down from 94.27 dollars on Monday, with BP falling 0.8% and Shell dropping 2.1%.
For UK savers, borrowers, businesses and investors, the higher US inflation data increases the likelihood of sustained interest rate differentials between the UK and US, potentially affecting savings rates and currency movements.